Reading Reihan Salam’s “Why I Signed Up for Obamacare”: The Honest Broker for the Week of May 10, 2014

So this morning I am reading the highly-intelligent Reihan Salam’s bill of indictment against ObamaCare. He says that ObamaCare “will eventually have to be either drastically reformed or replaced outright” because of its many problems. As I, at least, read the problems he thinks he sees, I find myself thinking that they are of five kinds:

(1) Problems that seem to me to be problems of politics:

1. The more familiar people become with Obamacare and its consequences, the less they like it….
2. 62 percent oppose the law, an increase of 4 percentage points since November….
3. 20 states… have so far refused to take part in [Medicaid expansion].

(2) Problems that seem to me to be problems of churning:

1. Households that had purchased individual insurance policies in the past have had their policies canceled….
2. Small business will receive cancellation notices in the year to come….
3. [ObamaCare] treats different households with the same income levels very differently depending on how they happen to buy insurance….
4. By raising the bar for what counts as acceptable private insurance, there’s a real risk that [ObamaCare] will lead to a net decrease in the number of people who have private insurance….

(3) Problems that seem to me to be problems of implementation:

1. Enrollment in the new exchanges… has still fallen far short of expectations….
2. If the [ObamaCare] individual mandate is never enforced (a very real possibility), insurers could find themselves losing enormous sums of money as the problems that plagued New York’s individual insurance market in the past reassert themselves…

(4) Problems that seem to me to be problems of design:

1. Obamacare… limits innovation by insurers and providers that can help contain costs….
2. [ObamaCare] leaves the monopoly power of big medical providers largely untouched….
3. The Obamacare exchanges… don’t give insurers the option of offering consumers a wide range of products suited to their needs, and they don’t offer enough flexibility on pricing.
4. Obamacare is narrowly constraining the kind of products available on the marketplaces….
5. [ObamaCare’s] sliding-scale subsidies provide at least some families on the exchanges with a strong disincentive against earning more income….
6. [ObamaCare] is pricing a fair number of cost-conscious consumers out of the market, even after factoring in subsidies.

(5) And problems that seem to me to not be problems at all:

1. [Health care reform should have] more federal funding for high-risk pools….
2. [Health care reform should have] federal and state reinsurance programs designed to make insurance more affordable….
3. [Health care reform should have] tax reforms designed to limit the health insurance tax subsidies that flow to high-income households while increasing those that flow to low- and middle-income households.

Let me run through how I see these five sets of problems, because I see them considerably differently than Reihan does…

Consider, first, the ones I regard as problems of pure politics…

The more people know about Obamacare the less they like it: This, in my experience, just is not true–when people learn that, contrary to what Sarah Palin says, the law has no “death panel” but is, rather, an expansion of Medicaid coupled with the creation of exchanges to give individuals and small groups access to something like the benefits departments that large bureaucracies already had, they rather like it more. I am tempted to classify this as something that Reihan Salam feels he has to say in order to keep his Republican credibility–and, as such, it is something blocking the possibility of meaningful dialogue: it is Reihan’s business to tell those who have been purveying misinformation to cut it out, rather than to assist them.

62 percent oppose the law, an increase of 4% points: Again, if this is like other surveys, 40% points oppose the law because they think it is too big a change, and 20% points oppose the law because they think it is not a big enough change. The fact that the American public is deeply divided and has no consensus is not a reason to favor the status quo unless you think the status quo is a good place to be. And it seems to me that it does not advance dialogue if Reihan reinforces the Republican echo chamber by misrepresenting deep division as a near-consensus for doing less

20 states… have so far refused to take part in [Medicaid expansion]: This is the piece of the article that leaves me most annoyed because of the absence of context. Why have 20 states refused to take part in Medicaid expansion? It’s not because of how the Affordable Care Act was written. All states currently participate in Medicaid–it is a good deal for a state to do so. The ACA changed Medicaid. But John Roberts rewrote the law from his post on the Supreme Court to give states the option of (a) simply continuing with Medicaid-as-it-exists-in-2013 in addition to the options of (b) participating in Medicaid-as-it-exists-in-2014 and (c) dropping Medicaid entirely.

