Obamacare: The Law of Unintended Consequences

Some see Obamacare as the law that will bring health insurance to millions who previously couldn't afford it. Others see the legislation as the law that made government too involved in health care. Regardless of one's perspective on Obamacare, there's one thing that it seems headed to become: the law of unintended consequences. 

As full implementation of the law nears, several potential trouble spots have emerged. Here are three that the framers of Obamacare probably didn't see coming.

1. Less availability of health care 
The primary reasoning behind Obamacare was to bring access to health care to more people. Unfortunately, the opposite could occur in some places. 


Obamacare imposes steep funding cuts on hospitals, particularly those that serve poor and uninsured patients, with the assumption that more of the hospitals' patients would be covered by Medicaid. However, the law's requirement that forced states to expand Medicaid was struck down by the Supreme Court. Hospitals in at least 15 states that won't pursue Medicaid expansion will be squeezed heavily.

Some hospitals will have to eliminate jobs or even shut their doors with the cuts, resulting in less health-care access for many. The White House has proposed delaying the cuts for a year, but they're still on track to be implemented as of now.

2. Higher Medicare medication spending
Obamacare gradually closes what has been called the Medicare donut hole. The Medicare Part D prescription drug program requires seniors to pay 25% of drug costs up to a certain threshold, 100% of costs from that point to a higher level, then only 5% of drug costs beyond that level. This middle range makes up the often-mentioned donut hole.

Helping seniors pay for drugs in the donut hole sounds like a good idea. However, the structure was created to control drug costs by giving seniors incentives to use generic drugs. Actuaries used extensive historical statistical data to set the threshold spending levels.

This goal was achieved. Medicare Part D will actually cost $334 billion less than original estimates. And it has a 90% approval rating.

Closing the donut hole, though, could inadvertently wipe out those cost savings. Without financial incentives to purchase generic drugs, more individuals are likely to stick with higher-cost brand prescription drugs and drive up total costs for the program.

3. Higher insurance premiums
The Affordable Care Act could be a misnomer for many Americans. Higher insurance premiums appear to be on the way for millions.

Who will pay more? Premiums for younger individuals will likely rise to effectively subsidize insurance costs for older Americans. This increase stems in part from an Obamacare provision that limits premiums for older members to a maximum of three times that of younger members.

Men will also pay up. Because health care costs for women are typically higher, their insurance premiums are also frequently higher. Under Obamacare, though, insurers can't charge different premiums based on gender. The result will be that insurance rates charged to men will jump.

Some of these premium increases will be quite steep. WellPoint estimates that small group premiums will go up 13% to 23% on average. Aetna CEO Mark Bertolini said that some people could see their insurance costs double, with an average increase of 32%. 

Implications
These unintended consequences could have implications for investors. Hospitals, pharmaceutical firms, and insurers alike will potentially be affected.

Publicly traded hospitals will experience some pain from the impending hospital cuts, particularly those that operate in states that won't expand Medicaid. Tenet Healthcare , for example, has estimated that the cuts will cost $35 million in the fourth quarter. The company, which is the nation's third-largest for-profit hospital chain, lost $83 million in the first quarter. Tenet operates facilities in at least five states that won't expand Medicaid, including Texas -- which accounts for 20% of the company's total beds.

Higher spending on brand drugs as a result of the closing of the Medicare donut hole means more profits for pharmaceutical firms. Goldman Sachs estimated that there could be up to $20 billion in added drug spending through 2019. This could benefit companies like AbbVie , whose top-selling drug Humira loses patent protection in 2016. 

Without the donut hole, seniors could be more likely to keep taking Humira even if lower-cost alternatives become available. AbbVie would certainly love to preserve as much revenue as it could, since the company made $9.2 billion last year from the drug -- accounting for over half of its total sales.

What impact will higher premiums make for insurers? Maybe very little, since the increased rates will be a reaction to higher costs. However, if insurers don't adjust appropriately, their bottom lines could feel the impact.

Intentions
Did lawmakers intend for any of these adverse effects to occur? I doubt it. The truth is that many pieces of legislation have effects that weren't foreseen. The more complex a law is, the more likely unintended consequences are to arise.

We should also note that unexpected positives can also emerge. Few predicted, for example, that Medicare Part D would ultimately cost less than estimates. We'll have to wait a few years to find out how the Obamacare law of unintended consequences fully plays out. 

Obamacare will undoubtedly have far-reaching effects. The Motley Fool's new free report, "Everything You Need to Know About Obamacare," lets you know how your health insurance, your taxes, and your portfolio will be affected. Click here to read more. 

The article Obamacare: The Law of Unintended Consequences originally appeared on Fool.com.

Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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