Obamacare is not dead yet, but Donald Trump is close to achieving his goal. If it was not killed on Inauguration Day — when Trump signed his executive order that, among other things, relaxed enforcement of the individual mandate — it will be, if, as indicated, he decides to terminate the Affordable Care Act subsidies paid to insurance companies. Ending those payments, which subsidize deductibles for low-income populations, should effectively end the viability of the insurance exchanges created by the ACA that provide access to health insurance for low income families.
While the ACA — Obamacare — covers a wide range of healthcare issues, at its essence it was built around two essential elements: first, prohibiting insurers from denying coverage to, or charging differential insurance rates for, people with pre-existing conditions, and, second, requiring that everyone purchase health insurance — whether through employers who are required to provide coverage or as individuals — to ensure that young, healthy people become part of the health insurance system. The objective was to create a single “community rating” structure within which rates would be established. The two elements worked in tandem, as they would enable insurance companies to offset the higher costs of less healthy insured populations, including those with pre-existing conditions — whose premiums would not be high enough to fund their expected costs — with revenues from healthier populations, who by definition would pay more into the system in premiums than they would receive back in benefits.
Problems began for participating insurance companies when fewer healthy individuals signed up than projected, undermining the expected economic balance of the program. The January executive order validated insurer concerns over the political risks inherent in participation in the newly created healthcare exchanges, and further undermined the economic tradeoff, leaving insurers with the prospect of losing the upside of original bargain — the young, healthy customers who would get back far less than they paid in — while still on the hook for the higher cost populations they were obligated to underwrite. The prospect of terminating the subsidy payments to insurers — as Donald Trump reaffirmed this week — promises to be the last straw for participating insurance companies; if the January executive order constituted two bullets to the chest of Obamacare, the termination of the subsidizes looms to be the bullet to the head.
Listening to Republican struggles to repeal and replace the Affordable Care Act, one could easily draw the conclusion — as I’m sure many Americans have — that Obamacare is at the root of healthcare cost escalation, however that is little more than political rhetoric. As illustrated in the graph here, National Health Expenditures have risen steadily over the past half-century, both in dollar terms and as a percent of the nation’s gross domestic product (depicted by the solid purple line). Over the years, various healthcare reforms have sought to restructure how healthcare is funded and redistribute how the cost burden is shared across the population. The most dramatic reforms were the passage of Medicare, which put the funding of healthcare for the elderly on the back of the federal government, and Medicaid, which created a funding partnership between the federal government and the states for funding healthcare costs for those less able to pay. Obamacare, as it turns out, has had little impact on the public share of healthcare funding (shown in the red dotted line) which has similarly grown steadily over the years.
As much as Congress and the media talk about healthcare reform, Obamacare and its proposed replacement are less about the healthcare system overall than about the health insurance piece of the puzzle. That is to say, it is about who pays and how risks and costs are allocated, rather than about the provision of healthcare itself. As illustrated here, the preponderance of healthcare coverage in the United States is provided through private insurers, along with Medicare and Medicaid. Along with expanding Medicaid eligibility, the essence of Obamacare was to create a structure that would force healthier Americans that had previously chosen to remain uninsured to buy health insurance from private insurers in order to improve access for and reduce the cost paid by less healthy portions of the population.
While forcing one part of the population to fund the cost of services to another part of the population has been made by some to sound nefarious, we do it all the time. Risk and cost transfers across populations are commonplace in the provision of public services and taxation. Some public utilities — water and sewer systems come to mind — are able to charge fees on a user basis with little cross-subsidization. Other public services have subsidies inherent in their taxation and service provision models — essentially raising funds based on ability to pay, with little or no regard to the direct benefit received.
Public education, for example, is funded primarily by property taxes at the local level, and household funding contributions reflect differential wealth levels across a community, as calculated by home assessed values. Payment of those taxes by all homeowners is compulsory, and no consideration is given to whether a household has many children or no children; whether those children attend public schools or not; or whether a child has special needs that place a greater cost burden on the school district.
We have similar systems of cross-subsidization of service costs at all levels of government. Most obviously, on account of the progressive federal income tax, wealthy Americans pay the lion’s share of federal taxes. According to the Congressional Budget Office data, the top 20% of taxpayers pay 69% of federal taxes, and the top 1% pay 25% of all federal taxes. Taking into account the distribution of taxes paid and direct services received — according to a Tax Foundation analysis — the federal government redistributes $2 trillion annually from the wealthier 40% of families to the less wealthy 60%. Similar transfers of tax dollars across populations are inherent in our public finance structure, including from wealthier, predominantly blue states, to less wealthy red states through the federal budget, and within states from urban centers to rural communities.
At a much publicized town meeting in early May, Representative Raul Labrador (R-ID) caused an uproar when he asserted — in response to the suggestion that the healthcare bill passed by the House would result in millions of families losing access to health insurance — that “nobody dies because they don’t have access to health care.” The next day, Labrador explained his response by pointing out that federal law requires that hospital emergency rooms treat anyone who shows up with a serious condition, regardless of ability to pay.
Labrador’s explanation illustrated the central lie underpinning the House legislation: it really doesn’t fix anything. GOP anger at Obamacare focused in part on the individual mandate, which forced healthy participants to effectively subsidize the cost of insuring those with pre-existing conditions. The House bill proposes to alleviate the share of those costs born by that young, healthy population, by transferring those costs and risks to others, notably, as Labrador suggests, to hospitals, which would become saddled with significant increases in “uncompensated care” costs. Accordingly, the House proposal is similar to an unfunded tax cut; it reduces the burden on one sector of the population, while preferring to ignore the other side of the ledger, and the fact that someday, someone will have to pay the price for the benefit that was conferred.
GOP obsession with the individual mandate as a fundamental violation of individual liberty ignores the fact that healthy individuals are already compelled to participate in group health insurance provided by employers. The notion that individual participation is part of a broader programatic structure that shifts costs and risks across populations is also nothing new. As noted above, we transfer costs from one group of people to another all the time. In the healthcare sector, in particular, funding for Medicare, Medicate and veterans healthcare — which now comprise 50% of National Health Expenditures — are funded from broad based tax revenues.
In addition to those direct expenditures, we provide massive public subsidies to the private insurance market though the tax deductibility of employer-provided healthcare. When Obamacare added tax credits for individuals, in conjunction with the individual mandate, it was simply leveling the playing field. While it is reasonable to argue that the individual mandate is inappropriately narrow in scope — as it essentially constitutes an income transfer from people in their 20s and 30s to people in their 40s and 50s, through age 65, when they become eligible for Medicare — it is not inherently different than the myriad other ways that we transfer costs and benefits across populations. In particular, it mirrors those programs, such as Medicare and Social Security, that are funded on a life-cycle basis, wherein people pay in when they are younger and receive benefits when they are older.
When Donald Trump supported a single payer approach — before he opposed it — he recognized that unless and until we are willing to let people die in the street, healthcare costs are something for which the entire nation is ultimately on the hook. If, at the end of the day, we are all going to wind up paying those costs, it is the cost structure itself that should be the focus of the healthcare discussion, rather than legislation that does little more than shifting costs and risks from one place to another.
Read it at the HuffPost.
Follow David Paul on Twitter @dpaul.
Artwork by Jay Duret. Check out his political cartooning at www.jayduret.com. Follow him on Twitter @jayduret or Instagram at @joefaces.