Re-Analysis Of The Affordable Care Act

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I’m reposting my earlier analysis of the Affordable Care Act because of how intensely the controversy that surrounds it has flared again. I’ve updated it to reflect some of the things that have transpired since I first wrote it. I think it’s important that we all understand what’s actually in the law and think about what the consequences of its numerous provisions might be.

WARNING: The time required to read this post will violate my five-minute rule—by a wide margin. This isn’t so much to punish readers for my decision to read all 1,163 pages of the “Patient Protection and Affordable Care Act” (HR3590) and all 337 pages of the “Health Care and Education Reconciliation Act of 2010” (HR4872)—known collectively as the Affordable Care Act—but rather because a shorter post couldn’t possibly do an analysis of it justice (not that a longer post will either, but here goes…).

SPECIAL NOTE: Claiming I read “all 1,163 + 337 pages of the health care law” requires some clarification. My eyes did indeed follow all the sentences (if you can call them that), but HR3590 and HR4872 both contain large parts that are largely indecipherable, referring, as they do, to other laws often by stating things like this:  “(1) IN GENERAL—Section 1861(s)(2) of the Social Security Act (42 U.S.C. 1395x(s)(2)) is amended—(A) in subparagraph (DD), by striking ‘and’ at the end.” I was simply unable to carve out the time or summon the mental energy to refer back to all the other statutes the health care law amended. Further, the law is written backwards (a standard for lawmakers, I presume), by which I mean declarations are made that require an understanding of other declarations and terms that are described below them—and often far below them. This required a lot of re-reading and parsing of sentences that induced severe brain fatigue and more than a few headaches. Finally, though in several places the meaning of the law’s provisions was plain, the thinking and the intent behind them often (though not always) remained obscure. Lawmakers rarely include explanations for why their laws say what they do. This is all to sound a warning that what follows represents my sometimes uncertain understanding of the substance of the law and may actually contain errors of fact. Knowledgeable readers are encouraged to point out any they identify. The law is unbelievably complex and the one overriding impression with which I was left after reading it is this: I doubt anyone, even the law’s principal authors, fully understands the way it will change American health care.

ANOTHER SPECIAL NOTE: In portions of the text below, I’ve added comments prefaced by “UPDATE 2019” to provide current (2019) perspective on the ACA and commentary on my views when the post was first written.


The health care law certainly contains a number of controversial provisions, but among the most controversial (as evidenced by the contesting of its constitutionality in front of the Supreme Court) is that all Americans are mandated to have health insurance beginning in 2014. If they don’t purchase it, the law says, they have to pay a tax penalty of no more than $750 per year (prorated by number of months they go without insurance) multiplied by a cost-of-living adjustment beginning in 2016. The rationale for mandating that every American be required to purchase health insurance is that “by significantly increasing health insurance coverage, requiring all Americans to purchase health insurance will minimize adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums.”

This reasoning seems logical at first glance: increase the number of (presumably healthy) people who pay insurance premiums but who are less likely as a group to need health care services (and thus who will require insurance companies to spend less money on them) and insurance companies will be able to cover the cost of providing coverage for all the additional beneficiaries who get sick.

Yet because insurance companies will no longer be able to refuse to insure someone because of a pre-existing condition, to motivate healthy people currently without health insurance to purchase it before they perceive they actually need it, the cost must be less than the penalty for failing to purchase it. And it’s not: who believes anyone will be able to find insurance for less than $750 per year?

But let’s put that problem aside for a moment and assume that enough healthy people currently without health insurance will indeed purchase it (it’s way too early to tell, but so far it doesn’t seem that too many people actually have purchased new policies). But if we assume they eventually will, I agree that almost certainly then there will be an even distribution of these new healthy enrollees across most insurance plans—”spreading the wealth” so to speak—that will minimize adverse selection (where certain insurance companies get stuck with the sickest patients who cost the most). But the idea that this will lower premiums simply doesn’t follow. First, it ignores the actual cause of increased premiums—the continually increasing cost of providing health care. It costs doctors and hospitals more to provide care as time goes on so they charge more, so insurance companies have to pay more, so they raise premiums. The increased revenues insurance companies will enjoy from the huge influx of new (healthy) enrollees may widen their profit margins enough to enable them to hold off on increasing premiums for a while. But eventually they’ll have to start raising premiums again when health care costs rise above a certain threshold. Which they will, as nothing in the health care law directly addresses the true cause of increasing health care costs (as I discussed in a previous post, A Prescription For The Health Care Crisis, and which I discuss again below).

