The main problems with US healthcare before Obamacare were tightly linked: tens of millions of people had no coverage at all, insurers could refuse or drop anyone who got sick, and the costs of that broken arrangement quietly showed up in everyone else’s premiums, paychecks, and bankruptcy filings. In 2013, the year before the Affordable Care Act’s major provisions took effect, roughly 44 million Americans under 65 had no health insurance, and an estimated 79 million were either uninsured or underinsured. Almost every other failure in the system, from denied claims to medical bankruptcies to hidden cost shifts, traced back to that coverage gap.
Tens of Millions Had No Coverage
The uninsured were not a fringe group. They included working adults whose employers offered no health benefits, self-employed people priced out of the individual market, and low-income adults who earned too much for Medicaid but too little to buy private coverage. The number of uninsured under 65 stood at 48.2 million in 2010 and had dropped only to about 44 million by 2013, largely because the ACA’s dependent coverage rule already let young adults stay on a parent’s plan until age 26.1Department of Health and Human Services. Trends in the U.S. Uninsured Population, 2010-2020
Young adults were hit especially hard. In 2010, one in three adults aged 19 to 25 had no health insurance at the time they were surveyed, and more than 40 percent had gone without coverage for at least part of the prior year.2Centers for Disease Control and Prevention. Health Insurance Coverage: Early Release of Estimates From the National Health Interview Survey Aging off a parent’s plan at 19 or at college graduation, they entered a job market where entry-level positions rarely came with benefits. Many gambled on staying healthy.
The gap fell unevenly across racial and ethnic lines. In the first half of 2013, about 36 percent of Hispanic Americans under 65 were uninsured, compared with roughly 25 percent of Black Americans and 16 percent of White Americans.3Agency for Healthcare Research and Quality. The Uninsured in America, First Part of 2013: Estimates for the U.S. Civilian Noninstitutionalized Population under Age 65 Those differences reflected deeper inequities in employment and income, and they carried through to worse health outcomes.
Insurers Could Deny You for Being Sick
If you had ever been seriously ill and tried to buy an individual policy, insurers in most states could refuse to sell you one, charge you dramatically more, or write permanent exclusions into your coverage. The conditions that triggered this were not exotic. Diabetes, asthma, cancer, heart disease, and pregnancy all qualified.4U.S. Department of Health and Human Services. Pre-Existing Conditions
The Department of Health and Human Services estimated that somewhere between 50 and 129 million non-elderly Americans had at least one pre-existing condition that could have threatened their access to coverage.5U.S. Department of Health and Human Services. At Risk: Pre-Existing Conditions Could Affect 1 in 2 Americans Roughly one in two. In practice, many people with chronic conditions simply went without individual coverage because no carrier would offer them a policy at a reasonable price.
Insurers could also impose waiting periods before covering treatment tied to a pre-existing condition, so a policyholder could pay premiums for months without being able to use the insurance for the care they actually needed. Women faced an additional layer. In states that allowed gender rating, 92 percent of the best-selling individual plans charged women higher premiums than men for identical coverage, even excluding maternity care. Pregnancy itself was treated as a pre-existing condition.
Coverage That Collapsed When You Used It
Even people who had insurance and paid premiums on time could find that their coverage failed at the worst possible moment.
Rescission After a Big Claim
Rescission was the practice of retroactively canceling a policy after a policyholder filed expensive claims. Insurers combed through the original application for errors or omissions, then voided the policy as if it had never existed. A congressional investigation in 2009 found that just three insurers had rescinded about 20,000 individual policies over the previous five years. An innocent mistake on an application, such as forgetting to mention a past doctor’s visit, could be enough to lose coverage in the middle of cancer treatment.6HealthCare.gov. Rescission The ACA now prohibits rescission except in cases of intentional fraud or misrepresentation.7eCFR. 45 CFR 147.128 – Rules Regarding Rescissions
Lifetime and Annual Benefit Caps
Most pre-ACA policies set a ceiling on what the insurer would pay over a lifetime, commonly $1 million or $2 million, and many capped benefits on a yearly basis as well. Those numbers sound high until you consider a premature birth requiring months of neonatal intensive care, or a cancer diagnosis requiring years of treatment. Once you hit the cap, every dollar of care from that point forward became your responsibility.8HealthCare.gov. Ending Lifetime and Yearly Limits A serious illness didn’t just threaten your health. It could exhaust your insurance and leave you functionally uninsured while you were still paying premiums.9eCFR. 45 CFR 147.126 – No Lifetime or Annual Limits
Rising Costs and Medical Bankruptcy
Costs were spiraling for everyone, insured or not. National health spending rose from $74.1 billion in 1970 to about $1.4 trillion by 2000 and kept accelerating from there.10Peterson-KFF Health System Tracker. How Has U.S. Spending on Healthcare Changed Over Time? Administrative overhead played a larger role than most people realize. Congress found that private health insurance administrative costs totaled $90 billion in 2006 and consumed 26 to 30 percent of premiums in the individual and small-group markets.11Office of the Law Revision Counsel. 42 U.S. Code 18091 – Requirement to Maintain Minimum Essential Coverage Roughly a quarter of every premium dollar or more went to marketing, claims processing, executive pay, and profit rather than medical care. Medicare, by comparison, spent about 1.4 percent of its expenditures on administration.
