Marriott Student Review Volume 1 Article 4 Issue 1 The Power of Words

April 2017 Obamacare: Under the Knife Kylan Rutherford , [email protected]

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Recommended Citation Rutherford, Kylan (2017) "Obamacare: Under the Knife," Marriott tS udent Review: Vol. 1 : Iss. 1 , Article 4. Available at: https://scholarsarchive.byu.edu/marriottstudentreview/vol1/iss1/4

This Article is brought to you for free and open access by the All Journals at BYU ScholarsArchive. It has been accepted for inclusion in Marriott Student Review by an authorized editor of BYU ScholarsArchive. For more information, please contact [email protected], [email protected]. Rutherford: Obamacare: Under the Knife Congressional rules only allow for recon- The Mandate Obamacare imposes “guaranteed issue,” OBAMACARE ciliation legislation to be passed once a Currently, Obamacare dictates a man- dictating that companies cannot refuse UNDER THE KNIFE year. Health Care reform was going to be date requiring every American to hold health care to anyone based on preexisting By Kylan Rutherford filed, through some technicalities, under health insurance or be subject to a penalty conditions.3 Through this policy, Americans 2016. This keeps 2017 open for tax reform, fee. Despite this, many individuals have with preexisting conditions have access to bamacare is on the congressio- another Trump campaign promise. A quick opted to pay the fee rather than insur- more health care options and can antici- Onal operating table right now, and push was crucial to squeeze in two recon- ance premiums. Additionally, hours into pate lower premiums. Healthy individuals Republicans are eager to start cutting. ciliations, and this initial loss all but his presidency Trump issued an executive end up sharing the cost, but the man- closes the 2016 window. Forced order urging federal agencies to be much date was intended to offset any increase Hours after Trump took office, to choose one, Trump has evi- more lenient on penalizing those without in their premiums. Without the mandate, the first incisions were dently opted for tax reform, health care, and has indicated the admin- not enough healthy people will buy insur- made to tear down the law. meaning any health care istration won’t pursue enforcement of the ance to keep guaranteed issue profitable. However, the recent failure mandate.1 Discrimination provides a viable way for an insurance company to avoid failure and Health insurance is a way to alleviate the keep rates lower, but guaranteed issue to pass risk of unforeseen medical costs in the takes this strategy away from them. a proposed reform future. Insurance companies predict the alternative will be signifi- risk associated with each client, calculate The Death Spiral has stalled efforts cantly slowed. Until the total risk of their pool of clients, and Instead of tightening restrictions on which to build something to Republicans can mus- then charge a premium that adds up to individuals they insure, companies either put in Obamacare’s place. ter enough support in the enough money needed to cover predicted have to rely on government aid to stay Instead, it appears that the Senate for a proper replace- medical costs with each client sharing that solvent, or close their doors. This path to President and Congress will ment, all they can do is stab burden; everyone pays some, regardless closure is often referred to as the death let The Affordable Care Act more holes in The ACA in hopes of how sick they get, but no one is left spiral. There are three ways that insurance (ACA) bleed out. The diagnosis that the legislation’s death will with a full bill. In theory, a mandate leads companies can die. for Obamacare is grim, and the force compromise. to more healthy people buying insurance, doctors aren’t stitching. which should produce lower premiums 1. Adverse selection. Insurance compa- Obamacare’s Diagnosis for everyone involved. But that did not nies struggle to accurately predict Why Repeal Failed Several forces are already causing happen.2 Uncertainty generated by such rates because clients are incentivized Congress started surgery on The ACA to lose blood. The more a drastic growth in the pool of clients, to misrepresent their condition. Thus, Obamacare with a hand tied behind pressing issues for insurance com- combined with complex regulations, actu- costs are higher than revenue, and the their backs. Republicans hold a major- panies and consumers are the state ally caused insurance premiums to go up company must raise premiums, reject ity in the Senate, but they do not have of the following three issues: instead of down. Reducing enforcement clients, or close. enough seats to end a filibuster and of the mandate will compound this effect, move to a vote. Their solution was to 1. The mandate that all have health and could generate major issues in other 2. Moral hazard. When an individual redefine their changes to The Affordable insurance areas of the legislation. becomes insured, their potential Care Act as “reconciliation.” This classifi- financial costs of an unhealthy lifestyle cation limits what can be manipulated, but 2. The guaranteed issue of health insurance, Guaranteed Issue decreases, thus their risk of sickness allows for a simple majority vote, which regardless of pre-existing conditions Insurance companies discriminate; if some- rises. Similar to adverse selection, this Republicans thought they could gather. one smokes, they will pay more for health can weaken or destroy an insurance However, several of the votes they were 3. The governmental fund set up by the insurance because they are more likely to company’s profitability. counting on wanted more drastic changes, Obama administration to save insurance get sick. Before Obamacare, insurance which reconciliation can’t tackle. Collusion companies from a death spiral companies could discriminate against indi- failed, and this initial push to get some- viduals with preexisting conditions and thing passed crashed in defeat. deny them coverage.

