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Obamacare and affordability—not as connected as you think

The two most important courts in the nation are about to resolve a dispute with potential major consequences for the future of American health care. The judges' interpretation of a few short passages in the thousand-plus page Affordable Care Act — the "Obamacare" law — will determine whether federal agencies are bound by the laws that Congress writes and whether unelected bureaucrats can hand out subsidies to millions of ineligible consumers.

President Barack Obama speaks at the Global Health Security Agenda Summit at the White House in Washington, Sept. 26, 2014.
Kevin Lamarque | Reuters
President Barack Obama speaks at the Global Health Security Agenda Summit at the White House in Washington, Sept. 26, 2014.

One of those courts is the U.S. Court of Appeals for the D.C. Circuit, where 13 judges will reconsider a July ruling by a three-judge panel of the same court that Obamacare subsidies are not available to residents of states that chose not to set up their own insurance exchanges. The other is the U.S. Supreme Court, which may soon decide whether to review another circuit's ruling that held exactly the opposite. To add to the drama, a federal district court in Oklahoma recently ruled in favor of the state's challenge to the subsidies, and another court heard a similar challenge brought by Indiana.

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One of the Obama administration's central arguments in defending the nationwide subsidies will be that the ACA had a single overriding purpose — to increase the affordability of health insurance. For that reason, it claims the ACA should not be interpreted to deny subsidies to people in nonparticipating states, even if that's what the plain language of the act says — and, in fact, what most of the judges who have looked at that language agree that it appears to say.

However, neither the ACA nor the administration's implementation of it supports the notion that "affordability" trumps other aspects of the law, even when the administration could have chosen to promote affordability instead, as the four examples below indicate.

First, the ACA's requirement of community rating, which made carriers overcharge young and healthy Americans and undercharge older and less healthy consumers, led to reduced affordability for the supposed poster children for Obamacare — the young, healthy uninsured. Based on my professional underwriting experience prior to the ACA, under-30 healthy consumers could obtain good individual coverage for $100 per month or less in most states. The ACA's community rating requirement has more than doubled that amount. Subsidies have not offset that price increase, except for young people hovering around the minimum wage. The administration claimed to have broad power to delay nearly every other aspect of the ACA, but it did nothing to delay this.

Second, the administration's postponement of the employer mandate gutted one of the central affordability planks of the ACA, namely incentives for employers without coverage to adopt it and assist their workers with health-care costs.

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Third, President Obama's promise of "If you like your plan you can keep it" raised costs for an even broader cross-section of consumers (though by amounts yet to be fully noticed). Regulators and everyone in the industry knew the president couldn't possibly make good on that promise. Because carriers were being forced to market new ACA-compliant plans, they were not interested in undercutting those new plans with the lower-cost, non-ACA-compliant ones that people preferred. To make matters worse, the administration threw carriers that did want to continue those plans into the political briar patch, labeling those plans as "lousy coverage."

Fourth, the administration's own backtracking undercut the ACA's risk-pool model. As the political fallout from people losing their "lousy" plans grew, the administration allowed states to grandfather in these lower-cost plans and exempt them from most ACA provisions, including the supposedly sacrosanct community rating rules — perhaps forever. Since then, carriers have stated publicly that these grandfathered plans have diverted people away from the exchange pool, thus driving costs higher than projected. So, everyone buying insurance through the exchanges will have to pay more because of the president's careless rhetoric. This is yet another strike against affordability as the guiding principle of the ACA's implementation.

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Finally, in 2013 the administration declared that employers could no longer contribute to cover their employees' insurance costs, either pre-tax or after-tax. As a result, employers that previously made individual market coverage more affordable had to stop, and those that would have done so could not. This may be the least understandable blow to affordability as Obamacare's guiding principle. This decision reversed a decades-long practice of small employers contributing to the cost of insurance purchased by their employees — a practice which the IRS had already ruled would be not be taxed. Nothing in the ACA even remotely suggested that this longstanding practice would become a problem.

So here's hoping when the judges of the D.C. Circuit and the Supreme Court listen to representatives of the administration wax poetic about affordability as the central overarching goal of the ACA, they'll look at the millions of Americans for whom health insurance today is, for no good reason, less affordable and less available.

Commentary by Tom Haynes, founder and president of TBP Solutions, a health-care insurance broker. Haynes is also a board member at the Competitive Enterprise Institute, a free-market think tank involved in the court cases discussed above.