But even if the rise of our nation’s health care bill plateaued, why would higher profits lead insurance companies to reduce their premiums if no one can take away their customers? Everyone in America will now be required to have health insurance and large insurance companies (that might be able to afford reducing premiums) operate in relatively competition-free markets (residents of one state can’t buy insurance from companies that operate in another). The end result? Consumers currently have almost no ability to “vote with their feet.” Thus, no competitive pressure exists to motivate insurance companies to lower their premiums at all (remember, just because there are multiple plans on the exchanges doesn’t mean they’re being offered by as many companies). Quite the opposite: they have every reason in the world to pocket that extra money (as long as it doesn’t exceed the limit the Act puts on their profits—see below) they’ll get from all the new enrollees (for one thing, it makes their shareholders happy, which means you if your 401K happens to include a health insurance company or two). No wonder the stock market valuations of most large insurance companies surged when the health care law was first passed.

So why would Congress expect premiums to go down when they failed to create a system in which free market forces have a chance to operate? The answer is because of all the provisions they crafted into the health care law that regulate the health care insurance industry—and not just with respect to insurance company practices (a reasonable role for the government to play when market forces aren’t strong enough to safeguard consumers against abuses) but with respect to what premiums companies can charge their customers. Even more than that, with respect to what insurance companies can do with their revenues. There is legitimate disagreement in our country about the role government should play in regulating any private business, but as I pored through the health care law I found myself astounded at the reach the government is taking into the private enterprise of health insurance. For example:

  1. Insurers must rebate enrollees for money they spend (with revenue generated from premiums) on non-claim costs above 20% (group market) and 25% (individual market). This essentially means 80% of the revenue that insurance companies make in the group insurance market and 75% of the revenue insurance companies make in the individual insurance market must be spent on benefits paid to health care providers for patient care. Any excess profit must be rebated to enrollees.
  2. The Secretary of Human Health and Services shall establish a process for review of unreasonable increases in premiums; insurers must submit a rationale to Secretary prior to implementing an unreasonable increase. What represents an “unreasonable” increase? The health care law provides no guidelines.
  3. The Federal government has given the states the power (and money—$250 million) to review rate increases and bar any insurance company from the states’ Exchanges (see below for a definition of an “Exchange”) if their premium increases are judged “unreasonable.”  Further, justification for such “unreasonable” increases must be posted on the companies’ web sites.

I find it ironic that charges of socialism have been leveled against the Obama administration when these provisions in the health care law seem far more reminiscent of the principles of communism (in which market prices are set by a central body rather than the market). (Please note I’m not using this label to be pejorative—the only objection I have to communism is that it doesn’t work.) What will set the price insurance companies can charge isn’t the market but the judgment of specific individuals whose primary concern is the affordability of insurance to consumers. This last is, of course, critically important, but if the system that ensures premiums are affordable also creates a business model that’s unsustainable, the health care insurance industry will eventually collapse. Those who support the government single-payer model will perhaps be delighted to imagine this happening, but moving to a government single-payer model by itself won’t do anything to control rising health care costs. One way or another, we’ll still have to pay for it:  if premiums aren’t higher under a government single-payer model, taxes certainly will be.

[UPDATE 2019: the dramatic increase in insurance premiums we’ve seen in the last few years has been the key unintended consequence of the ACA. Carriers saw that the only way to increase profits if they were forced to have fixed profit margins was to increase the size of the pie. This explains why insurance companies have actually encouraged a rise in the reimbursements they pay to healthcare providers: it’s enabled them to justify increasing their premiums accordingly. With higher premiums, the size of the revenue pie is larger, enabling them to take in a larger absolute amount of money in profit while remaining below the loss ratio proscribed by the ACA. The industry regulators who were supposed to limit unreasonable premium increases seem nowhere to be found.]

Truly, I don’t have a well-formed opinion about the wisdom of maintaining a private insurance/government payer model vs. a single government payer model. But if we want to give the private insurance model a fair chance to work (and I recognize that’s a big “if” for many), we need to create incentives where each participant in the system (health care providers, patients, and insurance companies) are internally motivated to act in a way that sustains it. Currently, none of the three has those incentives. Physicians are motivated to order more tests and perform more procedures because the advance of technology enables them to (and, in fact, in many cases brings real benefit we all want), because many of them make more money if they do, and because they fear malpractice suits if they don’t—all of which drives up the cost of health care by increasing utilization. Patients are motivated to want more tests and treatments because they perceive more intervention leads to better outcomes (even though studies suggest it often doesn’t), which makes them complicit in increasing health care resource utilization. Insurance companies are motivated to reimburse healthcare providers at higher rates because it justifies higher premiums, which increase the total amount of money they’re able to keep in profits. I’ve already written about the first two points in my previous post, A Prescription For The Health Care Crisis.