Published by12 BYU msr ScholarsArchive, 2017 Winter 2017 13 1 Marriott Student Review, Vol. 1, Iss. 1 [2017], Art. 4 3. The death spiral. As insurance premi- The Bottom Line ums continue to rise, only the very sick No matter what happens in Congress, BYU TECH CLUB will choose to buy health insurance. At someone is going to pay for health some point along this spiral, insurance care. Don’t expect a replacement to companies will die, as losses add up. Obamacare anytime soon, but do expect continued weakening of its infrastruc- To prevent a death spiral, Congress ture. Republicans have already started made government funds available for pulling plugs on the legislation, and the AT THE BASE OF SILICON SLOPES use during what was called the “Risk health insurance industry’s resilience will Corridor.” Because of the drastic change be tried, with no guarantee of any bail- in who participated in health care markets out. Obamacare, Congress’s patient, has (a big increase in clients), accurate pricing a lot of preexisting conditions, and it became effectively impossible. The Risk doesn’t sound like anyone wants to give Corridor Funds were intended to shore up it insurance. insurance companies that priced too low and incurred losses. Notes: 1. “Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Insuring the insurance companies in this Repeal,” The White House, https://www.whitehouse.gov/ the-press-office/2017/01/2/executive-order-minimizing- way created an additional moral hazard; economic-burden-patient-protection-and, (January 20, almost all the companies underpriced. 2017). With the promise of tax dollars to bail 2. Brian Blase, “Overwhelming Evidence that Obamacare Caused Premiums to Increase Substantially,” https:// Flickr User: a4gpa them out if they lost money, they had no www.forbes.com/sites/theapothecary/2016/07/28/ motivation to price correctly. A death spi- overwhelming-evidence-that-obamacare-caused-premiums- to-increase-substantially/#2bcab13615be, (July 28, 2016). By William Adams to fuel their growth. For Brigham Young ral was avoided, but moral hazard racked 3. Kimberly Amadeo, “Obamacare Pre-Existing up a hefty bill, now up to around 8.3 bil- Conditions,” https://www.thebalance.com/obamacare-pre- University, the response to such explosive 4 existing-conditions-3306072, (January 5, 2017). lmost a decade has passed since Josh growth is the formation of what some have lion dollars. If Republicans choose to stop 4. Shelby Livingston, “The state of the ACA’s risk corridors,” bailing out companies, the insurance mar- http://www.modernhealthcare.com/article/20161205/ AJames christened the area connect- called “the newest, hottest club on cam- ket may again face a death spiral risk. NEWS/161129937, (December 5, 2017). ing Salt Lake and Counties as Silicon pus”: the BYU Tech Club. Slopes. James, the founder of Omniture Letting Obamacare decay will cause and Domo, originally chose the nickname The story of BYU’s Tech Club begins in late another period of uncertainty, and as a nod to the technology metropolis of 2014. John Koelliker was a sophomore on Congress and the President have to Northern California and as a bit of a mar- an investment banking recruiting trip in decide how they will proceed. Promising a keting ploy to garner attention for Utah’s San Francisco. Amidst the stops to differ- “bailout” of sorts will generate security for own nascent tech scene.1 ent financial institutions, the group paid insurance companies and individuals who a visit to ’s corporate headquar- rely on them, but the past shows such a Since that time, Silicon Slopes has kept ters. A light bulb went on in John’s head: bailout will not be free. Without funds to Utah’s press corps busy and propelled its “We should be placing more top students shore up potential losses, companies will business community to lead the nation in at tech companies in !” be forced to predict more accurately, but economic growth.2 The few original acres the tendency will be to price high rather surrounding Thanksgiving Point have Returning to school, John couldn’t find than low. More companies will likely fail. expanded to include most of the Wasatch an organization specifically designed to Front, comprising dozens of startups and help students from every major learn more even spawning four unicorns.3 As the pro- about tech and get connected to opportu- liferation of tech companies has continued, nities at companies like Google or Apple. businesses have turned to local universities “There were several niche clubs trying to https://scholarsarchive.byu.edu/marriottstudentreview/vol1/iss1/414 msr Winter 2017 15 2