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Explainer: what is Obamacare?

Once again the United States Congress is scrambling to pass a Continuing Resolution (CR) - legislation to keep the federal government functioning. But Republicans in the House of Representatives, with…

Obamacare will give more than 32 million Americans access to health insurance. EPA/Michael Reynolds

Once again the United States Congress is scrambling to pass a Continuing Resolution (CR) - legislation to keep the federal government functioning. But Republicans in the House of Representatives, with the backing of some Tea Party Senators, are attempting to derail the Affordable Care Act through several provisions attached to the CR.

President Barack Obama has vowed to veto any bill that undercuts his health-care scheme, despite the looming fiscal and operational crisis.


Read more on why the US government is facing (another) shutdown


Let’s look at the issue at the heart of the impasse: Obamacare.

In March 2010, after much policy wrangling and expenditure of considerable political capital, President Obama signed into law the Affordable Care Act (known as Obamacare) - a bill to deliver the most sweeping health-care reforms in the United States since Medicare and Medicaid were implemented in 1965.

Since then, the legislation has survived major challenges, including a Supreme Court judgement, 42 votes to repeal in the House of Representatives, and the Catholic Church contesting the requirement that insurance should cover contraception.

Implementation of Obamacare has been a complicated and protracted task, but despite opposition and controversy, this has proceeded surprisingly on track and on time. October 1 will see the commencement of the final, major phase of implementation. This is the date when the state-based insurance exchanges open for business and consumers can choose insurance that will begin on January 1, 2014. At that time, Medicaid expansions will also come into effect.

Ultimately these provisions will see more than 32 million Americans who currently lack health insurance covered. The newly-insured – who today look to the hospital emergency department for their care, or go without – will be less educated, more likely to be unemployed or poor, and more racially diverse than those who currently hold health insurance.

For all its imperfections, Obamacare is a package of genuine reforms which make major advances in:

The Obamacare legislation has survived 42 votes to repeal in the House of Representatives. EPA/Michael Reynolds

  • developing new ways to deliver and fund health-care services
  • requiring improvements in quality and safety
  • expanding the health workforce
  • implementing a whole-of-government approach to prevention and tackling health disparities.

When fully implemented, it will hold down health-care costs, reduce the deficit by US$109 billion over the next decade, increase jobs and productivity, and provide affordable health insurance for millions of Americans. So it’s shocking that despite (or perhaps because of) the endless debates, pontificating, slogans, advertising, and campaigning, most Americans are no wiser today about what Obamacare means for them and the nation than they were four years ago.

A recent poll shows that 44% of Americans think Obamacare is a bad idea. Confusion about what is in the law plays a role in the public’s negative perceptions - 34% said they don’t understand the law very well, 35%, said they have some understanding of the law. A poll taken in April found that 40% of Americans were unsure about whether the Affordable Care Act still existed.

Most Australians are bemused by the illogical fears of so many Americans about these reforms and the continuing ideological assault from the right. There is considerable irony in the implacable Republican opposition given that many provisions of the law originated in conservative policies.

The public’s confusion is highlighted by the fact that while very few Americans understand the full scope, impact and costs of the reforms, they do want the many benefits that have already been implemented to continue. These include:

  • allowing children aged less than 26 years to stay on their parents’ policies
  • lower drug costs for people on Medicare who are heavy users of prescription drugs
  • free preventive health services such as immunisations, mammograms and contraceptives
  • a ban on lifetime limits on insurance payments.

Insurance companies cannot deny coverage to people with pre-existing conditions and, starting in 2014, insurers must accept all applicants. Medicare has started to reward hospitals for providing good (rather than lots of) care, and there is mounting evidence that the overall growth in health spending has slowed.

The newly-insured will be less educated, more likely to be unemployed or poor, and more racially diverse than those who currently hold health insurance. Image from shutterstock.com

Although the law contains many provisions, its main goal is to expand health insurance cover. Beginning in 2014, every American will be required to have some form of health insurance. Essentially that’s how the scheme funds the prohibition on insurers refusing coverage to those with pre-existing conditions. Of the 32 million newly-insured Americans, 32% will gain coverage from Medicaid, 45% from the individual exchanges, and 23% from their employers.

For 60% of these people, the cost to them of their health insurance will be $100 or less a month. From 2014, those with incomes of between 100 and 400% of the federal poverty level will qualify for subsidies to purchase health insurance through the new state health exchanges, which will act as competitive markets for an array of approved insurance products. A different set of exchanges will cater to small businesses, which currently lack the marketplace clout to negotiate affordable health insurance for their employees.

Obamacare envisioned most states establishing and running their own insurance exchanges, and US$1.8 billion has so far been provided to help with this task. States are required to establish websites to help consumers – including those with poor literacy and whose first language is not English - compare health plans, determine their eligibility for tax credits, and to provide assistance with enrolment.

However 36 states, mostly Republican-led, are leaving the job entirely to the federal government. In an ironic upending of conservative philosophy, this will see the federal government play an increased role in health care.

The other major health-care initiative designed to cover the uninsured – expanding Medicaid to include more low-income Americans (those with incomes up to 133% of poverty) – is opposed by at least 20 Republican governors. This is despite the fact that the federal government would pay 100% of the costs of this expansion from 2014 to 2016, and up to 90% thereafter – a deal which would see states save money because they would no longer be required to pick up the bill for uncompensated hospital care.

However some governors, even those with Tea Party bona fides such as Jan Brewer of Arizona, have read the tea leaves and chosen to go with the Act.

Thousands of people join a Tea Party-organised march and demonstration against Obamacare in 2009. EPA/Michael Reynolds

The Supreme Court ruling last year gave states the option of choosing not to participate in the Medicaid expansion. In states that don’t commit to the expansion, people who are too poor to buy coverage in the exchanges, even with a federal subsidy, will be left without insurance. This could add up to as many as 11.5 million people, or half the people who could potentially be newly-eligible for Medicaid.

There is evidence that insurer interest in the new insurance markets is robust – a good signal for competition, especially in those states where one insurer has dominated. The plans to be offered from next year are also more comprehensive than many bare-bones policies currently available to individuals. Data just released by the government show that, on average, consumers will have a choice of 53 health plans and the average premium costs are more than 16% lower than projected.

The ability of the insurance exchanges to be ready for prime time on October 1 is critical to the lasting success of Obamacare. Failure to deliver will fulfill everyone’s worst fears, but smooth operations will mean real health-care reform has finally arrived.