The law includes many provisions that protect the insured. Insurance companies may no longer:

  1. Put lifetime limits on the dollar value of benefits (meaning no limit exists to how much money your insurance company is obligated to reimburse providers for your care over the course of your lifetime).
  2. Place unreasonable annual limits on dollar value of benefits (meaning no limit exists to how much money your insurance company is obligated to reimburse providers for your care over the course of any one year).
  3. Rescind health care insurance except in cases of fraud (meaning if unintentional mistakes are made in an insurance application, insurers are prohibited from canceling benefits).
  4. Impose any preexisting condition exclusions (meaning no insurer can refuse to cover medical expenses for conditions people develop prior to applying for insurance). In fact, no insurer may turn down any employer or individual in the state they provide coverage at all.
  5. Vary rates by any criteria other than age, tobacco use, and what’s defined as a rating area. Each state will establish rating areas “for the purpose of applying the requirements of fair health insurance premiums,” but nowhere in the law did I find mention of what criteria will be used to create them.
  6. Charge deductibles that exceed $2,000 for individuals.
  7. Make any applicant wait more than 90 days to be accepted into a plan.
  8. Prevent anyone from choosing any primary care physician or pediatrician in an insurer’s plan.

Points #1 through #3 seem at first glance like basic protections consumers should be able to enjoy. And though I’m confident these provisions will indeed be of great benefit to hundreds of thousands of people, if not more, and should be included in our health care reform, I also feel bound to sound an alert that they simultaneously help sustain a moral hazard that currently contributes significantly to our country’s rising health care costs: patients in America no longer pay themselves for the tests or treatments they receive so have no incentive to think carefully about whether or not they should get them. Though cost shouldn’t be a limiting factor on one’s ability to get a test or receive a treatment, having to pay nothing for a service makes it hard psychologically to not want it, even when getting it may not actually be in one’s best interest, as I noted above.

Point #4 is tricky. As a physician I find myself enraged when I diagnose a patient with a disease whose treatment they can’t afford because they lost their previous insurance through no fault of their own and whose new insurance won’t pay for the treatment I want to give them until, for example, they’ve been on their books for a year. From an insurance company’s point of view, I understand the rationale: if they can’t refuse granting insurance or paying claims for patients with preexisting conditions, what’s to stop someone from waiting until they get something bad and then applying for insurance, essentially becoming a profit-drainer from the very first day they’re covered? While I hate pre-existing condition clauses and agree they should be prohibited, how are insurance companies to guard against the potential for abuse? If everyone in America buys health insurance as the health care law mandates, this won’t be a problem—but as I mentioned above, as the law is currently written, I’m not so sure this will happen.

I have no quarrel with the following provisions:

  1. Tax credits shall be provided against the cost of premiums for people with incomes from 100% to 400% of the poverty line. Cost-sharing shall be reduced for enrollees with incomes less than 400% of the poverty line. The Secretary of Health and Human Services shall reimburse qualified plans for the cost-sharing reductions they provide to such enrollees.
  2. All patients can visit an ER without prior authorization to any ER, whether it’s an ER that participates in the patient’s plan or not for any “emergency situation.” An “emergency situation” is defined as a patient contracting “acute symptoms of sufficient severity (including pain) that a prudent layperson, who possesses an average knowledge of health and medicine, could reasonably expect the absence of immediate medical attention to result in a condition described in clause (i),(ii), or (iii) of section 1867(e)(1)(A) of the Social Security Act.”
  3. Health care cost information shall be made readily available to the public via the Internet.  All U.S. hospitals must list publicly their standard charges for items and services rendered.
  4. Children may remain on their parents’ policy until age 26.

All insurance companies must also cover preventive care interventions with evidence-based ratings of “A” or “B” according to the U.S. Preventive Services Task Force, as well as cover immunizations. Further, all insurance companies must cover “essential health benefits,” which are defined as:

  1. ER services
  2. Hospitalization
  3. Maternity and newborn care
  4. Mental health and substance use disorder services
  5. Prescription drugs
  6. Rehabilitation services
  7. Lab services (I saw nothing in the law that mentions outpatient scans like MRIs, CTs, PETs, or even exercise tests.)
  8. Preventive and wellness services and chronic disease management
  9. Pediatric services including oral and vision care

My take on the above: all reasonable protections that provide a baseline level of support many of us will need at one point (or more) in our lives. And though I agree such consumer protections are required in our current system, the size of the new bureaucracy created to enforce them is simply staggering (the details of which are too elaborate to post here). To partially help offset this cost, insurance companies must pay a fee to the government beginning September 30, 2012 equal to $2/covered life per policy offered. Given that our current population is approximately 310 million, this will provide 620 million in revenue to the government. (This tax the insurance companies are forced to pay, by the way, in most cases being is passed on to beneficiaries.)


