Can someone please give me a no-nonsense explanation of Obamacare and its alternatives? (10/2013)

Russell Baruffi Jr.
29 min readDec 31, 2020

(republishing this here so I can take down my old Wordpress site)

The last post tried to break down the good and bad of the America’s healthcare coverage system; this post contemplates how to make it better. The conversation is largely dominated by the Patient Protection and Affordable Care Act , or “Obamacare”. There are a lot of misunderstandings and widely believed lies about Obamacare, so I’ll quickly do some debunking as an afterthought, but my goal here is to talk about the substance, the actual problems, solutions and tradeoffs. If you do want lies debunked, scroll down to Misunderstandings. On to substance.

It is a complex law, so while this boiled down explanation is a bit lengthy, I organize by headers so you can skip around. If you just want the answer, the takeaways are in bold, so you only have to read the rest if you are actually interested or if you don’t believe me, and there is a Summary paragraph at the end. If you are super ambitious, you can click the links.

To create some sense of comparison, across the developed world, there are a variety of approaches to healthcare coverage that have resulted in outcomes that are on par with or better than the US, and all are considerably cheaper, but as with any policy, come with their own tradeoffs. I borrow the framework, terms and logic from TR Reid’s book, “The Healing of America”, in the bullets below:

  • The Bismarck Model — Germany, Japan, France, Belgium and Switzerland. This model relies on private health insurance plans, usually financed by employers and employees through payroll deductions. If this looks familiar, it is because its similar to the system experienced by 149 million Americans who get coverage through their employer. The difference between this and the US is that Bismarck style private health insurance plans are non-profits that cover everyone, and there is very tight regulation of medical services and fees that keeps costs controlled.
  • The Beveridge Model — Britain, Italy, Spain, Hong Kong, most Scandinavian countries. In this model, healthcare is provided and financed by the government entirely through taxes, like police or fire services or road construction. There are no medical bills at all. Hospitals are generally owned by the government and most doctors are government employees (though there are some private practitioners). Costs are controlled because the government regulates what doctors can charge. If this seems vaguely familiar to any of you, it is because it is exactly what the military and VA Hospital network provides for US Veterans and the military, but not to the rest of us.
  • National Health Insurance Model — Canada, Taiwan, South Korea. In this system, the providers are private, but the only payer is a government run insurance program that everyone pays into through taxes. Administrative costs are much lower because there is no need for marketing, underwriting offices that go back and forth on claims denials or corporate profit. Actual healthcare costs are contained because the single payer has considerable bargaining power. This should be familiar for people over age 65: Medicare is essentially a National Health Insurance plan for seniors, who see their own doctor and Medicare pays.
  • Out of Pocket Model — Burkina Faso, Rural India, Cambodia, Egypt. In this system, if you have the money to pay for care, you get it, and if you don’t have the money, you don’t get it and maybe you die. Or perhaps you get it, and then are overwhelmed with bills that lead you to bankruptcy, and unless you have the appropriate support system in place, cycle you into poverty. If you are one of the 48 million Americans who could not afford health insurance before Obamacare, this was the system you had.

Obamacare’s Approach.

Rather than adopting any approach used in any other country, or building a new program from scratch, Obamacare takes aspects of various types of healthcare strategies already at work in the US and crafts a patch onto the American system. In this sense, it is fairly conservative. The law can be thought of as comprised of 4 strategies aimed at solving the cost and coverage problems outlined in the previous post: Basically, by (1) fixing the pre-existing conditions problem, we create an economic problem for insurance companies that would drive up costs if both sick and well people did not have coverage, so we (2) make everyone have coverage. The law also tries to (3) contain cost increases that are spiraling out of control and (4) not add to the federal deficit in the process. I go into detail below for how exactly this works.

  1. Fix the Pre-existing Conditions Problem — (the basic fair fix that most agree on)
  2. Fix the Adverse Selection Problem — (the economic problem that gets created when we fix the pre-existing conditions problem)
  3. Contain Costs — (competition, standards designed to reduce cost)
  4. Decrease Debt — (making it balance)

Strategy #1: Fix the Pre-existing Conditions Problem.

