Now that the Republicans have failed to replace the Affordable Care Act with a poor substitute, it is likely that a bipartisan plan will emerge. Both sides want changes in the existing structure of the ACA. The Democrats want to hold down the rapidly growing costs for individuals who purchase insurance through the exchanges. The Republicans want to hold down the overall cost of American healthcare which now exceeds 18% of GDP.
There should be plenty of room for compromise:
Medicaid. The Centers for Medicare and Medicaid Services project that under the House bill, which caps federal spending growth for Medicaid and saves hundreds of billions of dollars, total Medicaid enrollment will stay roughly constant above 70 million for the next decade, compared to 55 million before the ACA was enacted.
A Bipartisan Problem Solvers Caucus would fund cost-sharing payments to insurers, proposes curtailing the mandate on employers to provide health insurance to their workers, advances states’ ability to band together into regional compacts for selling insurance across state lines, and expands the opportunity for states to experiment with different ways of providing coverage.
Medicare. Just letting Medicare negotiate for drug prices and reducing the variation in the costs for post-acute care would provide huge savings, without even addressing inefficiencies in Medicare’s basic design.
Conclusion. The above plan holds down the cost of insurance purchased by individuals on the exchanges as well as taking significant steps to control the costs of both Medicare and Medicaid. It doesn’t address the huge inefficiency of employer provided care but nevertheless represents a big step forward towards implementing cost control in healthcare.
Recently I have been discussing the high cost of American healthcare and the urgent need to lower this cost. The current GOP plan, the American Health Care Act, partially addresses this problem by reforming the funding mechanism for Medicaid.
But much more needs to be done. All Americans will have to be involved in the solution and not just the poor. There are two main facets to the problem, neither of which is addressed by the AHCA:
The tax exemption for employer provided health insurance should be replaced by a universal (and refundable) tax credit limited to the cost of catastrophic health insurance (with a high deductible).
Medicare needs to be redesigned so that well-off retirees pay for more of their health care. Details to follow soon.
The U.S. spends 18% of GDP on healthcare, public and private, about $3 trillion per year, and almost twice as much per capita as any other developed country. Furthermore this already enormous relative cost will continue to get worse without major changes in policy.
The main reason for the huge cost is that free market forces are not operating properly. More specifically, it is because most of us, as individual healthcare consumers, do not have enough “skin in the game.”
This conundrum is caused by our third party health insurance system whereby most of us receive health insurance through our employers. This gives us as individuals little incentive to pay attention to the cost of our own care and to try to keep these costs as low as possible.
A good way to fix this problem is to limit the exemption for employer provided insurance to the cost of catastrophic care with a high deductible. Routine medical expenses would be handled through individual (tax preferred) health savings accounts. The self-employed can be included by granting them a (refundable) tax credit also equivalent to the cost of catastrophic care.
Conclusion. Americans are fortunate to have access to high quality health care. But we are paying unsustainably high prices for it. If we cannot figure out a rational and sensible solution to this problem, our healthcare system will soon collapse from its own deadweight and we will end up with a tightly controlled, government run, single payer system.
The Supreme Court will soon render an opinion in King v. Burwell challenging the implementation of the Affordable Care Act. If the Court agrees with the plaintiffs, then anyone receiving health insurance through one of the federal exchanges operating in 33 states is not eligible to receive a subsidy. Several Committees in the House of Representatives are proposing to take such an opportunity to make improvements to the ACA. In addition, the Congressional Budget Office has just released a report on the “Budgetary and Economic Effects of Repealing the Affordable Care Act,” indicating that repeal of the ACA would add $137 to the deficit over 10 years. This is because the loss of ACA imposed new tax revenues and spending cuts to Medicare would exceed the amount of money spent to expand insurance coverage.
The economist John Goodman has an excellent new book, “A Better Choice: Healthcare Solutions for America,” describing several basic changes which would greatly improve the ACA. In summary they are:
Replace all of the ACA mandates and tax subsidies with a universal (and refundable) tax credit which is the same for everyone. This is the fairest way to subsidize healthcare for all and it also removes the huge market distortion provided by employer provided health insurance which is tax exempt. The tax credit would be about $2500 per individual and $8000 for a family of four, the approximate cost of catastrophic health insurance and also the average cost of Medicaid.
Replace all of the different types of medical savings accounts with a Roth Health Savings Account (after-tax deposits and tax-free withdrawals).
Allow Medicaid to compete with private insurance, with everyone having the right to buy in or get out.
Keep the ACA exchanges which would be required to provide change-of-health status insurance for the protection of the chronically ill.
Changes such as these would dramatically lower the cost of American healthcare by making all of us directly responsible for the cost of our own healthcare. They would also virtually eliminate the perverse market effects of the ACA which encourage companies to cut back on numbers and working hours of employees. This in turn would speed up the growth of our stagnant economy!