As we’ve all been hearing lately in the news, the health care law requires each state to create an American Health Benefit Exchange (government entity or non-profit established by a state) that:

  1. Must be self-sustaining by Jan 1, 2015.
  2. Facilitates the purchase of qualified health plans.
  3. Establishes Small Business Health Options Programs (SHOP Exchanges) designed to assist qualified small employers in getting their employees enrolled in qualified health plans.
  4. Certifies health plans to ensure quality.
  5. Operates a toll-free number hotline for assistance.
  6. Maintains an Internet site to show comparisons of plans, rate health care plans with system developed by the Secretary of Health and Human Services, which enables enrollees to determine actual premium cost to them.
  7. Decides whether or not to make a health care plan available to enrollees.

My take on the above: In deciding to assign government watchdogs to the health insurance industry rather than create incentives for the industry to regulate itself, Congress is risking the same kind of failures that led to the economic meltdown of 2008 as well as the BP oil rig disaster. Though I’m not arguing for no regulation, no government watchdog can watch everyone and everything (even if it isn’t plagued by incompetence). Though far more difficult to legislate, strategies that link an industry’s survival directly to behaviors that best serve its customers are far more successful. I would have preferred the main force of regulatory control to come from the clever placement of these incentives (even at the cost of a major restructuring of the health care insurance industry) with governmental regulations sprinkled on top to provide adequate consumer protections. As it is, the cost of maintaining the bureaucracy the health care law creates will add significantly to our nation’s health bill. How effective this strategy will be remains to be seen.

Some further examples of insurance industry regulation:

  1. All plans will be divided into four levels of coverage based on percentage of cost sharing:  Bronze (plan pays 60%), Silver (plan pays 70%), Gold (plan pays 80%), Platinum (plan pays 90%).
  2. Beginning Jan 1, 2015 a plan in the Exchanges can only contract with a hospital that meets safety criteria established by the Secretary of Health and Human Services.
  3. Health insurance companies can operate outside of Exchanges, and no one can be compelled to enroll in an Exchange health plan; but members of Congress and their staff can only get health insurance through programs created under the health care law.
  4. The Secretary of Health and Human Services shall establish procedures by which a state may allow brokers to enroll individuals in health plans and to assist individuals in applying for premium tax credits and cost-sharing reductions for plans sold through an Exchange, including establishing rate schedules for commissions.
  5. Unlawful residents are not eligible to get insurance through an Exchange.
  6. The Secretary of Health and Human Services shall establish a Consumer Operated and Oriented Plan (CO-OP), whose purpose will be to foster the creation of qualified nonprofit health insurance issuers to offer qualified health plans in individual and small group markets.  Secretary shall provide loans for anyone wanting to start up such a CO-OP for start-up costs and to meet solvency requirements
  7. An advisory board shall be created consisting of 15 members appointed by the Comptroller General of the U.S. who shall not receive pay other than for travel expenses for the purpose of advising the Secretary of Health and Human Services on granting loans for non-profit start-ups.

My take on the above: The intended benefit of the government’s Exchanges is that they provide an easy way for consumers to compare different insurance plans as well as confidence that all enrolled plans meet minimum quality standards. But I’m not sure these measures don’t add levels of bureaucracy that will create little bang for their buck while adding significantly to the difficulty of navigating our health care system.

[UPDATE 2019: The ability of consumers to go to the Exchange or to a private insurance company’s website and digest the information provided there well enough to distinguish the meaningful differences between plans and make a good choice for themselves has never been poorer. Plan differences are often miniscule and those differences are often hidden in tiny language or not even included in websites. Never before have I witnessed patients having such a difficult time choosing health insurance that makes sense for them. This is partly because of poorly presented information and partly because almost everyone now has essentially catastrophic health insurance (with high premiums now married to high deductibles, most people are paying for most of their medical care out-of-pocket.]


In order to cover the millions of Americans currently without insurance, as mandated by the health care law, 90 days after the passage of the law, the Secretary of Health and Human Services established a temporary high risk health insurance pool program that will remain in effect through January 1, 2014 and which:

  1. Has no preexisting condition clause.
  2. Covers no less than 65% of health costs but with an out-of-pocket limit not to exceed amount described in section 223(c)(2) of Internal Revenue Code of 1986.

This high-risk pool has funding of $5 billion to pay claims in excess funded by premiums. The Secretary of Health and Human Services will “make adjustments as are necessary” to eliminate any deficits in the program. He or she is empowered to stop taking applications to this pool to comply with this funding limitation. That this might mean barring the very people this pool is meant to help remains an open possibility.  The program will end January 1, 2014, and all enrollees will be transitioned to a health care Exchange.

My take on the above: I feel that the basic health care needs of every member of our society should be met. To argue otherwise—that we should deny people unable to afford care access to it—is morally unacceptable to me. The issue for me, then, isn’t should the rest of us subsidize the care of people unable to afford it themselves but how we do so most cost-effectively. Currently we allow people unable to pay for health care access to health care services mostly through our nation’s emergency rooms, which as a result are hopelessly overcrowded with non-emergent cases. This significantly impairs the quality of emergency care we all receive.