The centerpiece of the ACA, and the one on which there is the most agreement and common ground, is what has been called the “Patient’s Bill of Rights” that addresses aspects of American healthcare that were unfair to consumers. Horror stories of people whose premiums skyrocketed or lost coverage during leukemia treatments, or who could not get coverage at all because they had Lupus, are terrifying because before this could happen to almost anyone under the old system. These aspects of the law are universally popular. The specific rules can be found here, but generally, Obamacare establishes:

  • “Guaranteed issue”: Insurers can’t exclude people for pre-existing conditions anymore. All health insurance plans must guarantee the availability and renewal of coverage regardless of health status, and health insurance companies can no longer cancel your health coverage after you get sick if you made an honest mistake on your insurance application.
  • “Modified Community Rating”: Insurers can’t charge people more for being sick. Premium rating based on health status will be prohibited (except for grandfathered plans). New plan premiums can only vary by age, tobacco use, policy type (individual or family), and geographic location. They can reward participation in a qualified wellness program with limited discounts.
  • Plans must offer “Essential Benefits”. Each state can determine its benefit package based on a range of benchmark plans in the state and guidance from the federal government. The essential benefits included coverage areas such as ambulatory patient services, maternity and newborn care, prescription drugs, and mammograms.
  • “Medical Loss Ratio”: Insurers must spend on care, not marketing. All plans will have to report the proportion of their income from premiums that are used on medical care and quality improvement. If this amount is less than 80%, their customers get a rebate.

Though widely supported, this aspect of the law was not entirely without controversey: initial rule-making for the Essential Benefits prescribed that health plans should cover birth control for women (though it explicitly exempted houses of worship from this rule). Opponents argued that religiously-affiliated employers, like schools or hospitals, should also have the right to deny contraception coverage to female employees. Though it may seem absurd that any employer gets to have any role in any woman’s birth control and therefore child-bearing choices, this controversey resulted in a brokered compromise whereby religiously affiliated non-church organizations are allowed to opt out of covering contraception if they go through a self-certification process. Also, despite popular support for the Patient’s Bill of Rights, it does come with tradeoffs:

  • Risks and Criticisms: In some states, regulations already mandated some or all baseline Essential Services and required Guaranteed Issue (California, New York), but in other states, barebones plans AND the exclusion of sick applicants were both legal (Florida, Indiana, Ohio, South Carolina). A first look at the premium numbers in those states suggest that the influx of previously excluded older people with health complications will increase average premiums for the young and healthy. (Though this increase does not take into consideration the discounts coming from federal subsidies… see below in Strategy #2, Red Pie) On the other hand, preliminary views of the premium numbers in New York and California, where greater stringency was already in place, suggest that the influx of young people will decrease average premiums.

When you fix one problem you often start another: if the law forces insurance companies to cover anyone with a basic floor of coverage quality, and does not let them exclude or price discriminate based on that person’s health, we exacerbate the adverse selection problem discussed in the previous post: i.e. the sick all sign up while the healthy opt out, premiums rise to meet the average cost, and more healthy people leave because the premiums are higher than they expect to pay, creating a price death spiral that continually drives cost up unsustainably. How do we fix that?

Strategy #2: Fix the Adverse Selection Problem by Covering Everyone.

To address the adverse selection problem — the problem of insurance companies only having financial incentive to cover the healthy — we need to cover everyone, not just the people who expect to be sick. How do we do that? Lets revisit how Americans are generally covered today:

Obamacare’s strategy essentially expands the red, blue and orange portions of the pie chart above, in an attempt to cover up the uninsured black portion. It does NOT create a “public option”, or a new state-run insurance program like Canada has, or any new alternative to the private market. Here is how it expands each one of our existing offerings:

BLUE PIE: People working for big employers — Already the largest segment of the pie, this is not very controversial nor is it directly very impactful. Obamacare requires large employers (50+ full-time employees) to provide affordable coverage that meets certain minimum requirements, and non-compliant companies face penalties starting in 2015. (Businesses with <100 employees with insurance plans on March 23, 2010 could grandfather their plans and avoid some of the quality requirements the law imposes.). For the vast majority of big businesses, this mandate is not a major issue because 98% already provide healthcare coverage to their full-time employees and they have large HR departments to deal with the various administrative burdens of compliance. This provision is also not expected to impact very many employees either: the employer mandate’s intention is really to discourage large employers from dumping workers on the exchanges, where federal money might be used to help them buy coverage.

