Obamacare: The Good, The Bad, And The Ugly

in Financial Planning by

On March 23, 2010, the Patient Protection and Affordable Care Act, also known as Obamacare, established a new set of rules and mandates that would change the way the American health insurance market works. Prior to the law’s passing, a record 46 million Americans were without health insurance and, in many cases, completely shut out of the system due to a pre-existing condition or the growing costs of care.

Since then, the new healthcare law has been implemented in stages. And, if the current numbers are correct, as many as 7 million people signed up for a new plan through either a state exchange or the federal insurance marketplace during the first open enrollment period that ended on March 31, 2014.  Most people would call that a success. However, not everyone is celebrating….yet.

The Good

Before we dig too deep, let’s talk about the many positive changes that were the direct result of the new healthcare law. First, the PPACA barred health insurance companies from discriminating against people with pre-existing conditions, which is one of the main reasons why so many had been previously uninsured.  Second, the PPACA required insurance companies to cover all applicants and offer the same rates regardless of pre-existing conditions or sex, which meant that women and those requiring more care could no longer be charged more for the same coverage.

As if that wasn’t enough, Obamacare also removed lifetime caps from policies and made it impossible for health insurance providers to drop costly patients who were unfortunate enough to get sick.  And finally, the new healthcare law required that all plans offer ten essential benefits to policyholders nationwide, a move that aimed to cut down on the so-called “junk plans” that offered only minimal coverage.

Of course, architects of the new healthcare law knew that these changes would be expensive, so they created several tiers of subsidies to help low-income families afford coverage. The new subsidies would be available for families making up to 400 percent of the federal poverty limit, which is around $45,960 for an individual and $94,200 for a family of four. The subsidies were designed so that the less you make, the more help you receive. Likewise, the subsidy shrinks as you climb the income scale. The following table shows the average subsidy for a family of four living in Los Angeles:

obamacare table 1.jpg

*The Henry J. Kaiser Family Foundation, PPACA Subsidy Calculator

The PPACA also included a provision that allowed families making up to 133 percent of federal poverty guidelines ($14,484 for an individual and $29,726 for a family of four in 2011) access to their state’s Medicaid program, which means that all families making up to 400 percent of the federal poverty limit would receive some level of assistance with the costs of their care. (Note: Certain states chose not to expand Medicaid for their own reasons) But what about the rest of us?

The Bad

Expanding coverage to the uninsured and providing subsidies to working families is an excellent idea. However, certain segments of the population are benefitting far more than others. Part of the problem with the new healthcare law is that the price for a new policy varies drastically by region, likely due to the overall health of local residents and the number of health insurance providers choosing to participate in a state’s exchange.

To illustrate this, the following table offers a glimpse at several notable states and the least expensive bronze and silver plans available through an exchange for a family of four with two 35-year-old adults and two dependents:

obamacare table 2 neww

Let’s take Eagle County, Colorado and compare it to Anchorage, Alaska for a moment. According to Census.gov, the median annual income for citizens in Eagle County was $71,030 from 2008 to 2012, compared to $76,495 for residents of Anchorage Municipality in Alaska. However, the cost of the cheapest bronze plan on the exchange is nearly 300 percent more in Eagle County, Colorado. Does that sound fair? Most people, especially those living in Eagle County, would say no. And that’s one of the main problems with Obamacare. For everyone who comes out ahead, someone else falls through the cracks. Furthermore, citizens in certain regions are being penalized and asked to pay dramatically more than their neighbors across state lines.

The other problem is the fact the PPACA raised the costs of health insurance coverage overall. According to a 49 state analysis by Forbes and the Manhattan Institute, Obamacare increased the underlying costs of health insurance by 41 percent on average across all states. Some states, like New Mexico, Arkansas, and Vermont, watched as their premiums rose more than 100 percent over pre-ACA costs.  On the other hand, premiums were supposed to drop in some states including Indiana, Colorado, and Ohio. Sounds good, right?