Yet as numerous studies demonstrate, significant health benefits and economic savings occur if we can prevent health problems rather than treat them once they’ve occurred. So to provide access to health care for people unable to afford it makes the best economic and medical sense when that access takes the form of visits to primary care providers who emphasize preventive health measures. In fact, we could make the argument (as yet unproven) that preventing enough serious illnesses in the medically underserved might actually save money overall. Then again, even if we could bring to bear the resources necessary to provide appropriate preventive care services to most people in the country, that wouldn’t guarantee most people in the country would take advantage of them or alter their behaviors in ways that decreased their risk of future illness.

Finally, even if we found a better way to motivate people to adopt healthier behaviors, little in this law provides for an effective way to increase the number of primary care providers available to meet the health care needs of the population. Though provisions are included that increase funding for expanding primary care residency slots, as long as reimbursement for primary care services lags behind specialty services, there will remain a relative dearth of medical students who want to go into primary care and an excess of primary care physicians who want to get out of the field altogether. This imbalance between supply (primary care providers) and demand (patients who want to see them) in my view explains most of the customer service failures that have dogged the health care industry for the last decade (increased waiting times to see providers, poor accessibility to providers, and too little time spent with providers during appointments, to name just a few).

[UPDATE 2019: Primary care has never been more broken. Access to it is terrible and the average amount of time patients now have to spend with their primary care doctor is 15.7 minutes. To deal with the epidemic of unnecessary healthcare overutilization, we have to fix primary care. We have to provide patients with immediate access to their primary care physicians and provide those physicians enough time to spend with those patients to actually manage their acute and chronic medical conditions, and to practice real preventive care medicine. The only model I’ve yet seen that accomplishes this is the direct primary care model.]


  1. The Secretary of Health and Human Services shall adopt a single set of operating rules for health information transactions that everyone has to follow (to streamline clerical work).
  2. Hospitals must report quality measures. Performance information summarizing data on quality measures will be made available on Internet sites for providers of healthcare. Increased reimbursement will be provided for improving health outcomes; the Secretary of Health and Human Services will develop guidelines for awarding such increased reimbursements. My take: I like motivating healthcare institutions financially to care about the quality of the care they provide. Healthcare providers are supposed to care about quality because we’re professionals, but big institutions, unlike individuals, aren’t as well motivated by a sense of professionalism (nor, I’m afraid I must admit, are all healthcare providers).
  3. The Secretary of Health and Human Services shall establish a payment modifier that provides for differential payment to providers based upon quality of care furnished compared to cost. Costs shall be evaluated based on a composite of appropriate measures of costs taking into account that less healthy people may require more intensive interventions. Payment modifier shall be implemented in a budget-neutral manner and be done in a way that promotes systems-based care. My take: Nothing wrong with adding a financial incentive to motivate individual providers to care about the quality of the care they provide and to reward those who are already positive outliers.The devil, however, is in the very details this law fails to make clear.
  4. Hospitals with excess readmissions shall have their reimbursement payments reduced. My take: Hospitals have enormous financial incentives to get patients discharged as quickly as possible. A counterbalancing incentive is sorely needed to return sound medical judgment to its position as the sole determinant of discharge decision-making.
  5. Secretary shall establish a process to validate RVUs. My take: RVU stands for “relative value unit” and is a means by which to determine the reimbursement level of medical services. For example, the RVU for open heart surgery is far higher than for office counseling on smoking cessation. The medical profession itself is responsible for the imbalance between RVU values for specialty services and RVU values for primary care. Why are so many medical students flocking away from primary care and toward specialties? Because reimbursement for specialty services is higher, all based on RVUs. Varying reimbursement levels is clearly driving an oversupply of specialists and an undersupply of primary care physicians. Here’s a lever that can be pulled to increase the supply of primary care physicians to meet the increased demand the health care law will create for medical services.
  6. The health care law establishes a Prevention and Public Health Fund to invest in prevention programs to improve public health and reduce health care costs. Secretary will award grants to states to develop initiatives that test approaches to encourage behavior modification to get people to adopt preventive health behaviors. My take: We don’t know how best to motivate people to adopt preventive behaviors. What we need are funds with which to experiment and find out.
  7. Mental health and substance abuse are now considered “essential health services.” My take: It’s a travesty that insurance coverage (or I should say, lack thereof) for mental health and substance abuse disorders has lagged so far behind our ability to treat them. If this actually turns out to enable all the people who need these services but can’t afford them to get them, that will represent a true victory for this legislation.


The health care law mandates a series of experiments it dubs “demonstration projects” that will be designed to examine different systems for paying for health care. I highly recommend Atul Gawande’s article, Testing, Testing, for an excellent analysis of the value of these pilot programs. Though I don’t entirely share his optimism, I am encouraged that the law has provisions for trying things out and measuring their outcomes. We need real data to figure out the best way to curb health care costs.