Families felt this as steadily rising premiums, higher deductibles, and growing out-of-pocket expenses. Between 2000 and 2009, the share of firms offering health insurance dropped from 69 percent to 60 percent, particularly among small employers. The consequences showed up in bankruptcy court: a 2007 study in the American Journal of Medicine found that 62 percent of all personal bankruptcies were caused in part by medical expenses.11Office of the Law Revision Counsel. 42 U.S. Code 18091 – Requirement to Maintain Minimum Essential Coverage Plenty of those filers had insurance. It just didn’t cover enough.
A Hidden Tax on Everyone With Insurance
The uninsured did not stop needing care. Under EMTALA, a 1986 federal law, hospitals that participate in Medicare must screen and stabilize anyone who arrives at the emergency room, regardless of ability to pay.12Centers for Medicare & Medicaid Services. Emergency Medical Treatment and Labor Act (EMTALA) Without coverage, people delayed preventive care, got sicker, and ended up in the ER for conditions that could have been managed far more cheaply in a doctor’s office.
Hospitals absorbed much of the resulting cost as uncompensated care, which totaled $43 billion in 2008. They passed those losses to private insurers through higher charges, and insurers passed them along in premiums. Congressional findings estimated the cost shift added more than $1,000 a year to the average family’s premium. If you had insurance before the ACA, you were already subsidizing the uninsured. You just didn’t get a line item for it. Beyond direct medical costs, the economy lost an estimated $207 billion per year because uninsured Americans were sicker and died younger than their insured counterparts.11Office of the Law Revision Counsel. 42 U.S. Code 18091 – Requirement to Maintain Minimum Essential Coverage
Job Lock: Coverage Tied to Employment
Because most Americans got their coverage through an employer, insurance created a powerful, invisible restraint on career decisions. Researchers call it job lock. Workers with employer-provided coverage stayed in their jobs 16 percent longer and were 60 percent less likely to voluntarily leave than workers whose insurance came from another source. People stayed in jobs they wanted to leave, passed up chances to start businesses, and avoided moves that might involve even a brief coverage gap.
The stakes were highest for anyone with a chronic condition in the family. Leaving a group plan meant entering the individual market, where a pre-existing condition could mean denial, exclusion, or unaffordable premiums. For many families the calculation was simple: no matter how miserable the job, losing coverage was not worth the risk. Small employers suffered on the other side of the same problem, unable to compete for workers as premiums outpaced what they could afford.
What Reform Changed, and What It Didn’t
The ACA targeted these problems directly. Insurers can no longer deny coverage or charge more based on pre-existing conditions, gender, or health status.4U.S. Department of Health and Human Services. Pre-Existing Conditions Lifetime and annual limits on essential health benefits are prohibited.8HealthCare.gov. Ending Lifetime and Yearly Limits Rescission is banned outside of genuine fraud.7eCFR. 45 CFR 147.128 – Rules Regarding Rescissions Marketplaces with income-based subsidies gave individuals a route to coverage outside employer plans, and Medicaid expansion reached more low-income adults.
The uninsured rate fell significantly. But the underlying cost pressures that made the pre-reform system so painful, from hospital pricing to prescription drugs to administrative complexity, are still active forces in American healthcare. The coverage architecture changed. The cost problem is still very much a work in progress.