Not so fast. I happen to live in Indiana, one of the states where the average premium supposedly went down.  I’m sad to report that the savings haven’t materialized as I had hoped. In fact, my family’s health insurance costs are expected to double later this year if my current plan expires and I buy a new plan on the exchange. The following table shows my costs prior to the ACA, and the cheapest bronze and silver plans currently available to my family of four with two 34-year-old adults and two kids:

obamacare table 3 new
So, what does this mean for my family?  As you can see, the least expensive plan available on the exchange is almost exactly 100 percent more than what we’re currently paying, and with a higher deductible as well.  We earn enough that spending an extra $400 per month certainly wouldn’t break us, but we don’t earn enough for it not to hurt.

And since the new healthcare law requires individuals to purchase approved coverage or pay a penalty, we are required to buy coverage no matter how much it hurts our bottom line  In 2014, the penalty only amounts to $95 or 1 percent of household income, whichever is greater. However, by 2016, the penalty climbs to $695 per adult or 2.5 percent of household income. Ouch.

The Ugly

In many cases, plans are prohibitively expensive for those who earn too much to receive a subsidy. In order for the Obamacare exchanges to work, they need the young and healthy (and the wealthy and healthy) to pay more for healthcare in order to subsidize the sick and old.  Unfortunately, many families may choose to forgo coverage, seek out alternatives, or get creative with their earnings instead of forking over such a high percentage of their income.  And, it’s easy to see why.

For example, the cheapest bronze plan on the exchange in central Indiana now costs almost $9,400, yet covers only preventative care until a $12,000 family deductible is met. This means that a family like mine has to spend well over $20,000 before real coverage kicks in. And while certain families who make well over 400 percent of the federal poverty limit might manage just fine, a family making $95,000 annually might think twice before buying a plan that requires them to spend 20 percent of their income before gaining meaningful coverage.  In fact, it would be far cheaper for many families in that income bracket to pay the penalty and go without.

Of course, several proposed fixes have recently been suggested to provide relief for people who find all of their choices unaffordable.  Among the ideas being batted around is the prospect of a new level coverage, known as “copper.” According to Kaiser Health News, copper plans would be similar to other health insurance plans offered on the exchanges, except that they would have lower premiums and higher out-of-pocket costs.  In addition, other lawmakers have suggested allowing insurers to sell across state lines in order to beef up competition and give consumers more options.

It’s possible that those changes could work. After all, those finding the bronze plans out of reach might appreciate a less expensive tier of coverage to choose from.  And since competition tends to bring down costs overall, allowing insurers to sell across state lines might help those trapped in areas where the underlying costs are high.  Right now, it’s too early to tell.

Obamacare: Still A Work In Progress

High premiums and unfair regional pricing are just a few of the problems that continue to plague Obamacare as the first open enrollment period comes to an end. What happens next will depend entirely on lawmakers as they continue to consider fixes that will improve the law’s functionality in states and regions where it’s struggling.

It shouldn’t surprise anyone that the PPACA is working better for some than for others, or that the rollout has been plagued with problems and controversies. The fact that 46 million American citizens were uninsured in 2010 goes to show what a huge problem we had, and that something drastic needed to be done.

But, will the average family end up saving $2,500 per year as President Obama repeatedly promised? Will rising costs curb dramatically as more people gain coverage and receive preventative care? As it currently stands, the jury is still out there. Health related expenses is the number one cause for bankruptcy in America. Let’s hope the PPACA continues to improve for the good of our country.

What are your thoughts on Obamacare? Have you been helped or hurt by the new law? What are your thoughts about being less tethered to your job now that you can find potentially cheaper healthcare alternatives?

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Sources:

  • “49-State Analysis: Obamacare To Increase Individual-Market Premiums By Average Of 41%,” Forbes.com, November 4, 2013, Avik Roy.
  • Connect for Health Colorado
  • “’Copper’ Plans? A Push For New, Lower-Premium Coverage,” Kaiser Health News, February 14, 2014,
  • Covered California
  • “Examiner Editorial: Dems’ Obamacare ‘fixes’ are just Washington wink-winks,” Washington Examiner, March 31, 2014,
  • United States Census Bureau

Photo Credit: By LaDawna Howard via Flickr and Creative Commons.

