Nobamacare

We’re starting to see why those who supposedly hated Obamacare have been so reluctant to say what their replacement plan is.  It’s because it’s essentially Obamacare, minus the good things.  Their replacement is “Nobamacare.”  And it’s not likely to work.

First, let’s recall why health reform was such a big issue in the 2008 election.  15% of Americans were without health insurance at that point, the highest number since the creation of Medicare and Medicaid in the 1960s, and a figure that was increasing steadily over the prior 5 years. There are two basic approaches to trying to correct this.  One is a national health plan, where healthcare is either paid for (e.g., Canada) or provided by (e.g. Great Britain) the government.  The other is to work through the free market, using a combination of carrots and sticks to make private insurance more affordable, and incentivizing people to purchase it.  Over decades, and true to form, Democrats have tended to favor the former, while Republicans have promoted the latter.  Until, that is, Barack Obama was elected.  He essentially adopted the Republican idea of working through private insurance.  The Affordable Care Act – a.k.a. Obamacare – is almost exactly the same market-based plan as that instituted in Massachusetts by Gov. Mitt Romney (yes, the same Republican Mitt Romney who ran against Obama in 2012).  In fact, Democrats initially wanted to compromise on a hybrid where there would be a public option – that is, people would be able to choose among private plans or a public plan similar to Medicare – but that was dropped in a futile effort to get Republican legislators to support the Republican plan.

So, Obamacare was basically an effort to increase private insurance coverage (OK – there is one exception which I will get to in a minute). The reasons there were 48 million people without health insurance included that it was too expensive, that there were practices that prevented people from getting covered (e.g., companies refusing to give a policy to someone with a pre-existing condition), and that some people chose to take the risk of not having insurance. Trying to increase coverage through private insurance meant lowering costs, removing barriers, and incentivizing people who were choosing not to buy insurance.

The ACA plan to increase coverage addressed each of those.  To attack the issue of costs, Obamacare sought to create a better marketplace.  The theory was that if you could increase competition, costs would drop and most people without insurance would be able and willing to buy it.  Adam Smith wins again.  So the ACA created an insurance marketplace (sometimes called the “exchange”).  People who did not have insurance through their employer would be able to go on line, compare several insurance plans with information on what they covered, which providers were included, and how much they cost – sort of an Expedia for health care – and competition would drive down prices.  Removing barriers meant preventing insurance companies from excluding those with pre-existing conditions, or placing lifetime caps on coverage which would toss many people with expensive illnesses like prematurity or cancer off the policy part way through their treatment.  And finally, incentives included both carrots – premium and cost-sharing subsidies for lower income people, allowing young adults to stay on their parents’ plan, and requirements that preventive care be covered without cost-sharing – as well as the stick of the individual mandate, which required everyone to have insurance or pay a fine. (Here is where that private insurance exception comes in.  The architects of the plan realized that some people were too poor to buy insurance no matter how many carrots or sticks were offered.  Therefore, one element of the plan was to expand Medicaid to make sure that all those below the poverty line were covered.)

OK, with me so far?  Obamacare was a Republican plan, implemented by a Democratic president, to expand health insurance coverage through the miracle of the free market.

So what happened?  Well, as far as the primary goal of increasing the number of people with health insurance, it was a big but not complete success, with some 20 million additional people covered by 2016.  Also on the plus side, the tens of millions of people predicted by naysayers to lose their employer-based coverage – that never happened.  Of course, that still leaves a lot of uninsured – over 25 million.  Of those, half cite cost as the reason they remain uninsured.  And this is not surprising, since after an initial flattening, health insurance premium costs have started to increase more rapidly again (though at a slower rate than before the ACA).  Why?  There are several factors.  Many insurance companies, in an effort to gain market share quickly, underpriced themselves in the marketplaces.  As competitors dropped out, they jacked up their prices.  Also, fines for not buying insurance under the individual mandate were very low, so lots of healthy people continued to forego insurance, meaning companies were covering a sicker and more expensive population than they expected. Finally, despite its title, the Affordable Care Act did little to address the root causes of high health care costs including private insurance overhead.

So what do the Republicans plan to do?  Instead of expanding health insurance coverage through the miracle of the free market, it appears they plan to expand health insurance coverage through the miracle of the free market.

Huh?

Yes, that’s right, the mainstay of Nobamacare is the insurance marketplace.  So what, you may ask, will be different?  That’s not entirely clear, but the main things seem to be changing the incentive system.  Rather than offering subsidies that vary based on income, Paul Ryan’s plan calls for tax credits and incentives to contribute to health savings accounts.  Both of these would be tilted toward those with higher incomes.  Moreover, the Medicaid expansion for the poorest would be reversed.  In other words, there would be fewer incentives for those most in need of incentive.  Given what we know about who is not covered – coverage increased least among the poor in states that did not accept the Medicaid expansion, and inversely proportional to income among those above the poverty line – that is simply not going to make things any better.  And like the original Obamacare, “Nobamacare” does virtually nothing to address healthcare costs.  If that were my plan, I’d be scared to release it too.

Now, I tend to agree that Obamacare has not lived up to its promise.  It has increased coverage, but less than hoped.  It has slowed healthcare spending, but less than hoped.  But the reason is not because it is insufficiently free market.  Rather, it demonstrates the limitations of the “free market” in healthcare.  Acknowledging the shortcomings in those ideas in the first place would be a start. Calling Obamacare something else because Republicans can’t abide the fact that a Democrat took credit for implementing their ideas isn’t the answer.  Maybe turnabout is fair play: today’s most prominent New York Republican, now that he realizes that healthcare turns out to be complicated, could steal the Democrats’ idea of “Medicare for all” and name it after the New York Republicans who also supported that idea in the 1970s.  He could really shake things up and introduce a single-payer Javitscare or Rockefellercare.  Now that would be interesting.  That would be progress.

5 Responses to Nobamacare

  1. Glad you are continuing your blog my friend. Always informative. Best of luck in MN! ENG and GOR together again. Must visit.

  2. Nice explanation Dr. Gorelick! Thank you and wishing you all the best in MN.

  3. Love this! Really appreciate your insight.

  4. Nora vrakas says:

    It is very interesting. The first analysis I received of the Ryan plan is that it will roll back most or all of the admin and taxes that Obamacare unleashed on employers which is good and bad. The admin has been crazy, but the taxes provided necessary funding. It plans to reverse the Cadillac tax that employers with high value plans would pay and will instead tax the employee recipients of those high value plans. I believe single payer multi provider is the solution but gather the insurance lobby may never let that happen? Unless the insurers continue to consolidate until there is essentially one?

    • The Cadillac tax probably did more to reduce the rate of increase in costs than anything else. By forcing employers to shift more people to high deductible plans, it drove individuals to shop for medical care (as opposed to health insurance} on price. Private insurance systems can work (e.g., Germany) when they are highly regulated and not-for-profit.

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