Still No Good News for ObamaCare
Thursday, September 23, 2010
A just-released Census Bureau study confirms what most people feared: the number of uninsured has hit an all-time high, thanks in large part to a persistent and deep recession that has cost millions of jobs. According to a survey taken last March, more than 50 million people—one in every six Americans—reported that they did not have health insurance at any time during 2009. That’s an increase of 4.3 million people in just one year—the largest single increase in the 23 years since the government started collecting data on insurance coverage.
The details are even more disturbing. The number of people who obtained health insurance through their employer fell by 6.6 million people, hitting hardest people between 25 and 45 years old (when most people start families and raise children). The “safety net” programs—Medicaid and the Children’s Health Insurance Program—grew by 5.1 million, but they could not absorb the shock of a larger population and an economy facing hard times.
What will work is a reform that levels with the American people about what is possible and what is necessary.
The White House was quick to seize on this bad news to argue the merits of the new healthcare law. The Patient Protection and Affordable Care Act (PPACA) will “make affordable, high-quality care accessible to millions of Americans,” expanding coverage to 32 million people and giving them the same insurance options that members of Congress have. PPACA will even improve your care if you already have insurance, the White House says. You’ll get mammograms, colonoscopies, and other preventive services without having to pay a deductible or copayment, lifetime limits on how much insurers will pay for your health services will be prohibited, and your adult children get to stay on your insurance plan.
The White House wants you to forget two harsh realities. First, the new healthcare law does not give everyone the same menu of insurance options. Many people will have no options at all. Second, someone has to pay for all those new benefits. The claim that PPACA is paid for is true only in the narrowest sense that the Congressional Budget Office (CBO) projects a small reduction in the federal deficit as a result of the new law. But that is possible only because taxes increase, payments to healthcare providers are cut, and patients pay higher insurance premiums and copayments for their care.
More Choice—But Only If You Qualify
To attain its objective of (near) universal coverage, PPACA expands eligibility for Medicaid and provides subsidies for the purchase of private insurance through health insurance “exchanges”—essentially, organized markets. The law provides $938 billion in subsidies over the next decade, but there are new rules that limit what most Americans can purchase.
In 2014, Medicaid will be opened to anyone with an income below 133 percent of the federal poverty level, the equivalent of $29,400 for a family of four this year. But anyone found eligible for Medicaid will not be given a choice. They will not be eligible to participate in the new insurance exchanges that are supposed to offer a variety of private insurance plans, and they will not be eligible for the generous subsidies available through the exchanges to people with higher incomes—up to 400 percent of poverty, or $88,000 for a four-person family.
That might not be a problem if Medicaid could guarantee ready access to enough good doctors, hospitals, and other health providers. It cannot. That’s largely a matter of basic economics. Medicaid pays 30 percent less for health services than private insurance. Consequently, many healthcare providers do not take Medicaid. Cut off from other sources of treatment, Medicaid patients find themselves crowding into hospital emergency rooms, knowing they won’t be turned away.
The White House wants you to forget two harsh realities. First, the new healthcare law does not give everyone the same menu of insurance options. Many will have no options at all. Second, someone has to pay for all those new benefits.
The access problem will get sharply worse under PPACA, which will drive up Medicaid enrollment by 16 million beneficiaries. That’s a jump of about 50 percent in a system already wheezing under the strain of caring for the poorest in society.
The new law’s limits on personal choice extend well beyond the poor, affecting more than 160 million workers who buy health insurance through their employers. Employees of firms offering health benefits are expected to participate in the company’s plan, even though the exchanges may offer better coverage at a lower price. Those workers will generally be ineligible for subsidies available through the exchange, unless the premiums they would have to pay under the employer plans exceed 9.5 percent of their income. If you are a worker paying $333 a month—the average amount paid by workers in 2009 —toward the premium for a family plan and earn as low as $43,000 a year, you would have no alternative other than to remain in your employer’s insurance program.
These rules are blatantly inequitable. The same worker earning $43,000 in a company that does not offer health benefits would be eligible for the exchange and insurance subsidies. Not only would that worker have more plans to choose from, but new federal subsidies would reduce his cost by thousands of dollars a year.
Medicaid pays 30 percent less for health services than private insurance, which does not cover the cost of much of that care. Consequently, many healthcare providers do not take Medicaid.
Millions of middle-class people are assigned to a poorly functioning medical welfare program. Tens of millions of workers are barred from participating in a market that is supposed to offer more choice, better value, and generous subsidies. Surely this is not what most people have in mind when the White House tells them that health reform will take care of the uninsured.
Someone Will Pay
Like all legislation, healthcare reform is not perfect, but at least it is paid for. Or is it? The CBO says that PPACA will lower the federal deficit by $143 billion through 2019 by enacting more than $1 trillion in lower Medicare payments for healthcare providers and higher taxes for individuals and businesses. That does not mean the federal government actually “paid for” the new law. It means that, as usual, the government simply redistributed the money, taking funds from some people and giving them to others.
The CBO estimate understates the fiscal impact of health reform even by that standard. It is not difficult to find hundreds of billions of dollars in questionable savings, understated spending, and overstated revenue.
• The estimate does not include the money needed to implement this complex law, which CBO says will probably cost more than $115 billion.
• CBO assumes that Congress will order payment reductions that Medicare’s chief actuary says will make 15 percent of institutional providers (hospitals, skilled nursing facilities, and home health agencies) unprofitable, driving them out of the program.
• CBO does not include the cost of the physician payment “fix” in Medicare. Unless Congress acts, doctors will see their Medicare payment rates cut 30 percent by January. A partial fix was included in an early version of healthcare overhaul legislation but dropped to help keep the reform bill under $1 trillion. A full fix could cost more than $300 billion. Congress is likely to enact a series of one-year fixes to avoid having to admit how much they would cost over the decade.