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Holly Johnson

Holly Johnson is a financial expert and award-winning writer whose obsession with frugality, budgeting, and travel plays a central role in her work. In addition to serving as Contributing Editor for The Simple Dollar, Holly writes for inspiring publications such as U.S. News and World Report Travel, Personal Capital, Lending Tree, and Frugal Travel Guy. Holly also owns two websites of her own - Club Thrifty and Travel Blue Book. You can follow her on Twitter or Pinterest @ClubThrifty.

33 comments

  1. Mel @ brokeGIRLrich

    I’m not super sure about that subsidy amount either. I remember going to the website and running the numbers to see if my healthcare would’ve been cheaper there than through my company back when I was make $36,000/yr and it would not qualify me for any sort of subsidy. My insurance, at the lowest tier, would’ve gone up about $200 a month. It was insane.

    I’m alarmed that health insurance is likely to become yet another reason people get trapped into jobs and situations they hate just to survive. I really think we ought to be able to do better than this!

    Reply
    • [email protected]

      The subsidy cliffs and amounts are different in different states, and even in different regions, but I’m surprised that you weren’t eligible for a subsidy at 36K.

      Reply
    • Kevin H @ Growing Family Benefits

      The subsidy calculations are dependent upon the cost of the second cheapest silver plan in your geography. It’s not a fixed amount based upon income.

      If single and earning $36,000 per year you would pay no more than 9.5% of income, or $285 per month. If silver plans cost less than this amount, you get no subsidy.

      Reply
      • Holly Johnson

        That’s what I have found so interesting. The subsidy amounts and cliffs vary drastically by region. No wonder different parts of the country are feeling the impacts of this law in different ways.

        Reply
  2. Financial Samurai

    The one thing I really like about Obamacare, beyond the fact that it is helping people who might not previously be able to afford healthcare to have healthcare, is the fact that so many people are no longer tied to their jobs out of necessity.

    I know so many people who work jobs they hate because they need the healthcare and they paycheck of course. I can see a huge movement of people who now are less afraid to seek what they really want to do b/c they don’t have to pay egregious amounts for healthcare.

    It’s NOT worth working a job you hate. The economy and the world would be better if we were all working towards more things we enjoy doing.

    Reply
    • [email protected]

      I don’t agree that the new healthcare law will help people on that front at all. Self-employed people already pay one of the highest tax rates in the country, and the prospect of having to pay a disproportionate amount of their income for health insurance only increases the burden. The fact that the subsidies drop off for individuals making 46K means that people who are even moderately successful will get no help with their premiums either.

      Reply
      • Financial Samurai

        Maybe, but at least there are more options for lower income folks, whereas there were less in the past. I think once we know that there’s a safety net in place where we can get cheaper healthcare or free healthcare if we fail at pursuing our dreams, more people will take the leap of faith and no longer be as afraid of the unknown.

        I sincerely think that I would have had more guts to leave my job in 2012 if I knew there was universal healthcare.

        Reply
        • Holly Johnson

          I’m glad that lower income individuals will have more opportunities to strike out on their own without the fear of going without health insurance. However, the new law will penalize them when they succeed.

          Reply
          • Mr. Utopia @ Personal Finance Utopia

            Success is almost always penalized when the government gets involved!

        • Anonymous

          I STILL don’t see how lower income people come out ahead. Yes, maybe their premiums are lower BUT they still have to come up with 6-12k annually before their coverage kicks in beyond the preventative care. One accident or hospital stay and they are screwed. I’ve lived on Low Premium/High Deductible plans since 2007, through 2 pregnancies both costing oop $6000. Was really tough when our income was cut in half due to job loss. Heck my then 3yo fell and split her chin open 2 yrs ago. Our out of pocket expense was $1500 for her to sit in a hospital for four hours waiting to be stitched, with just THREE stitches!
          I’m not sure how a family making $45000/ yr can survive those high deductibles.

          Reply
          • Financial Samurai

            I think it’s about the alternatives. If you had a disaster happen, then you could be completely wiped out. It’s all about disaster insurance/prevention.