  • Risks and Criticisms: This provision could raise benefit costs for some employers that employ lots of low skill, low pay workers and do not already provide benefits, such as retail, restaurant and hotels. Also, for employers just above the cut-off — for example ~60 employees — big enough to be mandated but not big enough to have sophisticated HR departments to manage other compliance items, the requirements of demonstrating compliance with the law could be burdensome and expensive. There has also been a lot of hyped and false news coverage suggesting that businesses are reducing workers to part-time status or laying off workers as a result of compliance requirements. Because the requirements of the law for large businesses are not enforced until 2015, these claims are questionable. Corporate food companies such as The Olive Garden and Red Lobster rely on waitstaff who are generally not provided benefits and rely primarily on tips, not wages, for pay. Last year, their parent company (Darden) claimed that these restaurants would reduce workers to part time in some states on account of this economic burden, but after further analysis stated that this will not be necessary. Reports that Home Depot and Trader Joe’s will stop providing coverage to part-time employees and encourage them to get on the exchange are unrelated to this requirement, which applies to full-time workers, but demonstrate the dumping risk of what could happen without the employer mandate.

BLUE PIE: People working for small employers — Small businesses (<50 full time employees) do not have these requirements, but the law does make changes to help make it easier for small businesses to provide coverage. Because small businesses have smaller risk pools, they have historically had trouble maintaining low premiums. If one person got cancer in a 20 person business, that risk pool is so small that the other employees premiums could skyrocket. This created weird incentives for small businesses to not offer coverage, or for them to avoid hiring people that were of risky health. The Obamacare strategy here was to help increase these risk pools by enabling small businesses to pool together through exchanges. There are a few aspects to this: (1) The Small Business Health Options Program — (or SHOP Exchange) is part of the Health Insurance Exchanges that were intended to be ready on October 1. They make it easier for small employers to compare and purchase plans, effectively pooling together small businesses into larger risk pools managed by private insurers. Employers may continue to purchase insurance outside of the exchange. After 2016, all businesses with <100 employees will be able to purchase insurance through SHOP, at which time it is expected to cover 3.7 million people by 2017. (2) Tax Credits. Obamacare provides tax credits to firms smaller than 25 employees to provide health care coverage. (3) Community Rating. Obamacare’s Patient’s Bill of Rights applies to businesses as well. Insurance companies can’t charge your business more if one of your employees gets cancer or has a kid with diabetes. This levels the playing field between small and large businesses a bit, since small businesses were hit by this before. Risks and Criticisms: Small employers are provided with incentives, not additional requirements, under the law. There has been some press commentary suggesting that small businesses will suffer, but I can find no substance to these criticisms. If you can find any substance to these criticisms, please email me and I will update this.

RED PIE: People who are paying for health insurance on their own — Expanding this segment is the meat of the law’s coverage expansion strategy. As employment dynamics have changed in recent decades, it has become less common that people take a job after school and stick with it through retirement. As people change jobs, start businesses, get laid off, consult or freelance — they are often left vulnerable in a health coverage system heavily dependent on employer-based care. The Obamacare strategy for this pie slice was to make it easier for people to buy coverage on their own, in part so they are not locked in jobs, and so they can start new businesses. According to James Surowiecki, Financial columnist for the New Yorkers, “These are expected to free people from “job lock” or staying in a job to keep their healthcare, which will positively impact entrepreneurship. Studies show that people who are freed from job lock (for instance, when they start qualifying for Medicare) are more likely to undertake something entrepreneurial, and one recent study projects that Obamacare could enable 1.5 million people to become self-employed.”The aspects of the law that most impact this segment are: (1) “The Mandate”. Obamacare’s requirement that everyone have health insurance coverage is the lynchpin that makes the pre-existing conditions clause functional without driving up costs through adverse selection (see previous post). The mandate was legally challenged, worked its way up to the Supreme Court, and was upheld last year on the grounds that the Federal Government has the right to tax citizens for a given policy objective. The adverse selection challenge is such a big problem from a cost perspective that some argued that the health care law would not function if this was stricken. (2) Health Insurance Exchanges — This marketplace is separate from, but functions exactly like the SHOP exchanges discussed above. It intends to create transparency and comparability among plans and to enable people to join together in larger risk pools that are not employer-based. You can always purchase insurance outside the exchange as well, but to access subsidies, you need to use the exchange. Plans are divided into 4 easy categories (bronze, silver, gold and platinum) that balance risk and cost depending on your preference, so its easier to compare across providers and few opportunities for hidden surprise costs in the plans. (3) Subsidies. For those families for whom cost is a barrier to coverage, Obamacare provides federal subsidies to families with incomes between 100–400% of the poverty line buying insurance through the online exchanges (those below poverty are discussed in the section below). The most that these families will pay towards a health insurance premium will range from 2.0% of income for those at 100% of poverty to 9.5% of income at 400% of poverty. Subsidies will only be available to those purchasing coverage through the exchanges. The Kaisar Family Foundation has put together a handy calculator to help people understand their subsidy eligibility. (4) Young People staying on their parents insurance — Obamacare gave young people the right to stay on their parents insurance through age 26. Because people that age tend to have lower incomes than they will in later years, this reduces the burden on the federal purse strings to provide subsidies to these individuals and simplifies administrative burdens associated with that as well. Risks and Criticisms: (1) Wealth Transfer. There are philosophical differences regarding whether the US government should help the poor. Individuals who object to the subsidies also generally object to the expansion of Medicaid, as well as programs like the Food stamps (Special Supplemental Nutrition Program for Women, Infants, and Children) and welfare (Temporary Assistance to Needy Families). This will require another whole post, but read this for a summary of why the rich are well subsidized in the pre-Obamacare healthcare market. (2) Technical Difficulties. On October 1, many people could not access the exchanges and few could enroll. Government is not particularly well positioned to build IT infrastructure or even manage sophisticated contractors doing this work. Because the sites are not revolutionary from an IT perspective, we can expect these problems to be hammered out in the coming months and usability to improve. To the legislators credit, this was foreseen when the law was being hammered out and is the reason why states were asked to create their own exchanges. 16 states and DC did so, 7 partnered with the feds. The state exchanges are functioning better (Kentucky and Washington state are doing particularly well) than the federal site in place for the remainder of states who refused to build their own exchange. As of October 22, ~200,000 people had applied and ~56,000 had received coverage through the state-based exchanges. Democrats framed the October 1 overload as a great success demonstrating the overwhelming demand for the exchanges on Day 1. Republicans framed this as a demonstration of incompetence. I am inclined to view this as incompetence and poor management, but this should be seen as a technical kink that presents no evidence that the overall law is troubled.