  1. No provisions were made for equalizing the reimbursement rates of different insurance plans, which tend to be negotiated differently with different health care providers. Medicaid will continue to pay pennies for every health care dollar charged by a health care entity while private insurers pay dimes or quarters. The end result: patients with different insurance plans will continue to have differing degrees of desirability. Medicaid (and even Medicare) patients are already being disenfranchised as healthcare providers focus on marketing themselves to patients with “better” insurance and on making it harder for patients with less desirable insurance to gain access to their services.
  2. Tort reform remains unaddressed in the health care law. Physicians (especially emergency room physicians) consistently overutilize health care resources because they’re afraid of missing something and being sued, even when the likelihood of that something being present remains minuscule. There must be a rational limit placed on the remuneration available to plaintiffs. Physicians must be freed from the excessive worry they have about making a mistake that so powerfully motivates them to overutilize health care resources (though not from responsibility for gross incompetence and laziness that causes significant harm).


Just a few examples of the ways in which dollars will flow to support the provisions of the health care law:

  1. In 2014, 2015, and 2016, the Secretary of Health and Human Services shall reimburse insurance plans by 50% of the difference between premium revenues and reimbursements to providers if the plans spend more than they take in.
  2. Tax credits are given to small businesses that provide health insurance to employees in the amount the employer contributed for its employees premiums.
  3. States shall charge insurance plans whose actuarial risk is less than average and provide a payment to plans whose actuarial risk is higher than average.

How will the mammoth expense of our health care bill be paid?

  1. All taxpayers will pay an additional 0.5% tax on income in excess of $200,000 for individuals and more than $250,000 for couples.
  2. Cosmetic procedures will be taxed 5%.
  3. Indoor tanning services shall be taxed by 10% of fee.
  4. Beginning in 2018, insurance companies will have to pay a 40% excise tax on so-called “Cadillac plans”—plans that cost individual enrollees more than $10, 200 and families more than $27,500.
  5. A Medicare tax will be applied to investment income of 3.8%.

Because other than the “demonstration projects” mentioned above nothing in this law directly addresses the real cause of the majority of our increasing national health care costs (overutilization of healthcare resources by both physicians and patients, and medical innovation), many more Americans than Congress anticipated will likely find themselves enrolled in a “Cadillac plan” without intending to be (as the cost of their premiums rises between now and 2018 in order to keep up with rising medical costs). Which means insurance companies will be paying far more in taxes on these plans in total than Congress expected. Which means they will almost certainly be forced to pass on that extra cost to enrollees, further raising premiums in 2018.

[UPDATE 2019: The 40% excise tax on “Cadillac plans” continues to be delayed. Not clear how this will ultimately pan out.]


The health care law has begun some much-needed reform. Unfortunately, I find its funding approach flawed and strongly suspect it will prove itself unsustainable. I’m encouraged by the number of provisions in it for experimentation, though, as I believe the best way for us to create a viable health care system is by trial and error; the American medical system is simply too complex for anyone to accurately forecast all unintended consequences.  I can only hope Congress and the American people retain their appetite for continued reform and aren’t afraid to throw out what doesn’t work.

As long and complicated as this post was, it failed, of course, to cover every provision of the new health care law or even to emphasize every issue I think is important in health care reform. I hope readers will feel free to bring up whatever issues interest them in the comments and that the discussion over this critically important topic can continue.

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  • “A Medicare tax will be applied to investment income of 3.8%.” This tax only applies to a single person with more than $200,000 income or a couple with more than $250,000 income. Details at

    Thanks for your detailed overview.

  • Thanks for this, Alex!

    I used to hear so many stories of people who held on to jobs they hated so they could keep their employer-subsidized health insurance—only to need far fewer doctor visits once they got out of those stressful situations.

    I think this new world of uncertainty, insurance-wise, will inspire a lot of people to take better care of themselves—in hopes they can avoid all but the routine, preventative care.

    I look forward to a hard run tomorrow just to work off the stress of reading this post!

  • Alex—thanks for reposting as I missed it the first time. This is by far the most intelligent, thoughtful, even-handed, objective review that I’ve read. You did something that I have not seen others do—you alternated between the social aspects (people need reliable healthcare) and the business aspects (we need to be able to pay for it). Most arguments only focus on one or the other.

    You touched on some important points, most notably, the focus of the act seems to be more about making health insurance affordable rather than making health care affordable. Which, as you pointed out can’t be sustainable.

    The other two key points that worry me are:

    1) They’ve correctly tried to increase the size of the risk pool but haven’t increased the size of the premium pool in any material way. Risk pools work because everyone pays premiums equal to the average expected claim but most people file less than the average expected claims. Bringing in healthy (i.e., lower risk) people works but only if they are adding enough to the premium pool to truly spread the risk. It’s true that they will have lower claim levels but if they are only contributing 10% of the average premium, they aren’t really adding much to spread the risk. And, with the subsidies, we are adding people who will most likely tend toward the average claim who are again paying less than the average in premium.

