Remember when Nancy Pelosi said, “But we have to pass the [health care] bill so that you can find out what is in it.” Well, they passed it. We’re finding out what’s in it. And there’s a lot not to like. This sentiment is not based on my ideological stance against big government. This legislation is flawed and Republican opposition or not, it needs to be fixed if there is any chance of a successful outcome. It is understandable that there are problems. The bill was cobbled together in the first place to ensure the required votes for passage (220-215 in the House without a single Republican vote). The House had to accept the Senate version in its entirety because of the loss of the Massachusetts seat to the Republicans. What we have is a document with 8 glaring problems that will be its undoing unless they are addressed.
- Weak individual mandate. The tax penalty is small relative to the premiums. The mandate lacks a strong enforcement mechanism: no garnishing of wages, no attaching assets, no jail time. The only hammer is a lien on over-withholding. The lesson here is don’t expect refund if you don’t have insurance. If you plan to forego insurance, make sure you withhold only what you will owe in taxes. The result is an incentive to game the system. In other words, don’t buy insurance until you absolutely need coverage and then drop it when you don’t. This will create adverse selection in insurance pools with only sick people purchasing insurance and premiums will continue their upward march.
- Disruptive employer mandate. Firms with more than 50 full-time workers (defined as those who work more than 30 hours per week) are required to provide affordable insurance for their employees. Those that don’t are subject to a $2,000 fine per worker. The incentive exists to reduce current workers to part-time status, and only hire part-timers in the future. Fully, one-third of the restaurant and hospitality industry (with unskilled, low wage employees) will make the shift to part-time labor. Papa John’s, Carl’s Jr, Olive Garden, Red Lobster, Kroger, Hampton Inn, Sheraton, Holiday Inn, and even the College of Allegheny County have already announced their intentions to limit worker hours. Welcome to the era of the 28-hour workweek.
- Ambitious Medicaid expansion. The legislation makes Medicaid eligibility uniform across the country at 138% of the federal poverty level (approximately $30,000 for a family of four). Because establishing eligibility standards has historically been a state’s responsibility, they vary wildly from a low of 17% of FPL in Arkansas to as much as 285% in Minnesota. The impact of the expansion would have relatively little impact in some states and result in significant increases in state spending in others. Texas, for example, would see about a billion dollar per year increase in state obligations to the program. The Supreme Court ruled that the expansion was voluntary, so as many as 17 states may choose to forego expansion. Instead of covering an additional 18 million nationwide, the expansion will add only about 11 million.
- Complex insurance exchange rules. States were expected to set up and finance their own insurance exchanges to provide coverage for uninsured residents. These exchanges require a massive amount of information to verify user identity, certify health plans, and provide a platform for individuals to shop and purchase plans. The systems must be able to access employment information and IRS files to determine an individual’s eligibility for subsidies. The complexity is enormous and states do not have to comply. They can simply sit back and let the federal government do it for them. Sixteen have already said that they will follow that route. There is a potential problem if the states don’t act. The subsidy is clearly available if insurance is purchased from a state-level exchange. Any mention of subsidies in federal exchanges is glaringly omitted from the legislation. Expect litigation.
- Medicare spending cuts. The Congressional Budget Office (CBO) reports that the law will cut Medicare spending by $741 billion over the next ten years. This “savings” will be used to fund the Medicaid expansion and the state-level exchange subsidies. CBO scoring of the law indicates that these same dollars will also be used to shore up the Medicare Trust Fund. But as any first year economics student knows, every dollar has an opportunity cost. If spent on Medicaid coverage, it can’t be spent to save the Medicare Trust Fund. In other words there is no “savings.” The result will be that by the end of the decade, 1 in 7 hospitals will drop Medicare and more physicians will refuse to take new Medicare patients (already 1 in 3 do not).
- Spending continues to rise. A bill that was promised to “bend the cost curve” falls woefully short. Currently, health care spending at 17.6% of GDP will approach 20% by the end of the decade. Premiums will continue to rise, especially for the young who will be pooled with their elders and pay substantially more for their insurance than is actuarially fair. Many will opt out, choosing not to buy insurance, but rather pay the tax penalty (or not), and insurance premiums for everyone who does buy insurance will be higher.
- Not universal coverage. The CBO estimates that at least 30 million will not have insurance coverage, about 10% of the non-elderly population. States opting out of Medicaid, the problems with subsidies in the federal exchanges, and widespread gaming are likely to drive that number up substantially.
- Does not improve access. Nothing in the legislation addresses the current and future physician shortage. Basic economics tells us that when you increase demand and do nothing to supply, prices go up or if they don’t, availability lags. The law has a backup plan for Medicare when this happens. It’s the Independent Payment Advisory Board (IPAB). With Medicare price controls as their only tool, seniors can expect at best bottlenecks in their access to care. At worst, the low hanging fruit is end-of-life care. (If you want to read more on this topic go to https://blogs.baylor.edu/jimhenderson/2012/10/15/will-obamacare-lead-to-death-panels/).
ObamaCare is a flawed document. The Democrats were in such a hurry to pass it that they forgot the fundamental tenant of medical care: First, do no harm. Well, we’re stuck with it, so what do we do? The current makeup of body of lawmakers does not bode well for compromise. All too often with the leadership we have, it’s either “my way or the highway.” They say that we deserve the leaders we elect. If that’s true, I’m fearful for the Republic.
The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University. Baylor is not responsible for the accuracy of any of the information provided in this post.