ORANGE PIE: Poor People — Typically, a working-poor parent loses Medicaid when her income reaches 63 percent of the poverty line, and in the vast majority of states, if you don’t have kids, you don’t get any Medicaid coverage, regardless of how poor you are. Obamacare mandated that Medicaid be expanded to offer coverage for all citizens who have incomes below 133% of the federal poverty line. (For context, this means makes a family of 4 making up to $31,321 would be eligible for Medicaid.) However, the Supreme Court ruled that the Federal government could not force states to expand their Medicaid eligibility, so some did not. Risks and Criticisms: 26 states with Republican governors found it sufficiently objectionable that a family of 4 making <$31,321 per year would have access to Medicaid that they prohibited it, leaving that portion of the neediest people in those states now without any assistance. The estimates for who this impacts range from 5 million poor, uninsured adults to 11.5 million. This means that in those states, people with incomes above the Medicaid eligibility cutoff (63% of poverty line!) but below the poverty line will have neither Medicaid nor subsidized exchange coverage. These people are in deep trouble. Governor’s opting out justified their decision on the grounds that coverage will have a negative impact on their state budgets. However, the federal government is scheduled to pay all costs associated with the expansion of coverage through 2016, and from 2020 onward, the states will shoulder only 10% of the cost. Rather than a budgetary decision, this is more likely to be political posturing: excluding these individuals from coverage will create millions of citizens in swing states with a reason to be angry at Obamacare, which is very useful for the GOP.

Strategy #3: Contain Costs.

Remember the market failures that we looked at in the first post? The beauty of markets is that they clear: the producer and the consumer meet at a price that makes the producer happy to sell and the consumer happy to buy. The healthcare market, up to now, has been highly dysfunctional and consumers in particular have been unhappy enough that they opt out. Obamacare aims to make this market more efficient. Here are some cost-saving initiatives built into the law:

  • Accountable Care Organizations (ACO): There are perverse process and coding incentives to increase revenue by delivering more pricey, high-tech services, rather than keeping patients healthy through primary or preventive care. Attempting to address this weird perverse incentive, Obamacare authorized a new type of entity that can contract with Medicare: the ACO. An ACO is group of providers that will coordinate care for their Medicare patients and are rewarded through a “shared savings” program. Payment to the ACO is “capitated” — they are paid a fixed amount per person — and then provided they hit certain outcomes and health performance targets, they share in the savings they create. The establishment of ACOs is voluntary, and Oregon has been aggressive in setting them up for its Medicaid recipients. More than 270 ACOs have already been set up and 150 are in the works. The Wall Street Journal facilitated a productive discussion about ACOs here.
  • Competitive Grant Programs: Obamacare built in funding for competitive grant mechanisms to encourage states and hospitals to function as laboratories to roll out new healthcare coverage ideas. Various federal departments are offering grants, which organizations can apply for that will create better health outcomes and learnings that can be applied in policy later down the line. There are several, but two examples are:
  • Maternal, Infant, and Early Childhood Home Visiting (MIECHV) Competitive Grant program awards grants that are aimed to support collaborations and partnerships for home visitation programs for at-risk kids. These programs are evidenced to improve outcomes and save money later. This was a part of the Social Security Act and was expanded under Obamacare.
  • Personal Responsibility Education Program (PREP) Competitive Grants are grants to local organizations to educate young people on abstinence and contraception to prevent pregnancy and STDs. The program targets young people who are homeless, in foster care, living in rural areas or areas with high teen birth rates, or from minority groups.
  • “Cadillac Insurance Plan Tax” is a new tax on high-end insurance plans. The rationale is that the most expensive insurance plans, almost always provided by employers at low or no cost to employees, not only create a tax loophole, but drive up systemic costs by encouraging over-use of healthcare services. Obamacare puts a 40% tax on every dollar spent above $10,200 annually for a healthcare plan. Although this does not come into play until 2018, there is some evidence that employers are already starting to scale back high-end plans.
  • End of Life Counseling: Obamacare originally contained a provision that would fund end-of-life or advance directive counseling for people on Medicare. A large fraction of healthcare expense is attributed to aggressive attempts to extend life at the very end stages. Of the $554 billion spent on Medicare in 2011, 28% was spent on patients’ last six months of life, often in contexts of aggressive intervention. Since staying on a mechanical respirator for years and years against ones will and wishes is not every Grandmoms ideal way to go, this provision provided for appointments for seniors who want to discuss do-not-resuscitate orders, end-of-life directives and living wills. Such counseling has been demonstrated to be effective at ensuring that patients get the care they want. It was this policy expansion that Sarah Palin dubbed “death panels” and was stricken from the law. Though the provision was removed from text of the Obamacare law, end-of-life counseling is being incorporated in the rule-making process as an option that Medicare will pay for seniors during annual wellness visits. Risks and Criticisms: There are criticisms that ACOs will not function properly, will present poor business economics and not be adopted, or will not sufficiently lower costs. A lot of the specifics have yet to be worked out on ACOs and they are slowly being adopted, so only time will tell whether they are able to reduce costs without sacrificing health outcomes. The number of malpractice claims has not changed much since the late 1980s, so it is hard to attribute the radical costs increases since then to malpractice. However, malpractice lawsuits also drive up the cost of care by forcing doctors to over-prescribe and practice “defensive medicine”, by how much is hard to measure. A 2008 study determined that 18–28% of tests, procedures and referrals and 13% of hospital admissions were performed to avoid lawsuit risk. Obamacare does nothing to reform medical liability law to protect doctors and reduce malpractice insurance or risk. The reason for this is likely the influence of lawyers, who hold powerful sway in both parties, but particularly Democratic politics, lobbying against such provisions. Provisions for tort reform were offered by Obama to entice the support of Republican lawmakers in 2009, but since the Republican caucus maintained across-the-board opposition to the healthcare reform legislation, there was not sufficient reason for the Democrats to betray their legal lobby.

Strategy #4: Decrease Long-term Debt.

Lastly, Obamacare had to balance: we don’t exactly have a lot of appetite for more debt. In May, the Congressional Budget Office (CBO), the non-partisan government entity charged with independent evaluation of policy and the Joint Committee on Taxation (JCT) projected that the health insurance coverage provisions of the ACA would cost the federal government $710 billion from 2014–2019, but these costs would be offset by revenues and savings, leading to a net decrease in the federal deficit. CBO analysis predicts that Obamacare will produce major savings in health care costs, primarily through reductions in Medicare spending, amounting to $711 billion in savings over 10 years, as well as new revenues through taxes (discussed below), amounting to $569 billion over 10 years, leading to an overall reduction in budget deficits. CBO and JCT’s analysis in March 2011 on the fiscal impacts of the legislation is summarized by the blue line in the chart below:

The most recent analysis of the overall economic impact of Obamacare was done by the CBO and JCT for John Boehner in July 2012. This analysis found that repealing Obamacare would increase federal budget deficits by $109 billion from 2013–2022 ($890 billion less direct spending, $1 trillion less revenues).

