James C. Capretta at the American Enterprise Institute has a piece today that, in a just-giving-you-the-facts-folks tone, asserts that the "Affordable" Care Act is about to get expanded and that that expansion will be irreversible.
As usual (think the original farm bill from 1933 that has turned into a cyclical five-year renewal pattern), the expansion is being touted as a necessary emergency measure:
President Biden established the financial parameters of the current bill by calling for a $1.9 trillion COVID-19 response plan. The measure is wide-ranging, with provisions focused on vaccines, testing, and public health, as well as unemployment and economic support. To relieve some of the pressure on families struggling financially, the president wants to increase ACA subsidization of their health insurance premiums. Because the legislation is advertised as an emergency measure, most of the provisions suggested by the president are billed as temporary, including the expanded ACA subsidies.
You'll recall that, in the early days of the ACA rollout, some states stood their ground and resisted Medicaid expansion. The Biden administration says, "We can't have that":
The bill also includes a new incentive for states to expand their Medicaid programs as authorized by the ACA. Thirty-seven states (plus D.C.) already have adopted the expansion. The new lure — a two-year bump in federal matching payments of 5 percentage points — is aimed at encouraging the hold-outs to drop their opposition. CBO estimates this provision would cost another $16 billion over ten years because it would accelerate adoption by a certain number of states.
In the early years of this blog, I used a term that I've largely backed off from. I would refer to the American public as the "cattle masses." But I think it may be time to revive it.
What I meant by it was that, over the course of the last 90 years, people have had a dependency mindset ingrained into them. They have come to see government as in the business of "providing services" and inserting itself into areas that were previously and properly the domain of the private sector.
See if Capretta's observation about "political realities" doesn't fit with this:
As Robert Laszewski has noted, and history confirms, the political pressure to extend the added ACA subsidies beyond 2022 will be immense. Without an extension, many families with incomes above 400 percent of the FPL would see large premium increases in January 2023, as would all households with incomes between 100 and 400 percent of the FPL. The number of people affected could approach 10 million or more.
Republicans in Congress are opposed to the current pandemic response bill in part because of its expense, but that does not mean they will fight an extension of the ACA subsidies when the time comes. The iron law of American politics — that voters are never more enraged as when existing benefits are threatened — will scare them off from taking such a position. Even if a first extension is only for a year or two, the political momentum toward permanence will be clear, and unstoppable.
By the way, this situation points up once again why Donald Trump was completely worthless as president. In his 2016 campaign, he was asked about his health care policy, he responded, "We have to take care of everybody."
What a stupid thing to say.
Who is "we" and what does "take care" mean? He had no clue as to what a viable health care policy would look like.
Now at this point, some readers' feathers may be ruffled. There may be a reaction along the lines of my position being heartless and devoid of compassion for what actual people have to deal with in caring for their health.
This is why it behooves us to look at a bit of history regarding how present arrangements came into being, and the best source for that, in my estimation, is this 2012 Forbes article boy Avik Roy:
Because much of America’s work force was off fighting World War II, the Roosevelt administration feared that the domestic demand for workers would outpace labor supply, leading to a spiral of higher wages and runaway inflation. The 1942 law [the Economic Stabilization Act] mandated wage ceilings for a broad range of occupations, and required federal approval for any changes thereof.
But fringe benefits, such as health insurance, were not covered under the 1942 wage controls. As a result, many employers started offering health benefits as a way around the new federal wage limits. This loophole gained further strength when, in 1943, a federal court held that employer-sponsored health insurance was exempt from taxation.
In the early postwar years, courts and the IRS continued to struggle with how to treat the tax status of health insurance. Then, under President Eisenhower, Congress passed a comprehensive revision of the federal tax code called the Internal Revenue Act of 1954. Section 106(a) of the 1954 Internal Revenue Code officially excluded employer-sponsored health insurance from taxation:
General rule — Except as otherwise provided in this section, gross income of an employee does not include employer-provided coverage under an accident or health plan.
The employer tax exclusion disproportionately benefits high earners
The enshrinement of health insurance as non-taxable income meant that employers and their workers had a huge incentive to divert dollars of salary into dollars of health insurance. For example, a worker who pays federal and state income taxes at a combined rate of 30% will receive $7,000 for every $10,000 his employer provides in gross salary. But the same employee will receive $10,000 in benefits for every $10,000 his employer spends on health insurance—a 43% improvement.
This subsidy is even higher for the highest earners. A Wall Street banker who pays federal and state income taxes of 50% will receive $5,000 for every $10,000 his employer provides in gross salary. But by receiving $10,000 in benefits, he gets a 100% improvement on his taxable income. And because he’s a high earner to begin with, he’s likely to benefit from an especially generous health insurance plan.
This exclusion of employer-sponsored insurance from taxable income—known as the employer tax exclusionfor short—is what ties Americans’ health insurance to their jobs. If you lose your job, and stop paying for health insurance on your own, and then get sick, an insurer is under no obligation to cover you, due to what is now your “pre-existing condition”—and, in rare cases, the insurer may do just that.
This flaw in the setup became more glaring as time went on. What to do about it?
. . . the policy solution to the pre-existing condition problem is to make sure that people own their own insurance policies, and don’t have to change plans when they change or lose their jobs. This is what wonks call continuous coverage.
Put health insurance on the same footing - ownership-wise - as home or auto or life insurance.
Now, on to the question of why health insurance came to cost so damn much:
The second most important reason why we have a pre-existing condition problem is because insurance is too expensive. And the high cost of insurance is also largely due to the employer tax exclusion.
