There has been some interesting analysis of the impacts on our health care system of the bill President Obama signed into law earlier today by libertarian economists Arnold Kling, Bryan Caplan, and Tyler Cowen. Many of the ideas have been floating around for a while (the bill’s been in development for more than a year and the Senate version upon which it’s based was passed in December) and we’ve discussed them quite a bit here on the blog and, especially, on OTB Radio but the aggregation is nonetheless interesting.
Kling calls the overall package “a clumsy way to redistribute wealth from the healthy to the sick.” Which, in many ways, it is. But while I’m generally not a fan of government-imposed redistribution schemes, the sick would seem to be an especially deserving charity case.
Less philosophically, there are either some rather serious unintended consequences or incredibly calculated pitfalls in the plan as passed — even presuming that the reconciliation fixes go through.
Free Rider Problem Increases
The near-immediate ban on denial for pre-existing conditions and the delayed-until-2014 individual mandate actually increases the free rider problem that the latter was supposed to fix.
As Kling puts it, “The anti-discrimination provision alone reduces the incentive for healthy people to obtain insurance. Instead, they may prefer to wait until they get sick. To the extent that they do so, premiums will rise to reflect the average cost of health care for a sick person.”
Caplan writes, “In practical terms, then, Heads I win, tails I break even remains the winning strategy. And as adverse selection drives up the drive of insurance, paying the uninsured penalty until you’re seriously ill gets smarter and smarter.”
Employer-Paid Insurance Going Away?
It was rather obvious that the combination of a public option and a low penalty for not covering employees was a backdoor way of shifting to a single payer system. But, of course, the public option died and we were left only with the penalty.
Caplan observes, “the penalty seems to asymptote to $2000/employee” annually. He observes “I have a feeling that post-recession jobs are going to be a lot less likely to offer health insurance.” While I agree — employer-provided insurance is a model based on an economy that started evaporating in the 1950s — we didn’t have any employee mandate at all previously. Presumably, though, the creation of the Exchanges provides a dumping ground for low value employees.
And most employers would be glad to give up the burden of insuring workers — especially blue collar workers — as it puts them at a competitive disadvantage versus overseas firms that have government provided systems.
Subsidy and Reimbursement Disparities Increase
While the main achievement of the bill is to cover more of the working poor, it nonetheless creates some strange inequities. As Cowen explains:
Many Americans will receive subsidies for insurance, from what I understand roughly in the range of 6k to 12k. Many other Americans — namely those who already have health insurance — will not receive direct subsidies of this nature. Yet the subsidy-receiving and non-subsidy-receiving Americans will very often belong to the same income classes.
This disparity does not bother me personally (I have other worries about the subsidies), but I believe it will be very unpopular once it is publicly understood. One way or another, the “firewall” between the exchanges and the employer-supplied system will break down. Some people will want to spread the subsidies, others will want to limit them. Yet the former is budgetarily problematic and the latter will be politically difficult.
A second and related issue is that the differences in reimbursement rates — across private insurance, Medicare and Medicaid (highest to lowest) — will become a more pressing issue. For one thing, Medicaid patients will be crowded out by those buying private insurance on the exchanges, plus they will be crowded out by the growing number of Medicaid (and Medicare) patients. There will be pressure to fix this problem and the difference in rates will lead to growing supplier gaming, queues, quality differentials, and so on.
Over time, reimbursement rates across programs (insurance subsidies, Medicare, Medicaid) will converge to an increasing degree. Subsidies will be increasingly determined by income class rather than previous insurance history.
In the limiting case (I’m not suggesting we will get there), everyone will receive means-tested subsidized vouchers for regulated private insurance. In this strange way, Medicare and Medicaid could end up partially privatized and Ezekiel Emanuel — a voucher advocate — will end up being more influential than his brother Rahm. We will have to live with the problems of means-testing to a higher degree than today, but we will have something closer to a unified system, as do most other countries with universal coverage. There will be political pressure for compulsory health care savings, as they have in Singapore, to lower costs of finance.
And this will all be much more transparent than current inequities, since more of it will be in the public sphere than is currently the case.
We’ll All be Driving Cadillacs in the Future
Most of us have noticed this already but it’s worth pointing out again: The tax on “Cadillac” insurance plans will kick in in 2018, by which time quite a few people will suddenly finding themselves driving “Cadillacs,” since health insurance costs are skyrocketing while the brackets are only indexed to inflation. Over time, most middle class folks will be taxed on what they now consider ordinary plans.
Indeed, Ezra Klein has contended all along that this is precisely the point: It’s a means of forcing costs down. But, since insurance companies are private, for-profit businesses (although ones on the verge of being public utilities under the new system) lower cost plans will inevitably be lower benefit plans.
Backdoor Single Payer?
My suspicion all along is that these problems were obvious to the bill’s framers but that they were kicking the can down the road. Higher penalties, of course, would solve some of the above problems but they weren’t politically possible in the current environment. Ultimately, though, they serve as a backdoor path to a single payer system, which most Democrats want but for which the votes aren’t yet there.
The current health care delivery system (by which I mean the one that existed when we woke up this morning, not ObamaCare as it’s being gradually phased in) is unsustainable. And while the new system will solve parts of the problem, especially access for the working poor and the permanently non-emergent sick, it does little to contain the exploding growth in costs and nothing to defuse the ticking demographic bomb.
And, if it ultimately undermines the employer-provided insurance model, which has most Americans very comfortable with their own medical situation, some sort of government-run system will look awfully good.
It’s what Bill Clinton wanted in 1993 but couldn’t get. And what Obama wanted in 2010 but was smart enough not to try. But by expanding on the already high proportion of the population getting their health coverage through the government and weakening the incentives for companies to insure their own employees, the leap will be smaller next time.
I’m not scaremongering here, just looking down the road to what seems like an inevitable junction. And it’s where most of the developed world wound up decades ago. If our goal is to cover everyone, regardless of ability to pay or preexisting condition, then we’re not talking about insurance but a social welfare system. And it would be cheaper and more efficient to centralize it than to piecemeal it.
Philosophically, I’m not sure I wouldn’t be happier with something closer to a European system than the public-private patchwork monstrosity we’ve now got. We’re much more likely to wind up with a French- or German-style system than a bureaucratic British National Health Service. My guess is that it’d be something akin to Medicaid for everyone with optional private supplemental insurance, with high value workers getting the latter from their employers.