  • Taxes. Obamacare balances in part by relying on the following tax increases for about $569 billion in revenue over the next 10 years:
  • Tax on investment income for high-income people: A 3.8% Medicare contribution tax on investment money earned after your $200,000th dollar each year
  • Payroll Tax on high income earners: Medicare portion of FICA payroll tax will increase from 1.45% to 2.35% for wages earned after your $200,000th dollar each year.
  • Medical Device Tax: a 2.3 percent tax on medical devices that applied to manufacturers.
  • “Cadillac Insurance Plan Tax” — This is discussed above in the cost containment section. At the time the health reform bill passed, the excise tax on high-cost plans was estimated to raise roughly $32 billion in revenue over the next decade, or by 2019.
  • Risks and Criticisms: Republicans have aggressively sought to repeal the Medical device tax and are generally opposed to any elements of the law that involve taxation on philosophical grounds. I have not seen specific criticisms on the specific impacts of these taxes, but if you find specific analyses, please send them to me.
  • Savings. Medicare spending growth is accelerating at an unsustainable rate. Obamacare slows this growth rate. The following changes have extended the solvency of the Medicare Trust Fund to 2024 — prior to Obamacare it was anticipated to be depleted by 2016;
  • Change plan payments. Payments to Medicare Advantage plans were restructured so more is paid for managed care and less for fee-for-service, and there are quality performance bonuses. Medicare Advantage plans are held to a Medical Loss Ratio: they must spend more than 85% of premiums on enrollee medical care.
  • Accountable Care Organizations. Discussed above.
  • Incentives against poor care. Obamacare reduces Medicare payments to hospitals by specified percentages when patients are excessively readmitted for preventable problems or when a patient gets a sickness from the hospital.
  • Independent Payment Advisory Board. When costs exceed GDP per capita plus 1%, this 15-person council (appointed by the President and confirmed by the Senate) will make recommendations on how to limit Medicare’s growth rate. According to Kaiser, the IPAB is “prohibited from making recommendations to ration care, change Medicare benefits or eligibility, or increase taxes or beneficiary premiums or cost sharing. The recommendations made by IPAB move to the Congress for fast-track consideration.”
  • Risks and Criticisms. Republicans generally argue that these changes to Medicare will push more costs onto seniors and force doctors and hospitals to stop seeing Medicare patients. Democrats generally argue that such changes are required for fiscal stability. Because these changes are all coming down the pike, it is unclear who is right, but something had to be done, since Medicare was looking at 2016 insolvency prior to the ACA’s passage.

The manner with which the CBO does its analysis breaks out costs from revenues and savings, leaving the analysis vulnerable to spin by manipulative or careless interpretation. Various politicians and media outlets have only told the story of the costs, totally leaving out mentioning the savings. For example, this coverage by the Heritage Foundation earlier this year was completed without a single mention of revenue and savings impacts, as if they don’t know the basic rules of Accounting.

Proposed Alternatives.

I already discussed what alternative models generally exist outside of the United States, what could realistically be implemented here is a different story. What has been proposed so far includes:

  • Do nothing. Policy changes always come with their own tradeoffs, so its important to consider the impact of not taking action. If no action were taken at the federal level, the problems outlined in the previous post are likely to continue. 1) Higher prices for less health insurance value. Health insurance premiums have risen 196% since 1999. Many many more plans are “high deductible” now as well, so for higher average premiums, we are getting less protection. (The growth in insurance premiums slowed down slightly last year, mostly attributable primarily to the economy, but this is not a long term trend). This will lead to 2) more medical bankruptcies, and a 3) larger fraction of our GDP spent on healthcare with less returns on that investment, 4) competitive disadvantages for small businesses, and “job lock” inhibitors on entrepreneurship. 5) Discrimination for pre-existing conditions would have to persist (the economics of the Patients Bill of Rights as a stand-alone do not work because of the adverse selection problem). Medicare would be insolvent in 2016.
  • Enroll All Americans in Federal Employee Health Benefits Program. Darryl Issa tweeted an alternative proposal last week that all Americans should be enrolled in the Federal Employee Health Benefits Program (FEHBP), the program that is offered to members of Congress. His proposal, being a tweet, is short on specifics, but it has been pointed out that this bears little difference from Obamacare, though without a mandate, would fail to address the adverse selection problem.
  • Single Payer Plan. Bernie Sanders (D-VT) has consistently held out a strong stance that the US would benefit from a National Health Insurance program, comparable to Canada’s. A shadow of this idea was proposed during the negotiations regarding the ACA that a “public option” — a government-run alternative to private insurance, but this was shot down by critics and the insurance industry, concerned that the existence of such an option would undercut private insurers on price and put them out of business in the process. Politically, this is almost a non-starter, since Americans already fear that Obamacare’s free market strategy is “socialized medicine”, it will be easy for opponents to stir up more fear for a program where the state actually runs insurance programs.
  • More radical alternatives. Setting up a system comparable to the British system would involve a much larger overhaul rife with political risks and questionable from a constitutional perspective: nationalizing the health insurance companies. Setting up a system comparable to Germany would involve radically restructuring existing insurance companies to be non-profits, and requiring them to cover everyone. American politicians are likely to be more opposed to these approaches than the free market approach.