    2) By covering preventative care, we’ve eaten up that little bit of margin that the healthy people contributed. When insurance starts to cover day-to-day expenses, it becomes cost sharing, not insurance. In that case the amount of people’s premiums and the amount of their claims will start to converge. That’s why auto insurance doesn’t cover things like gas, wear and tear, oil changes, etc. Insurance ins’t supposed to spread cost. It’s supposed to provide you with leverage against risk. I’m not arguing against preventive care. I understand its importance. I’m just not sure that “insurance” is the best way to fund it.

    The final concern that I have is that several newspaper articles have already pointed out that one of the ways many insurers are getting their price down is by offering a severely limited set of choices of providers. It’s funny that back in the 90s people raised a stink about HMOs and lack of choice but that’s exactly what is going to be happening. They said that in New York and California that’s been one of the major strategies. I don’t have anything against limiting the networks. That’s a reasonable trade-off. However, I wonder how many consumers are going to be savvy enough to really understand that and how many will be surprised when they sign up for the cheap, subsidized insurance and then get an out-of-network bill from their current doctor or hospital.

    The spirit of the Affordable Healthcare Act is what we need for this country. I just hope that the implementation will support it.

    Anyway, thanks for your thoughtful and insightful comments. It was a refreshing perspective to see this through the eyes of a physician who first and foremost focuses on the patient’s needs (as opposed to a political agenda) and has seen the best and worst of both the current system of insurance and the current systems of regulation and centralization.

  • Thank you so much for taking your time to outline the provisions and your thoughts on this law. What a mess…I’m surprised you’re only able to find 2 things you don’t like? I could pick out a lot more just from this thoughtful analysis!

    It’s quite obvious the desire for this law is based on a desire to “fundamentally transform” the United States to the Communist United States, one industry at a time. The goal is single payer. The goal is to control as many people as possible, and what better way to do that then with someone’s health (what they eat, the activities they do, where they work, how long they live, what age they are when they need treatment, etc.).

    IMO, the problems with health care costs at it’s simplest forms is there is a third party for day-to-day costs. People have been trained to never know the cost of the healthcare they consume, so they frivolously consume it. To me, the best thing we did was start HSA accounts with high deductible plans. Day 1, when I went on that system, I became a better consumer. Insurance is designed to cover catastrophic events, anything else is welfare/social assistance.

    389 million people+ in the U.S. and 1 payer. Wow, scary stuff…

  • You don’t have anything against communism as a Buddhist? It slaughtered far more innocents than Nazism came close to.

    Isaac: I don’t have anything against communism as system (other than it doesn’t work). I didn’t say I had nothing against the regimes that have used it.


  • Informative post, thanks. However I still fail to see why Americans are opposed to the idea of general healthcare when your privatized system has brought you the most expensive and least efficient health care in the developed world.

    Also: So far no country has implemented anything like the communism as envisioned by Marx. The Soviet union got as far as the tyranny of the masses, then Lenin chickened out and implemented NEP and suddenly a new bourgeoisie had taken over. And as far for kill counts where systems of government are concerned, my dear Isaac, nothing comes even close to capitalism. Full stop.

  • As an Australian, I do not have a stake in the nuts and bolts of the programme, although the potential effect of the impasse on the world economy is a concern. Your analysis, which I admit I only skimmed, does seem to be excellent. However, I am often bemused by the charge of “communism” for such a plan, when very robust democratic countries like the UK, Canada, Australia and much of Western Europe have much more “socialistic” healthcare systems.

  • Alex,

    You say you’re astounded at the reach of government intervention into private health insurance. Your first example is: “Insurers must rebate enrollees for money they spend.” Regardless of how one feels about this, you should not be astounded. This is already happening in New York State—everyone at my company got a small rebate this year. The (insurance) world has not collapsed as a result.

    I appreciate all your detailed concerns, but Jenny raises a good point—many other countries with strong democracies have universal health coverage. The Economist (Oct 5, p. 28-29) observed: “The furore {British spelling} is baffling to the rest of the world. Most rich countries have universal coverage; developing countries are trying to introduce it. Yet in America, home to the world’s biggest health system, the fight over insurance is vicious enough to bring government to a halt.”

    In addition to the detailed points you make, I think another way to look at the issue would be to look at how universal coverage works in other places. The Affordable Care Act is modeled on Romney’s insurance reform in Massachusetts. Is it working? What are its strengths and weaknesses?

    But looking at other models, or reviewing it point by point as you have done, is useful only if one assumes that there is enough of a consensus to work on hammering out problems, making changes, and striving to improve the ACA. Instead we have intransigent nay-sayers threatening to bring the economy down unless we return our health care system to status quo ante Oct. 1.

