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The biggest problem Obamacare didn’t fix

·Senior Columnist

More Americans have health insurance. Fewer people have to worry about catastrophic medical costs. Those are notable accomplishments of the Affordable Care Act.

But 31 million Americans remain “underinsured,” which means they have healthcare coverage but still face out-of-pocket medical costs that could cause serious financial stress. Like workers who are underemployed—holding a job but for less pay or fewer hours than they’d like—the plight of the underinsured is often overlooked by policymakers, employers and public health advocates; they have insurance, after all, which means they’re better off than people who don’t.

Yet the problems faced by the underinsured reveal the ongoing failings of the U.S. healthcare system and explain why Americans remain frustrated with Obamacare, as the ACA is known. A new study by the nonprofit Commonwealth Fund finds that 23% of people with health coverage are underinsured. That means out-of-pocket medical costs for a middle-income family—not including insurance premiums—would be more than 10% of household income in a given year if they hit the ceiling for all out-of-pocket costs.

Most people who get health insurance under the ACA qualify for subsidies that help cover the cost of premiums, and some get additional tax breaks for medical costs they actually incur. There are no government subsidies for people who get health insurance through an employer, which is still the way most non-senior adults get coverage.

To control the cost of premiums, many companies that offer insurance have been raising deductibles and other out-of-pocket costs. At the same time, many workers have been choosing such high-deductible plans, as they're called, since the premiums are usually lower. Since 2003, the percentage of people covered by private-sector plans with a deductible of $1,000 or more has risen from 8% to 38%, as this chart from the Commonwealth study shows:

Source: Commonwealth Fund
Source: Commonwealth Fund

Keeping premiums as low as possible might seem like a smart idea when signing up for coverage, but unexpected medical problems can rapidly wreck a typical family’s budget—even with insurance. Most policies have out-of-pocket maximums, but even those are sometimes much higher than most families can afford. The limit for a plan under Obamacare in 2015, for example, is $6,600 for an individual and $13,200 for a family. Such limits are high enough to cause plenty of trouble. The Commonwealth study found that 38% of people deemed underinsured had trouble paying medical bills in 2014, while 23% were contacted by a collection agency.

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Private-sector businesses have generally shrugged off Obamacare, with few canceling or seriously altering the plans they offer workers, according to a recent study by the Rand Corp. Many Obamacare critics predicted the opposite would happen, with employers canceling coverage and pushing workers en masse onto the new ACA marketplaces, to avoid the cost and hassle of dealing with insurance. But one big reason employers may be sticking with insurance coverage is their ability to pass most or all of the increased cost of care onto their employees.

Workers are clearly paying more for health insurance and actual care, even though overall costs have moderated a bit in recent years. The Kaiser Family Foundation’s latest report on health benefits found that the average amount workers pay for premiums has risen nearly four times as much as average incomes since 1999. Some companies are doling out lower pay to compensate for higher healthcare costs. And some employees who are getting decent raises are spending most or all of the extra money to cover higher health insurance or medical costs.

Separate research by the International Foundation of Employee Benefit Plans found that 41% of companies say they increased out-of-pocket limits on the policies they offer in 2015, with 37% saying they’ve increased deductibles and 28% saying they’ve boosted co-payments. Overall coverage may have remained stable, but cost hikes continue to cut into paychecks.

That unhappy trend seems likely to continue and perhaps worsen. Consulting firm Milliman says the average total cost of healthcare, including premiums and all out-of-pocket expenses, hit $24,671 this year for a family of 4 with company-provided insurance. That's up 27% since 2011, which is nearly 5 times the overall inflation rate during the same time. The family covers about $10,500 of that expense, through premium payments, deductibles, co-pays and other direct costs. The employer pays the rest, mainly through its contribution to premiums. Milliman says the total price of care for the typical family "will almost certainly surpass $25,000 in 2016."

The ACA includes several pilot programs meant to test new ways to lower costs. But cost pressures will probably intensify before they ease. In the IFEBP survey, benefit managers said costs were likely to rise more next year than this year (for both workers and employers). Another big cost bump could come in 2018, when an excise tax on the most generous healthcare plans goes into effect, which will force companies to either scale back coverage or raise costs yet again. Before long, we may need another Affordable Care Act—one that actually makes healthcare affordable.

Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.