One of the great ironies of this political conflict, and a likely reason why Republicans have offered criticism without a credible policy alternative, is that Obamacare actually IS the conservative approach to healthcare reform: the law functions largely by fostering free market competition between private insurers, albeit with new regulations. Significant components of Obamacare find their intellectual roots not in progressive philosophy, but in in proposals by the conservative thinkers (See Page 6 and 7 of Assuring Affordable Health Care For All Americans by the Heritage Foundation, 1989), which proposed the individual mandate AND the expansion of Medicaid AND the lower-income subsidies as far back as 1989. A comparable mandate was signed into law by Republican Mitt Romney for Massachusetts state health care solution in 2006, and both a mandate and low income subsidies were involved in Bush #1’s health care proposals in 1991, as well as a 20-senator republican consortium’s proposal as an alternative to “Hillarycare” in 1993 (the Health Equity and Access Reform Today Act of 1993, HEART.) The history of the Republican relationship with the mandate is detailed here. 20 years later, Republican talking points frame this exact strategy as a socialist boondoggle and a fascist government take-over. You figure it out.

Summary.

In sum, Obamacare gives new rights to insurance consumers and in the process, new regulation for insurance companies, it requires everyone to buy insurance and builds mechanisms to facilitate competition for those customers, and it creates some incentives to lower healthcare spending, creating a uniquely American system that is unlike any health care coverage program in the world. In this sense, it is innovative and also risky. Like any public policy, some aspects of the law will achieve their intended goals and others will falter. Like any policy, costs and benefits will not be distributed uniformly. Like any policy, it will require tweaks and course-corrections to reach its goals. But this is the nature of policy. It is a multi-faceted bill, but cannot easily be parsed. As detailed above and in the last post on adverse selection, liking the Patient’s Bill of Rights without liking the Mandate is like hating sweatshop labor and loving The Gap, or working minimum wage jobs and expecting to afford fancy restaurants: these systems are intertwined by cause and effect. Denying their connections is for partisans and fools. The relevant question is not whether the law has risks or downsides or tradeoffs — the answer is definitively yes to all of those and still leaves us with the same problem. The relevant question is, in comparison to the next best alternative, will the law result in a more efficient and equitable healthcare coverage for Americans?

-Russell Baruffi

Footnote: Misunderstandings.

There are many oft-repeated lies about Obamacare, some discussed here. I broke those down, supplemented and added some additional explanation and context when useful below. If you hear people repeating these, they either don’t know what they are talking about, or they are deliberately deceiving you.

Common generalizations:

  • Obamacare is a socialist policy. This claim is hard to attribute because it is repeated so often. Obamacare doesn’t cover everyone and is not financed by everyone, as socialist policies are (e.g. federal highway construction, the military, Medicare, British healthcare). Since the law requires Americans to get private insurance (some will not follow through and can opt to pay a defined fine) and some governors have created a massive donut hole in the Medicare provision, leaving out the neediest — definitely not everyone is covered and the insurance industry is very much private, for-profit and in-tact. The socialists are really pissed about Obamacare and see it as a cop-out inadequate plan.
  • Obamacare is a “government takeover” of health care. This claim is hard to attribute because its repeated so often. As discussed above, the government will neither run an insurance program, nor take over control of hiring doctors nor take control of hospitals. The law is heavily reliant on free market and private insurance while increasing regulation of insurance companies.
  • The health care law rations care, like systems in Canada and Great Britain. This claim is hard to attribute because its repeated so often, but as discussed, the government will not run an insurance program or control care decisions.
  • Under Obamacare, people who “have a doctor they’ve been seeing for the last 15 or 20 years, they won’t be able to keep going to that doctor,” said Marco Rubio, in July 2013 on Fox. If you buy an insurance plan through the exchange that has different in-network doctors than your previous plan, it could be harder to see your doctor. This is the same as any time that you change insurance plans and Obamacare does not impact this.