    I appreciate that you have started a reasonable discussion; how can we develop this into a consensus that pushes Congress to have a reasonable discussion?

  • 1. “I doubt anyone, even the law’s principal authors, fully understands the way it will change American health care.”—I think this is true of any policy change (government or otherwise). You can hypothesize and think through all the What-if scenarios you want, but you won’t know for sure what will happen until you just take the plunge and try something. Then, adjustments and changes can be made as necessary. (You mentioned the same thing in the next to last paragraph.)
    2. I don’t think the law is that complex, just expansive. I’ve had practice reading laws and ordinances for several years, so maybe that’s why I don’t think it’s too difficult? The difficulty is there are lots of definitions and, as you mentioned, references to other codes (which is to keep the bill from restating laws that are mentioned elsewhere). It’s a pain to jump around to figure out what the law is talking about, but all laws I’ve ever read are like that.
    3. The best way to tackle the law? Skim the beginning of the document to locate the topic(s) you’re interested in and read the subheadings. Then go find that section and learn what is changing. That’s really the best way to do it. Break it down into chunks.

    Okay, that’s my two cents on just the large expanse of the document, itself. Now, the content of your post. I’m not disagreeing or whatever, just pointing out some other things for you to think about:

    1. Your #2 in your list about the HHS secretary establishing a review and “… market prices are set by a central body rather than the market.” This already happens with utilities. Electric companies, for instance, here in Virginia have to apply to the State Corporation Commission (SCC) to increase their prices. There is pretty much only one source of electric services where I live, so no way for the consumer to vote with their feet. (Not saying I agree with it, just pointing something out.)
    2. No criteria for various sections of the bills, such as determining what are unreasonable increases in premiums or establishing rating areas. It seems that each state will be left to decide that. The feds aren’t telling the state what is “unreasonable” or what their rating areas should be. That’s for the state to decide what’s best for its residents. This is also common.

    And my thoughts and experiences:

    1. Allowing companies to compete across state lines could be a good idea. Then there would be market-place competition and a review board for premium increases may not be needed except in cases where insurance companies may try to charge burdensome premiums to those with preexisting conditions (I worry about higher premiums because of my own health issues, i.e., asthma, allergies).
    2. It is true that the penalties will be much lower than actual insurance. It could encourage people to leave the insurance companies or not sign up for insurance and just pay the penalties. Of course, you have to remember, even if someone pays the penalty, he is still responsible for any health care services he uses. Pretty much no different than it currently is, except that penalties are now part of the equation.
    3. I agree that tort reform is also needed, as well as, a change to reimbursement rates.
    4. Do I think the new reviews boards are the best option? I don’t know. Maybe allowing insurance companies to compete across state lines is best, in addition to some regulations, such as the clauses on preexisting conditions and the like. (Again, I do worry about being charged too much for insurance because of preexisting conditions.)
    5. I don’t think children should be able to stay on their parents’ health insurance until 26. No strong reason, just don’t see the need for it. I guess it doesn’t necessarily hurt anything, though.
    6. It would be nice if health care costs were better known ahead of time. A plan where patients paid a set percentage and insurance paid for the rest might help with over usage.
    7. I don’t know if my understanding of why health care costs are increasing is as complete as yours. I believe it to be an issue of doctors, hospitals, etc. not receiving full payment from insurance companies and Medicaid/Medicare. It seems that health care businesses do not receive the amount of funds they say they need for a service, which would drive up costs because the businesses need to increase prices in meeting their bottom line. Yes, services can be over-utilized, but those services still get paid for (though not at the rate their billed for). Then there’s the issue of doctor bills that go unpaid or are lumped in with bankruptcy cases. Lots of money is probably lost there, as well.

    I don’t agree with some of your statements, but they’re your opinions and there is too much to address in a comment.

    Beth: Regarding my analysis for the source of increasing health care costs, I’d refer you to the link in the post, A Prescription For The Health Care Crisis.


  • I can only reiterate others’ positive comments regarding your analysis. Thank you for your time, thoughtfulness and effort.

  • Reading your post above makes me feel so grateful that I am Canadian. I am baffled by the amount of energy that is being put into defeating this amendment, which I find mean-spirited and obstructionist. It seems these US legislators do not care about the people they are purported to serve, a truly sad state of affairs.

  • One, two and three.

    One, you must have had a slow day or two at work but thanks for the review.

    Two, do people really “frivolously” go to a doctor or use their insurance. Even with Medicare and a supplemental where I never write a check I avoid you guys like the plague.

    And three, Jenny (above) is right. So many other countries do it better and cheaper than we do. Why can’t our politicians or system look across the border?

  • Tara,
    You could not be more succinct. The government shutdown leaves no doubt as to whose interests are being served. How can intelligent people not recognize that greed and self-interest are standing in the way of true service?