            One of the big debates is regarding family and expenses. If a couple is struggling to survive on $45,000 a year, having children is probably going to make survival harder. Or maybe kids are not that expensive, otherwise a family wouldn’t have had kids. This is a topic for another post, but feel free to share your thoughts.

    • Cindy @ GrowingHerWorth

      I keep hearing the sentiment that now “we aren’t tied to our jobs”, but for me, I feel more tied now than ever. I worked for 8 years for a company that didn’t provide insurance, and I had an individual plan. I was in the situation of being healthy enough to qualify, but having had a few incidents that made it more expensive than average. Still, I could afford it. Now, I work for an employer that offers excellent insurance (they’re a large enough company to self-insure, which keeps costs low). I pay ~$30/month for their more expensive plan. Last year they paid out almost $12,000 for my care (after the discounts), and I paid out $3,000. That was with no serious medical issues, just an ankle injury, some abnormal tests, and a few illnesses.

      I’m mid-range in salary for my field/experience level. My health insurance is a huge boost to my total compensation package. I would need a salary boost at most other employers just to equal out the cost of premiums. And if I had to get my own insurance again? I wouldn’t qualify for a subsidy. Between the premiums and the annual deductible, I’d need a much higher salary just to be even with where I am now financially.

      When it comes to health insurance, I realize my current situation makes me very, very lucky. It is part of the reason I’m able to make the financial gains that I’m currently making. But the new laws aren’t opening doors for me in terms of switching employers. If anything, they’re making it harder for me to leave.

      Reply
      • Holly Johnson

        You nailed it. Anyone in a job with great benefits will have to think long and hard about leaving them now, especially when they see how much plans on the new health insurance markets cost.

        Reply
      • Financial Samurai

        You sure about that Cindy? In the past, if you wanted to take a leap of faith and do something on your own, retire, or travel the world, there was no safety net. Now, you can fly away and see where you go w/ a pretty clear idea of how much you are going to spend, and the backstop.

        Reply
        • Poonka

          I’m with Sam on this. Even though it has its shortcomings, Obamacare does provide a medical insurance safety net for the self-employed and it is a step in the right direction.

          Reply
  3. GA

    Obviously this is nothing but the wealth distribution talked about back in 2008 and before. People got what they asked for… I’m sure they love it and will love those “affordable” rates with “affordable” deductibles

    Reply
    • Holly Johnson

      Unfortunately, a lot of the negative things were saying about the healthcare law back then are coming true.

      Reply
  4. DC @ Young Adult Money

    I agree with pretty much all of what you say. Unfortunately I do not see the rates going down because various insurers publicly stated they don’t even expect to make money this year on the plans. I also feel tethered to my job still because the premiums are WAY less than the exchange plans, since employers often kick in a certain amount towards your coverage. When you are on the exchange you simply do not get that benefit.

    I work for a health insurance company and a lot of the stuff I do is Obamacare-related. It’s definitely been interesting see the law put in place over the past few years.

    Reply
    • Holly Johnson

      Thanks for your input, D.C. I agree- the extremely high costs of the plans tether people to their jobs even more. This does nothing to cut down on job-lock, except maybe for people with pre-existing conditions who were never able to buy individual coverage before.

      Reply
  5. Laurie @thefrugalfarmer

    “For everyone who comes out ahead, someone else falls through the cracks.”. This is why I am not at all happy with this plan. When we did our research (through a political agency) on the uninsured, (pre-Obamacare, that is) most of them either were eligible for Medicaid, or some other type of insurance, and chose not to take advantage of it. I’m in full agreement that our insurance industry needs re-vamping, but IMHO, this is NOT the way to do. Stronger mandates and opening up competition across state lines seems like a better idea to me.

    Reply
    • Holly Johnson

      I think allowing competition across state lines is an excellent idea, especially now that all plans are required to offer the same benefits.

      Reply
  6. krantcents

    I agree it is definitely a work in progress! Unfortunately, Congress does not want to work on it.

    Reply
    • Holly Johnson

      I hope that changes soon. =/

      Reply
  7. Kim

    I think it certainly needs some work, but has potential. One area we are seeing because my husband is in education is the rule that you can’t qualify for any subsidy if your employer offers any sort of family coverage. I know couples who both teach and make $50-$60K per year combined, but it costs $500 a month to put their kid on the school’s group plan. It would be nice if family members could qualify for a subsidy if group insurance is too expensive.