Obamacare does not have provisions that will create:

  • a 3.8% sales tax” on all real estate transactions. “The law does include new taxes, but the taxes are primarily on the health care industry and on investment income for the wealthy. For middle-class homeowners, there are long-standing tax exemptions on the profits from home sales, and the health care law didn’t change them.”
  • taxes on sporting goods. There is a 2.3 percent tax on medical devices that is applied to manufacturers, not consumers.
  • questioning of your sex life. Betsy McCaughey claimed the ACA pressures doctors to ask about people’s sex lives and record their answers in electronic health records. Electronic medical records were incentivized by the American Recovery and Reinvestment Act (“the stimulus”), not Obamacare, and there are not requirements for questions about people’s sex lives.
  • forced home inspections by government agents. There is an optional home health care program that sends nurses on house calls to the homes of pregnant, poor women. to offer prenatal advice in a comfortable environment. Before Obamacare, this program already existed in 40 states. A randomized study in Elmira, NY showed that these early-stage nurse visits to families of newborns reduced child abuse and neglect as well as government expenditures for low-income unmarried women.
  • death panels. Sarah Palin, former Alaska governor posted a Facebook message starting this lie in 2009 and her PAC has most recently produced an outrageous video footage compilation that uses grainy footage and guitar riffs as a stand-in for rational argument to prove her right. What Sarah referred to is a totally optional Medicare program that will cover doctor appointments for seniors who want to discuss do-not-resuscitate orders, end-of-life directives and living wills. After her manufactured controversy, the provision was dropped from the final bill, but it was re-incorporated during the rule-making process as an option for seniors to discuss with their doctor during their annual wellness visits.
  • “a huge national database” on health care that will include Americans’ “personal, intimate, most close-to-the-vest-secrets,” said Michele Bachmann during a May 2013 interview on Fox News. If you get a subsidy, the IRS will confirm that you qualify through your tax records, but there is no federal database for health data.

Who’s in, who’s out

  • “At age 76 when you most need it, you are not eligible for cancer treatment” under the health law. Obamacare does not make changes to patient benefits in the Medicare program.
  • “All non-US citizens, illegal or not, will be provided with free health care services.” Illegal immigrants may not enroll in Medicaid, nor are they eligible to shop on the marketplace for health insurance. Per current law mentioned in the previous post, hospital emergency rooms must stabilize anyone, including illegal immigrants, with medical emergencies.
  • Congress is exempt from Obamacare. Like everyone else, lawmakers are required to have health insurance. On top of that, they are also required to buy insurance through the marketplaces — the intention being so they understand what their constituents have to deal with.
  • Muslims are exempt from the health care law. There is a “religious conscience exemption” to Obamacare that applies to groups that disavow all forms of insurance, including Social Security. Muslims have supported the law and are not included in this. In theory, I suppose a Muslim with a specific religious conscience objection they can demonstrate could seek this exemption, in the same way someone from any religion could.

Incorrect evaluation statements:

  • “Obamacare is . . . the largest tax increase in the history of the world.” Rush Limbaugh, June, 2012. As discussed above, there are new taxes in the health care law. When accounting for the size of the overall economy, tax increases under Reagan and Clinton were larger than the tax increases in Obamacare.
  • Under Obamacare, “75 percent of small businesses now say they are going to be forced to either fire workers or cut their hours.” Marco Rubio, July 2013 in a FoxNews.com op-ed. Small businesses with fewer than 50 employees do not have to provide health insurance to their employees, as discussed above. And some can even get tax credits. A study from the U.S. Chamber of Commerce found that <10 percent of small businesses expected to be forced to reduce their workforce or cut hours, but this was stated expectation and did not require respondents to have any specific knowledge of the law’s provisions.
  • Because of Obamacare, health care premiums have “gone up slower than any time in the last 50 years.” President Obama, October 2012. Overall health care costs have slowed down, but slowing costs are due to a variety of reasons, including the recent recession.

Some References.

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Russell Baruffi Jr.

electric power, business, environmental economics, climate policy