Democrats expand Obamacare while abandoning it
Over the past decade, Republicans have made clear their intention to scrap the Affordable Care Act. More quietly, the Democratic Party has come to fundamentally abandon all the economic theories, intellectual justifications and behavioral science arguments that underpin the current conception of ACA. Yet the law remains unstoppable, a testament to the power of legislative policy. Even today, Democrats are poised to massively expand the ACA and almost double its spending to expand coverage.
This paradox is the result of the double lesson that the Democratic leadership seems to have learned from its battles against the ACA.
Fast and simple is better than slow and “smart”
President Obama postponed the benefits of the ACA so that they did not begin until four years after its passage. This is partly because the plan revolved around new, very complex market exchanges that took a long time to set up, and partly to lower the official price of the law over ten years by not actually only six years within the budget window, which governs the cost of an invoice.
This slow rollout turned out to be a political disaster for multiple elections. For years, Democrats have defended a law that had no beneficiaries to form a natural base of support. And even when the law came into full force, the news was not about people happy to get help, but about the incompetent software implementation of the overly complex site HealthCare.gov. ACA has only become a modest net positive for Democrats in 2017, after Republicans attempted to repeal the entire law but ended up simply repealing the individual term, the least popular element.
This time around, “quick and easy” is the philosophy at the heart of the reconciliation bill, at least as far as the ACA is concerned. Benefits are prioritized as much as possible. Since the trade plans were too expensive for many, the reconciliation bill will permanently increase the amount of subsidies, which were extended for two years in the March US bailout, and lift the cap of income so that more people are eligible. The temporary expansion of the US bailout has proven that this change can be accomplished almost immediately by tweaking a few lines of code, now that HealthCare.gov already exists. Indeed, no other modification will be made to the reconciliation invoice to improve the design, the real cost or the quality of care of the scholarships.
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To close the so-called Medicaid gap, where low-income people in states that have not extended Medicaid cannot claim any insurance subsidies, The law project would temporarily make people eligible for free plans on the exchange until a federally managed Medicaid safeguard can be implemented in 2024. Free exchange plans are neither cost effective nor optimal for this population low income, but it is something that can be done quickly and easily, before the midterm elections.
The same is true when it comes to improving Medicare. The plan calls for an extension of Medicare to provide immediate visual and hearing coverage directly, as this would be inexpensive and easy to administer. However, faced with the fact that it could take several years to set up a direct dental Medicare program, some Democrats are talk about sending vouchers spend on dental care in the meantime. While it’s not perfect, it’s also quick and straightforward.
If the reconciliation bill passes, the United States could finally have something akin to universal health insurance coverage, provided you generously set the minimum bar to allow all citizens access to health insurance. insurance at a price deemed affordable. It will do this by taking the easiest and fastest route politically and administratively, of simply spending more money on an existing program. There will be no long-term fights over design, economic theory, choice mechanisms, adverse selection or the inflection of the cost curve; just turn on the silver tap.
Health insurance purchases don’t work
The second lesson is that the economic arguments for the ACA trade were simply wrong. ACA was not intended to provide grants only to the uninsured; it was designed to completely transform the healthcare system. The structure of the law was based on the belief that our health care cost problem was mainly the result of stupid customers not buying hard enough, instead of monopoly suppliers exploiting their market power. This theory had overwhelming support among academics and center-left policymakers at the time.
For example, one of the most controversial elements of the law was the “Cadillac tax”, which would effectively have capped the amount that employers could spend on insurance for their employees. President Obama has spent much of his political capital to support this provision, in protracted internal negotiations. He broke a campaign promise and went out of his way to union wrath because he considered this tax so important to his signing law, based on this “bad buyer” theory.
The theory was that large employers just weren’t doing enough of an effort to buy better insurance deals because the coverage was over-subsidized by the tax code. Plus, employers viewed benefits as their employees’ money, so they didn’t care about getting a good deal. Proponents argued that, if they had the right tools, individuals using their own money on exchanges would be better buyers of insurance, and high deductibles would make them better buyers of suppliers.
Some of Obama best advisers, like Zeke Emanuel, believed that exchanges would be so much better, cheaper, and more popular that most employers would stop offering insurance coverage. That’s why, in 2009, ideas like the Healthy Options for Small Business program received so much attention (a program that is now fundamentally disappeared).
For the exchange to “function” as an efficient marketplace, you need smart buyers who pay the full cost of the premium. This is in part why the ACA did not give grants to people earning more than $ 52,000. This is why Obama broke his campaign promise on the individual mandate and instead fought to include one. The economic theory behind ACA has argued that in order to get enough smart buyers to use the exchange – for whom paying full price for community rating insurance would normally be a bad economic decision – you had to force them. This is why so much time has been spent debating how much extra insurers could charge people based on their age and smoking.
Our experience of the exchanges has strongly discredited these theories, while a large part of the center-left is preparing to accept that monopoly supplier power is the cause of the high prices. Ordinary people do not understand basic conditions of health insurance, hate shopping for insurance, and are very badly. The once-much-defended Cadillac tax was repealed with bipartisan support under Trump, and there’s not even a shadow of a Democrat trying to bring it back. The individual mandate that Democrats once considered essential for the exchanges to work has been repealed and ended up having little impact, and now there is almost no effort to bring it back.
Therefore, providing more generous grants and removing the income cap does not only strengthen ACA. He tacitly admits that most of the logic used to design the ACA was just plain wrong.
In 2018, more than 83 percent of people using exchanges got grants, but thanks to the temporary increase in subsidies, it is now 88 percent. Not only will actual premiums have no bearing on a buyer’s decision, a flaw in the way the ACA calculates grants means that the the higher the actual premiums, the better for most people who use them.
Compared to the ACA, the reconciliation bill makes virtually no effort to improve insurance purchases, make people better buyers, or encourage businesses to turn their employees into buyers. The only major idea of health care cost control in the bill is for the government to negotiate directly with monopoly drugmakers – the antithesis of the economic theory behind the ACA.
Even more telling is the plan to close the Medicaid gap. It will extend ACA grants to low-income people for only a few years until a federal program can be put in place. At the time of writing the ACA, there were some in the center-left who argued for insurance exchanges with vouchers would be so good that they could replace Medicaid. Now the Democratic consensus is that exchanges are an extremely expensive and inferior option for low-income people that they should only be used as a very short-term stopgap.
In some ways, the ACA won by failing. Even though the economic arguments that justified its design failed, the effort to change the health care system was so politically murderous that it reshaped Democratic politics. The party now believes that the best way to extend the benefits is to do so as quickly as possible through the existing program which is politically and practically the easiest to use. The Democratic lesson from the ACA is that they should never do something like the ACA again, which is ironically why they are just expanding the ACA.