The Health Insurance Quagmire: Notes for Next Time

AP Photo/J. Scott Applewhite

Senator John McCain leaves the chamber after speaking. 

With the collapse of Republican efforts to kill the Affordable Care Act, there is renewed talk of a bipartisan effort to improve the program. Senator Chuck Schumer, the Democratic Senate leader, has called on the Republicans to work with Democrats to stabilize insurance markets and cut costs.

McConnell says he will make one more push for a simple repeal. But he doesn’t have the votes. As a last resort, McConnell has said he, too, will turn to a bipartisan fix in the ACA’s defects.

But what would that mean? The defects, from the Democratic perspective, are that Obamacare covers too little at too high a cost, while most Republicans fault the ACA for covering too much at taxpayer expense.

There is, however, a deeper defect in the entire approach, and that is the ACA’s touching faith in market competition. In theory, having lots of insurers in a given market competing for customers via regulated “exchanges” was supposed to maximize choice, promote innovation, and restrain costs.

This use of markets, however, required a measure of regulation. The ACA specifies required coverage and limits permissible tactics for maximizing profits by gaming the system.

But those fairly modest rules have caused some insurers to pull out of many markets, giving the remaining insurers too much market power, raising premium costs, and often depressing consumer “choice” to one or two insurance companies. In 32 percent of American counties, according to the Kaiser Foundation, Americans seeking to purchase insurance through the exchanges have just one available provider. That in turn, gives Republicans a nice political target.

In addition, the Republicans’ own efforts to kill the ACA have created uncertainty, causing some insurers to exit the field and increasing costs. It’s awfully hard to see what kind of bipartisan compromise to “improve” the ACA could emerge from this stalemate.

Many Democrats have already started looking beyond the ACA to some form of universal health care. This could take the form of a more robust public option—the idea that every insurance market must have public insurance to compete with private insurance options. This was part of the original ACA design, but was thrown overboard in an effort to pick up necessary votes.

Another idea would be to give people age 50 and over the right to buy into Medicare if that seemed a better deal than the policies on offer. These are the people hit with steeply rising premiums, even under the ACA. My colleague Paul Starr terms this idea “Midlife Medicare.”

Or Democrats could move directly to Medicare for All. This presents difficult transitional problems, since it entails shifting something like a seventh of the entire GDP from a crazy quilt of employer provided plans, self-pays, and fragmented public programs to universal tax-supported coverage.

Regardless of what happens to the Republican effort to kill the Affordable Care Act, in 20 years Obamacare could well be remembered as a diversion and a distraction. Unlike genuinely public and universal programs such as Social Security and Medicare, the ACA was always a far cry from a true public program.

There are two basic flaws in the approach, which Republicans have exploited—one political and the other economic.  

The economic fallacy is that the idea that managed competition—private for-profit insurance plans subject to government rules—was an efficient road to universal health coverage. This concept, invented by a group of intellectuals and industry people called the Jackson Hole Group, found its way into Bill and Hillary Clinton’s failed 1993 proposal and then into the ACA. It expects too much both of markets and of micro-regulation.

The political problem is that with upwards of 85 percent of Americans already insured at the time the ACA took effect, Obamacare was always vulnerable as insurance for “Them” at the expense of “Us.” The ACA did bring coverage to nearly half the uninsured, but at great political cost.

The ACA is also technically flawed in part because the Obama administration had to make too many compromises that undercut the practicality of managed competition in order to get the bill through Congress. And even if executed perfectly, managed competition was a stretch.

In retrospect, it would have been better simply to expand Medicaid as a genuine public program. Yes, Medicaid is substantially for “Them.” But since Medicaid also provides nursing home coverage for the middle class (once they have spent down assets), politically Medicaid is partly bulletproofed because it is also for “Us.”

As an example of just how stingy U.S. health insurance policy is, even with Obamacare, consider this. To get nursing-home care under Medicaid, you basically have to pauperize yourself first—that’s the practical meaning of “spending down” assets.

By contrast, in Britain, Conservative Prime Minister Theresa May got hammered in the recent election because she proposed that Britons who receive nursing-home care under the National Health Service repay the government from their estates after they die, but with an exemption of the equivalent of $130,000. This was widely ridiculed as a Dementia Tax, and quickly withdrawn. So Brits continue to get all the nursing-home care they need, with no income test—and under a conservative government.

Some day, we will get universal health care with no income tests in America. But first, the Democrats will have to resolve to think bigger and to lead.

An earlier version of this article appeared at The Huffington Post. Subscribe here.

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