Because people don’t buy insurance for themselves, they have no incentive to shop for value and buy the plans that meet their needs, without extraneous coverage. In addition, this fourth-party system in which third parties buy insurance on our behalf makes us all insensitive to the cost of our care. We go to the doctor and expect our costs to be covered. We don’t have any reason to think about how much one hospital costs versus the next.
The private insurance market can be divided into three subgroups: the large-group market, for employers with more than 50 workers; the small-group market, for those with 2 to 50 employees; and the individual or non-group market.
The individual market is dysfunctional in America because few Americans use it. Insurers have a hard time building economically viable risk pools with a heterogeneous group that consists of young people,
Economists of all ideological stripes agree that the employer-sponsored system in America is a key reason why health insurance is so costly here. And, in turn, because insurance is so costly, people with low incomes can’t afford it, and go without it for long periods. And if they get sick when they’re uninsured, they have a pre-existing condition.
By the way, in the course of running down the above-excerpted article, I came across a great piece Roy wrote for The Atlantic in 2016, in which he refutes economist Kenneth Arrow's 1963 paper's five objections to putting health care on a free-market footing. Arrow's five objections:
- Unpredictability. Arrow points out that people's needs for health care are unpredictable, unlike other basic expenses like food and clothing. But while we can skip the occasional meal or sale at Old Navy, our need for health care can be far more urgently necessary.
- Barriers to entry. Arrow notes that you can't just set up shop on the side of a road and practice medicine: you must have a license to be a physician, and gaining that license requires years of expensive schooling and training. As a result of this constraint on the supply of physicians, there is a constraint on the supply of medical services.
- The importance of trust. Trust is a key component of the doctor-patient relationship; if a surgeon makes a serious mistake during an operation, for example, the patient may die or become permanently disabled. The patient must trust that the surgeon knows what he's doing and can't test-drive the surgery beforehand.
- Asymmetrical information. Doctors usually know far more about medicine than do their patients. Therefore, the consumer of medical services (the patient) is at a serious disadvantage relative to the seller (the doctor). Patients are therefore vulnerable to exploitation. In addition, third-party payors of medical bills, such as insurers or the government, are that much more removed from the particulars of a given case and unable to effectively supervise medical practice.
- Idiosyncrasies of payment. Unusually, patients pay for health care after, not before, it is received (that is, if they pay for health care at all). Because patients don't see the bill until after the non-refundable service has been consumed, and because patients are given little information about price and cost, patients and payors are rarely able to shop around for a medical service based on price and value. Compounding this problem is the fact that patients rarely pay for their care directly.
Roy's refutations:
Unpredictability is hardly unique to health care. Indeed, in the five decades since 1963, an entire industry has emerged to address the problem of unpredictability. Think of the extended warranties you're offered when you buy a new television, in case the product stops working. If you worry about being suddenly short of money, or accidentally making a mistake with your checking account, you can buy overdraft protection. If you're afraid of flying, you can buy traveler's insurance. And I haven't even brought up the classical forms of insurance, such as homeowner's insurance, auto insurance, and life insurance.
It's true that we have instituted barriers to entry in the delivery of medical care. It's a problem that Paul Starr documents well in his definitive history of the subject, The Social Transformation of American Medicine. But again, this is hardly a problem that is unique to health care. It's a lot easier to get a medical degree than it is to start an airline or a bank from scratch. We require licensure of lawyers, but Ken Arrow never managed to write a paper advocating for the nationalization of the legal industry. And it's not just doctors and lawyers: in many parts of America, you need a license to become a cat groomer, tattoo artist, or a tree trimmer.
Trust is certainly important in medicine. But trust is also important in many, if not most, commercial transactions. We trust that the manufacturers of car brakes have thoroughly vetted their products. We trust that cruise ship captains are sober when they're on duty. And if we feel our trust has been violated, we trust properly licensed lawyers to sue on our behalf.
As any Megan McArdle fan knows, asymmetries of information are everywhere. The ancient Latin aphorism caveat emptor ("let the buyer beware") has been enshrined in property law for centuries. The idea is that sellers know more about the defects of what they are selling than do buyers. Hence, traditionally, we hold buyers responsible for understanding what they are buying, so long as the sellers haven't engaged in fraudulent misrepresentation. We accept that auto mechanics know more about our car's problems than we do, and we take our business elsewhere if we feel like they've been ripping us off.
When it comes to medicine, the internet has made great strides in reducing asymmetries of information. A parent of a child with a genetic disorder, or Lyme disease, is likely to know as much, if not more, about available treatments than will your garden-variety family practitioner. Patient forums and websites like WebMD give people access to medical knowledge in a way that they didn't have it before.
The last of Arrow's concerns is the most important: that we pay for medical services in a non-standard way, especially through third parties. Free-marketeers have long sought to remedy this problem. On the other hand, Arrow's proposed solution to third-party payment--government-sponsored insurance--makes the problem worse, by further removing patients from the price and value of the care they receive.
To conclude, though, I'd like to get back to Capretta's point that subsidies are here to stay.
Subsidies.
Let that term really sink in.
It's a synonym for redistribution. Using government's monopoly on the coercive use of force to take your hard-earned money and give it to someone else to satisfy his or her individual need or want.
Once your freedom to do as you see fit with your own money is gone, we are looking at a very different kind of country than the one James Madison envisioned.
Whether that concerns you or not indicates a great deal about the extent to which you have either retained your humanity or decided to be a dull animal willing to be herded into the pen for your daily gruel.
