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Commentary

A Costly Failed Experiment


     
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With Sunday marking the fourth anniversary of the Affordable Care Act being signed into law, it’s worth revisiting the initial purpose of the president’s signature legislation: Universal coverage was the main goal. Four years later, not even the White House pretends that this goal will be realized. Most of those who were uninsured before the law was passed will remain uninsured, according to the Congressional Budget Office.

Democrats also fixated on another goal: protection for people with pre-existing conditions. One of the first things the new law did was create federal risk pools so that people who had been denied coverage for health reasons could purchase insurance for the same premium a healthy person would pay. Over the next three years, about 107,000 people took advantage of that opportunity.

Think about that. One of the main reasons given for interfering with the health care of 300 million people was to solve a problem that affected a tiny sliver of the population.

More recently, the president has had to explain why between four million and seven million people are losing their health insurance despite his promise that they would not. The new insurance will be better, he tells us. No longer will insurers be able to cancel your coverage after you get sick. What he doesn’t say is that this practice was made illegal at the federal level by the Health Insurance Portability and Accountability Act of 1996, and was illegal in most states long before that.

While the president and his party struggle to find more convincing reasons why we need ObamaCare, three huge problems won’t go away.

An impossible mandate. For the past 40 years real, per capita health-care spending has been growing at twice the rate of growth of real, per capita income. That’s not only true in this country; it is about the average for the whole developed world.

Clearly, this trend cannot go on forever. So what does ObamaCare do about that? It limits the government’s share of the costs while doing nothing to protect individuals or their employers.

The law restricts the growth of total Medicare spending, the growth of Medicaid hospital spending and (after 2018) the growth of federal tax subsidies in the health-insurance exchanges to no more than the rate of growth of real GDP per capita plus about one half of 1%. This means that as health-care costs become more and more of a burden for the average family, people will get less and less help from government—to pay for insurance the government requires them to buy!

Unworkable subsidies. A family of four at 138% of poverty level is able to enroll in Medicaid in about half the states and obtain insurance worth about $8,000. Since the coverage is completely free, that’s an $8,000 gift. If they earn $1 more, they will be entitled to join a health-insurance exchange and obtain a private plan that costs, say, 50% more in return for an out-of-pocket premium of about $900. That’s a gift of more than $11,000.

At the same time, the employees of a hotel who earn pretty much the same wage as in the two previous cases will be forced to have an expensive family plan and they and their employer will get no new government help. The only assistance is the long-standing tax break that exempts employers’ premium payments from federal income and payroll taxes. Even so, the ObamaCare mandate amounts to about a $10,000 burden on these businesses and by extension their employees.

These are only a few of the many ways in which ObamaCare’s treatment of people is arbitrary and unfair.

A bigger problem is the impact these differential subsidies will have on our economy. As businesses discover that almost everyone who earns less than the average wage gets a better deal from the federal government in the exchange or from Medicaid, and that most people who earn more than the average wage get a better deal if insurance is provided at work, trends already evident will accelerate. Higher-income workers will tend to congregate in firms that provide insurance. Lower-income workers will tend to work for firms that don’t. But efficient production requires that firm size and composition be determined by economic factors, not health-insurance subsidies.

Perverse incentives in the exchanges. Under ObamaCare, insurers are required to charge the same premium to everyone, regardless of health status, and they are required to accept anyone who applies. This means they must overcharge the healthy and undercharge the sick. It also means they have strong incentives to attract the healthy (on whom they make a profit) and avoid the sick (on whom they incur losses).

The result has been a race to the bottom in access and quality of care. To keep premiums as low as possible, the insurers are offering very narrow networks, often leaving out the best doctors and the best hospitals. By keeping deductibles high and fees so low that only a minority of providers will accept them, the insurers are able to lower their premiums, thus attracting still more healthy individuals at the expense of overall care.

So four years into this failed experiment, what are the alternatives? Getting rid of the mandates, letting people choose their own insurance benefits, and giving everyone the same universal tax credit for health insurance would be a good start. More easily accessible health savings accounts for people in high-deductible plans is another good idea.

Every provision in ObamaCare that encourages employers either not to hire people or to reduce their hours should go. Everything in the law that prevents employers from providing individually owned health insurance that travels from job to job should go. And everything that makes HealthCare.gov more complicated than eHealth (a 10-year-old private online exchange) should go.


John C. Goodman is a Senior Fellow at the Independent Institute. The Wall Street Journal and the National Journal, among other media, have called him the “Father of Health Savings Accounts.”

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