The Affordable Care Act has improved access to healthcare by already enrolling over 7 million Americans who were previously uninsured. It is estimated that there will be a total of 20 million new enrollees by the end of this decade. But as the above chart from a recent Gallup survey indicates, the cost of healthcare is now a big barrier for an increasing number of people with health insurance.
The University of Chicago economist, Casey Mulligan, discusses the cost issue in a recent Wall Street Journal article “The Myth of ObamaCare’s Affordability” as well as in a new book. He makes the following points:
Although the ACA helps specific populations by giving them a bigger piece of the economic pie, the law diminishes the pie itself by reducing the amount that American’s work and making their work less productive.
35 million men and women currently work for employers who don’t offer health insurance. These tend to be small and midsize businesses with lower paid employees. The result of penalizing businesses for hiring and expanding will be less hiring and expanding.
The “29er” phenomenon is a good example of how the law harms productivity. If a business has 50 or more employees who work over 30 hours a week, it is required to offer health insurance. Many employers have thus adopted 29-hour work schedules which lessens overall productivity.
Mr. Mulligan estimates that the ACA’s long-term impact will include about 3% less weekly employment, 2% less GDP and 2% less labor income. He also claims that these effects will be visible and obvious in just a few years by 2017!
The ACA is thus weakening the economy. For the large number of people who continue to pay for their own healthcare, healthcare is now less affordable.
Conclusion: we need true healthcare reform which addresses cost as well as access and this can be achieved by fixing Obamacare. It is not necessary to repeal it. The Manhattan Institute’s Avik Roy has developed a plan to do this: ”Transcending Obamacare.” Mr. Roy’s Plan would keep the exchanges, end both the individual and employer mandates, and migrate both the Medicare and Medicaid programs onto the exchanges over time. These features will greatly reduce the cost of American healthcare. Check it out and see for yourself!
Last week’s report from the Congressional Budget Office “The Economic Outlook: 2014 – 2024” (which I discussed in my last post) caused a big stir with its prediction that ObamaCare will cause a loss of 2,000,000 mostly low wage jobs by 2017 and 2,500,000 such jobs by 2024. The lost jobs aren’t necessarily from workers being fired or fewer workers being hired but rather the overall decreased incentive for individuals to find work. The CBO analysis is based on the research of the economist Casey Mulligan featured in yesterday’s Wall Street Journal as “The Economist Who Exposed ObamaCare”. The above chart of Mr. Mulligan interprets several recent government subsidy programs as a new marginal tax rate, i.e. the “extra taxes paid and government benefits foregone as a result of earning an extra dollar of income.” The 2009 stimulus, the Recovery and Reinvestment Act, had an effect like this but it was temporary. The marginal tax increase of the Affordable Care Act will last as long as it remains in effect. The above chart from the same CBO report, showing the steady decline in the Labor Force Participation Rate from the year 2000 onward, demonstrates the critical nature of this problem. Lower labor force participation means lower growth in overall labor productivity which in turn means slower economic growth. Since the Great Recession ended in June 2009, GDP growth has averaged only about 2% annually.
Slow GDP growth means, in addition to a higher unemployment rate, that America’s standard of living will not increase very rapidly if at all. But the problem is really much worse than this. We have an enormous debt problem which is only getting worse every year that we continue to have large deficits. The CBO report predicts increasing growth in the size of our national debt. By far the least painful way of shrinking our debt (relative to the size of the economy) is to grow the economy as fast as we reasonably can. But our economy is actually slowing down, not speeding up!
This is a very serious problem which many of our national leaders are much too complacent about!
On the eve of its implementation, the Affordable Care Act (aka Obama Care) is more unpopular than ever amongst the general public. But the House Republican strategy of trying to defund the ACA as part of a continuing resolution to fund the government for the new fiscal year is a very poor idea. It will never pass both houses of Congress and be signed by the President. All it can possibly do is lead to a temporary shutdown of the government and therefore cause mass confusion.
The Wall Street Journal recently suggested a much more effective way for the House Republicans to proceed in “Carve-0uts for Congress”. The legislation establishing the ACA contains a provision requiring all members of Congress and their staffs (11,000 people in all) to purchase their own health insurance on the new exchanges which are being set up to enroll uninsured Americans. The idea behind this provision is to insure that members of Congress and their staffs and their families will obtain their insurance just like everyone else so that they will fully experience how healthcare reform actually works in practice.
But just a month ago the Administration personnel team issued a regulation exempting all Members and aides from the requirement to use the exchanges. A recent poll taken by Independent Women’s Voice shows that 92% of likely voters, regardless of their views of the ACA, think that this exemption is unfair.
The implication is clear. Republicans should show their dissatisfaction with the ACA by attaching the repeal of this exemption, which is contrary to law, as well as highly unpopular, to the continuing resolution to fund the government for the next fiscal year. Let the Democratic Senate defend this exemption if it wants too. It’s an opportunity for the House Republicans to do the right thing and also to stand with the “little guy” against the Washington elite.