Nobamacare

March 1, 2017

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.


#thanksObama

October 28, 2016

CHW LogoUnqualified success or unmitigated disaster?  If we’re talking about my attempts at home repair, that’s an easy question.  But I meant the Affordable Care Act, aka Obamacare.  The battle lines have certainly been sharply drawn.  It’s pretty clear that with regard to expanding coverage, the answer is qualified success.  Currently, the focus is on costs.  Many opponents of the law are now claiming that Obamacare has caused health care costs – actually meaning health insurance costs – to skyrocket, citing increases in the high double digits.  That sure sounds bad.  How bad is it, really?

To answer that question, we need to distinguish between health care costs and health insurance costs, and between the cost of insurance actually purchased under the ACA and employer-sponsored insurance.  Only about 12 million people actually purchased individual plans on the insurance markets established under Obamacare (an additional 10 million or so got coverage through the expansion of Medicaid.  The vast majority of Americans under the age of 65 continue to get coverage through their employer.  The good news is that for those folks, premium costs are actually going up more slowly than before the law.  Yes, Obamacare has actually decreased health insurance inflation for the 154 million people with employer-sponsored insurance.  As cited in a Commonwealth Fund study released today: “Compared to the five years leading up to the ACA, premium growth for single health insurance policies offered by employers slowed both in the nation overall and in 33 states and the District of Columbia.”  The rub is that at least some of this is due to employers shifting more of the costs onto workers via high deductible plans (a trend that predates but was accelerated by the “Cadillac tax” provision of the ACA).  And the increase in out-of-pocket costs hurts, even if it’s offset in part by the absence of cost-sharing for preventive services.  But it’s impossible to argue that overall Obamacare has made health insurance more expensive.

So what about those 70% increases being thrown around.  Well, for the plans purchased on the Obamacare marketplace (formerly known as the exchange), premiums are going up steeply next year – an average of 22%, and in some areas much higher.  Doesn’t this prove the law is a failure?  Yes and no. First of all, given lower than expected premiums in the first years of the marketplace, the actual premiums for 2017 are pretty much in line with what was forecast when the law was first drafted. (Full disclosure: Doug Elmendorf, the director of the Congressional Budget Office who produced that forecast, was a college classmate.)

More importantly, let’s look at the reasons for the huge jumps in marketplace premiums for 2017:

  1. Many companies have withdrawn from the exchanges, leaving less competition
  2. The reason companies have pulled out is they were losing money, due to:

a. Too few healthy people signing up

b. Setting too low a price in the past to attract more people

In other words, the free market – which despite the rhetoric is exactly what Obamacare established, a market for insurers to compete for customers – is doing exactly what the free market does.  Insurers are charging as much as they can in a non-competitive environment.

As originally envisioned, the ACA sought to mitigate this by requiring everyone to buy insurance, no matter how healthy (the individual mandate), and be ensuring competition by providing a public option.  The former was watered down by insignificant penalties for not complying, and the latter was eliminated.  In place of a public option, a number of co-operatives were formed, with substantial government subsidies, but these have generally not had the scale to compete successfully with large insurers the way Medicare could.

Those who are complaining about the rate increases “caused” by the ACA propose to…further unleash the market, and thus make the problem worse.  Donald Trump, for example, proposes eliminating the individual mandate (see 2.a. above), increasing the tax deductibility of health insurance premiums (which would decrease the incentive to shop on price), and allow insurers to sell across state lines (which by some analyses would decrease premiums for healthier people but increase those for people with higher utilization by a greater amount).  Paul Ryan’s plan similarly depends on those market-based elements that are driving the current increases.

It’s important to remember that despite the name and despite the administration’s claims, the Affordable Care Act was not primarily about health care costs.  It was about expanding coverage – which it has done, by addressing insurance costs.  Which it has done.  Both Democrats and Republicans worried that the bill did little to address overall costs.  Indeed, market forces would suggest that if there are more people with insurance demanding services, there would be upward pressure on the price of those services.

So yes, people continue to pay more for health care, as for almost everything else.  For most people – those with employer-sponsored insurance –  that rate of increase for insurance has actually slowed.  For others, those who benefited directly by getting new coverage from the market-oriented reforms known as Obamacare, the sticker shock is real.  But let’s not pretend that turbocharging the market is going to fix the problem.  That would be like buying me more power tools.  Bad idea.


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