• CBO assumes that $70 billion will be saved through new long-term care insurance, known as CLASS, even though the Medicare actuary says the program faces a significant risk of failure and the provision is widely regarded as a budget gimmick instead of a realistic program.
Instead of reducing the deficit, the all-in cost of healthcare overhaul could well increase the federal deficit by hundreds of billions over the next decade, and trillions beyond that.
Mandates Raise the Ante
Even if we could know the exact cost of healthcare overhaul to the federal government over the next decade, that underestimates the cost borne by society. Budget estimates do not include the very real costs imposed on individuals and businesses by government mandates.
Rules for workers who buy health insurance through their employers are blatantly inequitable.
A mandate requires people to engage in some activity that they would not otherwise do, which imposes costs on them just as surely as an explicit new tax. Mandates, such as the requirement that everyone buy insurance, are justified as serving some larger good, although those who are subject to the mandate may not agree. Mandates have the political advantage of not showing up in a CBO budget estimate, giving the false impression that the new requirement is cost-free.
A mandate has the same effect as a combination of taxes and subsidies to accomplish the policy objective. For example, PPACA requires insurers to cover preventive health services (including immunizations, screening for certain diseases, health counseling programs, and other activities recommended by the U.S. Preventive Services Task Force) without requiring beneficiaries to pay a portion of the cost through a deductible, copayment, or coinsurance. This provision operates through the private sector with none of the cost directly paid out of the federal budget. The new mandated benefit increases the cost of insurance, at least in the near term (and likely over time), which either increases the premium or causes some reduction in other benefits to cover that cost.
Alternatively, Congress could have funded a federal program to provide a full subsidy to insurers and health plans for this benefit. The funds for such a program would be raised through a general tax unrelated to preventive health services to avoid discouraging patients from their use. Under this policy, the additional outlays and revenue would be reflected in the CBO cost estimate, possibly driving the total cost of the legislation too high to be politically acceptable. A mandate avoids the potential political problem, but it understates the level of resources being directed toward healthcare by the legislation.
This “mandate illusion” promotes poor policy decisions. Because the White House and Congress are focused on the federal budget impact and CBO scores for their proposals, a provision that does not increase federal spending has a much greater chance of passage than one that has a budget cost.
Mandate illusion seems to have infected Secretary of Health and Human Services (HHS) Kathleen Sebelius. The secretary recently issued a threat to insurers who blame premium increases on the new benefits mandated in healthcare overhaul. Plans asking for “unjustified” rate increases could be excluded from health insurance exchanges in 2014, potentially shutting them completely out of the market. According to Sebelius, HHS “will not stand idly by as insurers blame their premium hikes and increased profits on the requirement that they provide consumers with basic protections.”
Insurers have begun to notify their members that PPACA’s new mandated benefits (including the coverage of adult children up to age 26, eliminating lifetime limits on benefits, and limits on insurers’ ability to cancel policies) would raise premiums in the next plan year. Reportedly, some of those increases are substantial, well above the 2 percent jump some analysts expected. Despite the secretary’s accusation, it is not at all clear that the higher premiums translate into higher profits.
What seems to be overlooked is the considerable variation across insurance plans in the likelihood that members will take advantage of the new benefits and the cost of those benefits in different markets. Even if the average premium increase across the country should be 2 percent, the use of health services by privately insured patients can vary by a factor of three across different markets and the rate of growth of spending in some locations can be double that of others. If insurers are expected to remain in the market, they must be allowed to cover their costs—and that means some premiums will rise faster than others.
HHS has also tried to make the case that requiring insurers to allow adult children to remain on their parents’ plan until they become 26 will be inexpensive, if not actually free. According to Sebelius, premiums would rise by only 0.7 percent, but that spreads the cost of the coverage across everyone with insurance. HHS’s interim final rule implementing this mandate reveals that the new benefit will cost $3,380 for each dependent next year. That amount would cause most families to ask whether it is really worth buying insurance for their offspring, particular if the child is healthy, as are most young adults.
New benefits, whether they are “paid for” by the government or mandated on private insurers, are never free. In either case, the public foots the bill.
A Better Way
There is no question that the U.S. health system is in need of reform. Health spending has grown faster than the economy for decades, in part because society is aging and an older population needs more care, in part because medical innovation has greatly expanded our ability to diagnose and treat disease. Despite trillions of dollars spent on healthcare, we seem to be losing ground. With an unprecedented number of people going without health insurance, we must find a better way.
ObamaCare is not that better way. In its attempt to reform healthcare, the administration has created overlapping layers of laws and regulations intended to anticipate everything that could go wrong and prevent it. Every problem—the uninsured, rising insurance premiums, ineffective and expensive care—is addressed. Every solution further centralizes power and decision making in Washington. The promises do not come cheap.
We need to look elsewhere. What will work—in fact, what cannot be avoided—is a reform that levels with the American people about what is possible and what is necessary. There are no magic bullets, and no expert committee can make the hard decisions easy.
If we expect to create a well-functioning healthcare system, we must first give individuals more control over their healthcare, and more responsibility for their decisions. Better information on insurance choices and treatment options is the key building block to better decisions by consumers and their healthcare providers. Government has an important role to play: establishing rules that promote effective competition and that deter the worst excesses that might otherwise occur. Innovation and entrepreneurship should be encouraged, but failure should not be subsidized with a government grant.
Market-based healthcare reform is no panacea, and will not produce an instant cure for every problem in the health system. It does, however, provide the tools necessary to make the healthcare system more effective, efficient, and responsive to patient needs. That is the most anyone could ask for.
Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute.