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If the reconciliation bill passes, the United States could finally have something close to universal health insurance coverage.
For the past decade, Republicans have made clear their intention to eliminate the Affordable Care Act. More quietly, the Democratic Party has come to abandon basically all of the economic theories, intellectual justifications, and behavioral-science arguments that justified the ACA’s actual design. Yet the law remains unstoppable, a testament to the power of incumbency in legislative policy. Even today, Democrats stand poised to massively expand the ACA, and nearly double its spending to expand coverage.
This paradox is a result of the dual lessons the Democratic leadership seems to have taken from their ACA fights.
Fast and Simple Is Better Than Slow and “Clever”
President Obama back-loaded the benefits of the ACA so they didn’t start until four years after passage. This was partly because the plan revolved around new, highly complex marketplace exchanges that took a long time to set up, and partly to reduce the official ten-year price tag of the law by really only counting six years inside the budget window, which governs a bill’s cost.
This slow rollout proved to be a political disaster for multiple elections. For years, Democrats defended a law that had no beneficiaries to form a natural base of support. And even when the law did fully go into effect, the news wasn’t about people happy to receive help but about the incompetent software implementation of the overly complex HealthCare.gov. The ACA only became a modest net positive for Democrats in 2017, after Republicans tried to repeal the whole law but ended up simply repealing the individual mandate, the least popular element.
This time, “fast and simple” is the philosophy at the core of the reconciliation bill, at least when it comes to the ACA. The benefits are front-loaded as much as possible. Since plans on the exchanges were too expensive for many, the reconciliation bill will just permanently increase the size of subsidies, which were expanded for two years in March’s American Rescue Plan, and lift the income cap so more people qualify. The temporary expansion in the American Rescue Plan proved that this change can be accomplished almost immediately by altering a few lines of code, now that HealthCare.gov already exists. Effectively no other changes will be made in the reconciliation bill to improve the marketplace exchanges’ design, actual cost, or care quality.
To fix the so-called Medicaid gap, where low-income people in states that haven’t expanded Medicaid don’t qualify for insurance subsidies of any kind, the bill would temporarily make people eligible for free plans on the exchange until a federally run Medicaid backup can be set up in 2024. Free exchange plans are neither cost-effective nor optimal for this low-income population, but it is something that can be done fast and easy, before the midterm elections.
The same is true when it comes to improving Medicare. The plan provides for an expansion of Medicare to directly provide vision and hearing coverage right away, since that would be low-cost and easy to administer. However, faced with the fact that setting up a direct Medicare dental program could take several years, some Democrats are talking about sending out vouchers to spend on dental care in the meantime. While not perfect, it is also fast and simple.
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If the reconciliation bill passes, the United States could finally have something close to universal health insurance coverage, as long as you generously set the minimum bar at providing all citizens access to insurance at a price considered affordable. It will do this by taking the politically and administratively easiest and fastest path of just throwing more money at an existing program. There will be no long drawn-out fights about design, economic theory, choice mechanisms, adverse selection, or bending the cost curve; just turning the money spigot on.
Health Insurance Shopping Doesn’t Work
The second lesson is that the economic arguments for the ACA’s exchanges were simply wrong. The ACA wasn’t intended to just give subsidies to the uninsured; it was designed to completely transform the health care system. The law’s structure was based on the belief that our health care cost problem was mainly the result of stupid customers not shopping hard enough, instead of monopolistic providers exploiting their market power. This theory had overwhelming support among center-left academics and policymakers at the time.
For example, one of the most controversial elements of the law was the “Cadillac tax,” which would have effectively capped how much employers could spend on insurance for employees. President Obama spent much of his political capital supporting this provision, in protracted intraparty negotiations. He broke a campaign promise and went out of his way to anger labor unions because he considered this tax so important to his signature law, based on this “bad shopper” theory.
The theory was that big employers simply weren’t trying hard enough to shop for better insurance deals, since coverage was too subsidized by the tax code. In addition, employers considered benefits to be their employees’ money, so they didn’t care about getting a good deal. Proponents argued that, if given the right tools, individuals using their own money on exchanges would be better insurance shoppers, and high deductibles would make them better provider shoppers.
Some of Obama’s top advisers, like Zeke Emanuel, thought the exchanges would turn out to be so much better, cheaper, and more beloved that most employers would stop offering insurance coverage. This is why in 2009, ideas like the Small Business Health Options Program received so much attention (a program that is now basically defunct).
To make the exchange “work” as an effective market, you need smart shoppers paying the full premium cost. This is partially why the ACA didn’t provide subsidies for individuals making over $52,000. This is why Obama broke his campaign promise on the individual mandate and instead fought to include one. The economic theory behind the ACA argued that to get enough smart shoppers to use the exchange—for whom paying full price for community rating insurance would normally be a bad economic decision—you needed to force them. This is why so much time was spent debating how much more insurers could charge people based on age and if they smoked, so premiums would be calibrated to get the highest number of shoppers to make a smart buy with their own money.
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Our experience with the exchanges has heavily discredited these theories, while much of the center-left is moving to accept that monopoly provider power is the cause of high prices. Regular people don’t understand basic health insurance terms, hate shopping for insurance, and are very bad at it. The once much-championed Cadillac tax was repealed with bipartisan support under Trump, and there is not even a hint of any Democrat trying to bring it back. The individual mandate Democrats once considered critical to making the exchanges work was repealed and ended up having had little impact, and now there is almost no effort to bring it back.
Therefore, providing more generous subsidies and removing the income cap doesn’t merely beef up the ACA. It tacitly admits that most of the logic used to design the ACA was simply wrong.
In 2018, over 83 percent of people using the exchanges got subsidies, but thanks to the temporary increase in subsidies, it is now 88 percent. Not only will the actual premiums have no bearing on any shopper’s decision, but a flaw in how the ACA calculates subsidies means the higher actual premiums get, the better it will be for most people using them.
Compared to the ACA, the reconciliation bill makes basically no effort to improve insurance shopping, make people better shoppers, or encourage companies to turn their employees into shoppers. The only major health care cost control idea in the bill is having the government directly negotiate with monopoly drugmakers—the antithesis of the economic theory behind the ACA.
The plan to address the Medicaid gap is even more telling. It will expand ACA subsidies to low-income people for just a few years until a federal program can be built. Back when the ACA was drafted, there were some on the center-left who argued voucherized insurance exchanges would be so good they could replace Medicaid. Now the Democratic consensus is that exchanges are such an extremely costly and inferior option for low-income people that they should only be used as a very short-term stopgap.
In some ways, the ACA has won by failing. Even though the economic arguments that justified its design have failed, the effort to change the health care system was so politically bruising that it reshaped Democratic politics. The party now believes the best way to expand benefits is to do it as quickly as possible through whichever existing program is politically and practically the easiest to use. The Democratic lesson from the ACA is they should never do something like the ACA again, which is ironically why they are just expanding the ACA.