    Reply
  8. Shannon @ Financially Blonde

    I am fortunate that I have not been impacted by Obamacare for better or worse; however, I just hate how complicated it is for other people. Your post is awesome and brings up great points, but it is hard to find truly unbiased information out there to make an educated decision, which is what I hate most about it.

    Reply
  9. No Nonsense Landlord

    They could have done quite a bit, without the mandate. Eliminating pre-existing conditions, as long as you have had similar insurance. Get rid of caps, get rid of waiting periods, etc.

    But, as someone who is getting close to checking out of the work force, I look forward to the younger generation paying not only part of my health insurance, but my social security too.

    Reply
  10. ND Chic

    The people that I really see benefitting are people who are retiring early. It is a tax that has helped out the older and more well off Americans at the expense of the young and healthy.

    I think they should have a public pool where those with preexisting conditions could buy insurance rather than being forced to have coverage.

    Reply
    • Financial Samurai

      The early retirement community definitely does benefit. Before leaving my full-time job of 11 years I worried about health insurance. But with Obamacare, at least I know there is a backstop if I ever go for prolonged periods of time without income. It’s very hard to make it as an entrepreneur.

      Reply
  11. George Martin

    *universal health care needed STAT*

    Reply
  12. Kathy @ SMART Living 365.com

    Thank you for all the great information about the ACA in this post. As a person who is self employed and closer to retirement than most of your readers I can honestly say that I have not personally benefited from Obamacare. In fact my high deductible Health insurance has gone up in response and I’m paying for every bit of it myself (no employer) But in the long run I think it is good for all those people who don’t have insurance–AND for our country as a healthcare policy. It is tragic to me that our country falls so low on the list of of good healthcare worldwide when we pay more than any other country. Hopefully Obamacare is a step in the right direction for correcting the many errors that still exist.

    Reply
    • Nate

      Well said Kathy.

      Reply
  13. BAZ

    I’m self employed in Wash. State and prior to the ACA, my insurance would go up every year by 18 to 38%. Like clockwork. Nobody in the family has a chronic condition. Last year, our ins. went up “only” 12%. But so did deductibles.

    The only way we’re going to reduce costs is to dump the notion that we have to maintain 50 different sets of Health Ins. laws for the 50 states, and have one national standard for coverages.

    Secondly, Health Providers have to adjust to the notion that people have to “shop” for care. Have you ever tried to get a firm fixed price quote for a common procedure like a Colonoscopy? You can’t! And that’s a huge problem because you can’t shop for the best value for your out-of-pocket expenditures.

    The PPACA is a great first step in fixing a totally broken health care system, but as a nation, we have a LONG way to go.

    Reply
  14. Lydia Dunaway

    Before my self-employed husband and I applied for healthcare thru Obama Care our insurance was $266/month for both of us thru a supplemental policy. We are both 60 yrs old, I’m retired, neither of us smoke/drink, and we’ve made very few claims on our medical expenses other than the handful of monthly prescriptions we’ve taken over the years. Once we signed up for Obama Care our insurance immediately went up to $416/month for that first year. This year Obama Care insurance premiums went up to $1700/month . My husband’s salary fluctuates between $68-80K/yr and in this salary category, we don’t qualify for any subsidies…however, now our health insurance is $600/month MORE than our mortgage and is affecting our quality of life. I don’t mind helping out the more needy families with paying a bit more, but this is just ridiculous. Our financial range won’t sustain these increases in the future and I don’t believe this is an overall national answer. Increasing the premiums of self-employed folks in our financial situation to pay for lower income folks is certainly not working for us–we are struggling like we did as teenagers just starting out. I don’t think it’s appropriate for the federal government to determine our insurance rates thru our income tax figures. And, if that’s the only way, why is the cut-off so low that our health insurance is more than our mortgage rate? Would be so nice to even have $50/month left over for our savings account, but I don’t see that ever happening.

    Reply

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