The Biggest Problem with Obamacare (It's Probably Not What You Think)
It’s true: the Affordable Care Act is having problems. But Republicans who say those problems are caused by “big government” have it exactly backward. Obamacare’s current difficulties are grounded in our country’s political fetishization of the private sector—a fad that began in the Republican Party, but has unfortunately spread to much of the Democratic establishment.
Government isn’t the problem here. It’s the solution.
When the ACA is attacked, most Democrats point to the good it has done. They should. Some of its work, particularly in extending coverage to children and economically vulnerable populations, is highly laudable.
But the flaws are real. One person in five on the exchanges will have no choice of insurers next year. Premiums for “mid-range” plans—which offer fairly paltry coverage—will increase by an average of 25 percent, according to the Administration. States like Arizona are faring even worse, with an average projected increase of 116 percent. Many people have found insurance on the exchanges to be unaffordable and are taking a tax penalty instead.
And while lower-income people will see their premium costs offset by subsidies, those subsidies represent a shifting of wealth from the general public to for-profit insurance corporation. That, too, is a legitimate policy concern.
What went wrong, and what can be done to fix it?
The policy heart of the ACA is the individual mandate to purchase health insurance, which was crafted at a right-wing think tank. A number of its other key provisions had GOP roots too, including the “marketplaces.”
Sen. John Chafee’s Republican alternative to Hillary Clinton’s 1993 health proposal resembled the future ACA in a number of key ways. Republican Governor Mitt Romney eventually implemented a similar program in Massachusetts.
The ACA differed from these Republican plans in several key ways, including its expansion of Medicaid and the small additional tax it imposed on high earners. But it has Republican DNA. If President Obama hoped that would bring in some GOP support, he miscalculated. As the president himself said, “Republicans reversed course and rejected their own ideas once they appeared in the text of a bill I supported.”
The ACA’s deepest problems stem from assumptions built into its design—assumptions that its backers described at the time as “technical” and “wonkish,” but which were in fact deeply ideological at their core. These assumptions were rooted in a misplaced faith in private-sector market forces—a faith not shared by some who, like me, had actually worked in private-sector health insurance.
The developed world is filled with health-care success stories, but they are government success stories.
How did market myths distort the ACA? First, even the most conservative economist would agree that market forces can’t function without competition. And yet in 2009, before the Affordable Care Act was signed into law, several studies found that 94 percent of all health insurance markets in the United States were “highly concentrated.”
The ACA tried to address this lack of competition by establishing nonprofit coops to compete with private carriers. But 15 of the 23 coops established under the law have already failed (as I predicted they would in 2011).
The ACA also relied on free-market ideology to “bend the cost curve,” assuming that insurers would compete to cut costs in order to gain market share. But health insurers have relied on less productive tactics like mergers and market dominance to boost their profits instead.
The ACA used ideologically biased theory to justify penalizing “generous” health plans with extra taxes if their coverage became too costly. It was misguided to assume that such plans would, or could, self-correct when subjected to financial penalties. Benefits in so-called “Cadillac” plans (a loaded term worthy of GOP pollster Frank Luntz) were less generous than those of most developed countries, and costs were largely beyond their control.
Studies debunked the “Cadillac tax” before the ACA’s passage, but ideology demanded its inclusion anyway.
The ACA also suffered from the ideologically driven notion that people who fail to purchase private-sector insurance coverage are guilty of a moral lapse. Sure, it’s prudent to insure yourself for potential losses, including the needed for medical care. But many people live paycheck to paycheck, and health insurance is very expensive—even for high-deductible plans that offer little in the way of comprehensive coverage.
When people are struggling to make ends meet, it’s not surprising that they often wind up crossing their fingers and hoping they don’t get sick. Throw in the complexity of the enrollment process and the difficulty of predicting an enrollee’s subsidies, and the result is a highly predictable shortfall in enrollment—especially among the younger, healthier people needed for actuarial balance.
What can be done?
Lately President Obama has been waxing enthusiastic about the “public option,” a government-run alternative to the for-profit companies listed on the health exchanges. Jacob Hacker, the original author of the “public option” concept, recently wrote an editorial calling for its revival. As Hacker notes, 33 Democratic Senators now support the public option.
It’s a good idea. If the health exchanges offered a publicly run health plan along with their current options, it would increase competition and hold down costs. But many questions would remain: Would it only be available to health exchange participants? If so, most Americans would be excluded. Would for-profit insurers use it as a “dumping ground” for bad health risks, driving public costs up in order to bolster their profits? (Ironically, that would also provide ammunition for the false argument that the private sector is more efficient.)
The fact is, the American health-care system is broken for everyone under the Medicare-eligible age of 65. Out-of-pocket costs for Americans with “good coverage,” including premiums, copayments, and deductibles, has skyrocketed in recent years.
The Milliman actuarial firm found that these costs rose by 5.2 percent last year, to an average of more than $11,000 for an average family of four with employer-based coverage.
Meanwhile, Medicare is outperforming the private sector. The Kaiser Family Foundation reports that Medicare costs rose by an average annual rate of 1.4 percent per year between 2010 and 2015, less than half the cost increase experienced by private insurers. While that difference varies over time, Medicare’s efficiencies of scale will always ensure that it can achieve cost savings private insurers cannot. As an added side benefit, Medicare doesn’t pay exorbitant salaries to its executives. (That’s a good place to start “bending the cost curve.”)
The ACA’s reliance on “market forces” was a design flaw. In all likelihood, the private sector will never be able to provide universal, affordable health coverage. So how do we convert ourselves to a more efficient government-run system, like those in other developed countries?
It won’t be easy. The tendrils of excessive profit-seeking reach into every corner of our health economy, and it will take a long-term project to fix that. In the meantime, Medicare’s doors should be opened to as many Americans as possible. The public option should be available to anyone who wants it. Medicare should provide coverage to all of America’s children, and to people between the ages of 55 and 65. We should also consider some of the other techniques that have succeeded in other countries, like an “all-payer” system of uniform rates for medical services.
The ACA’s authors would argue that a more progressive health solution was politically impossible. But the public option has always been popular. Polls have often showed majority support for government-sponsored health insurance. And Americans know they have a health-care problem. They frequently defer or delay needed medical treatment, and health-care costs are a leading source of bankruptcy and financial anxiety.
Democrats’ political prospects will suffer if they cling to Obamacare’s less popular and less effective provisions. Conversely, they’ll gain strenth with a commonsense program of government-based health care. They should not be afraid to propose bolder interim policies, or to declare that Medicare for All is their long-term goal.
That approach will be attacked as “ideological.” But it’s based on real-world experience, both in the US and around the world. That’s more than can be said for the free-market myths that have influenced our nation’s health care policy for far too long.