When John Roberts rewrote the ACA from the bench, he did so very badly. The expansion of Medicaid meant that a great many people who used to show up at safety-net hospitals without any insurance at all will now be covered by Medicaid, so the rationale for the Disproportionate Share Payments to safety-net hospitals that treat the uninsured will go away, hence the ACA eliminates the no longer-needed DSP. But in states in which Medicaid isn’t expanded, the need for the DSP remains. When Roberts rewrote the law, did he rewrite the law so that the DSP remains for states that do not accept Medicaid expansion? No. Will safety-net hospitals in non-expanding states close as a result? Some of them, probably, without some other emergency fix. Did Roberts know what he was doing? Almost surely not. If you rewrite a law from the bench, shouldn’t you and your clerks first familiarize yourself with the law enough so that you know what you are doing? Next question!

When John Roberts rewrote the ACA from the bench, he did so very badly. The expansion of Medicaid meant that people with incomes less than 133% of the poverty line will now be covered by Medicaid, so they will not need to be eligible for subsidies to make the policies offered on the exchange affordable to them. But in states in which Medicaid isn’t expanded, people with incomes less than 133% of the poverty level will need to purchase heath insurance on the exchanges if they are to have any form of coverage at all. When Roberts rewrote the law, did he rewrite the law so that people not covered by Medicaid with incomes less than 133% of the poverty line become eligible for exchange subsidies? No. Will there thus be millions of people left out in the cold? Yes. Did Roberts know what he was doing? Almost surely not. If you rewrite a law from the bench, shouldn’t you and your clerks first familiarize yourself with the law enough so that you know what you are doing? Next question!

An additional wrinkle–a wrinkle that may have pushed Arizona into the Medicaid expansion camp–is that non-U.S. citizen legal residents of the United States with less than five years of residency and incomes less than 133% of the poverty line are eligible for exchange subsidies. Thus the ACA, as rewritten by John Roberts, treats working-poor non-citizen immigrants with less than five years of residency much more favorably than it treats working-poor citizens. Did Roberts know what he was doing? Almost surely not. If you rewrite a law from the bench, shouldn’t you and your clerks first familiarize yourself with the law enough so that you know what you are doing? Next question!

In truth, right now there are few people whom Republican governors and state legislators grappling with Medicaid expansion loathe more than John Roberts. They were looking forward, before John Roberts issued his decision in NFIB, to taking federal money and expanding Medicaid in their states–and all the while protesting against the “violations of federalism” in the requirement that they do so. Now they find that they must either (a) take an affirmative step to support ObamaCare, or (b) watch their safety-net hospitals get into severe financial trouble and (c) watch their working-poor citizens remain uninsured while exchange subsidies flow to recent immigrants.

And there is more: Usually states are eager to welcome the federal government when it seeks to spend money in their state–it is a big boost to their economies, it pushes unemployment down, and the people who get jobs spend their incomes and so employ more people, and then the businesses that profit turn around and spend more money investing to take advantage of the additional profit opportunities provided by extra demand. Spend an extra $1 in federal funds, and odds are regional GDP will grow by $3 over a couple of years, and by $6 or so in the long run of more than five years. All this is being thrown away by states that refuse to take up Medicaid expansion. Take the two red states I know best: Kansas and Missouri. They are giving up $3 billion in federal funds in 2014 by not picking up Medicaid expansion. If they continue down this path, their regional GDPs will be $9 billion lower–that’s 2%–come 2015 than otherwise (and that’s 3% for Kansas City, which is now like so many American cities primarily a regional health-care hub). And if they are still on this path by 2018? $20 billion in economic activity that won’t be there, 4% (and 6% for Kansas City).

And this sacrificed economic growth from a health-care sector that has to scrimp and cost-shift to cover the extra uninsured will, to a substantial degree, come out of the pockets of that key Republican-contributing and -voting group that is America’s physicians…

All of this lies just underneath the tarp of Reihan’s “20 states… have so far refused to take part” in Medicaid expansion. The tarp covers these facts and issues very imperfectly: it is a very lumpy tarp, imperfectly covering what it purports to hide. Surely it is worth pulling back the tarp on these issues just a little bit? Surely no good service to the dialogue is accomplished by not doing so?

On to (2): Problems that seem to me to be problems of churning–the cancellation of individual insurance policies, the anticipated cancellation of small-business policies, horizontal inequities depending on how insurance is purchased, and the raising of the bar for what counts as acceptable private insurance…

These all seem to me to be things that are bound to happen whenever you undertake comprehensive health-care reform. There is going to be a lot of churning of the system. The idea is to make the churning slow enough that it is not needlessly disruptive. In this, Republican plans like the McCain 2008 plan and the Burr-Coburn-Hatch plan that Burr, Coburn, and Hatch put forth in February 2014–and then abandoned with remarkable speed–seemed to me at the time and seem to me now to be enormous offenders. You have to do this without making the pace of change so slow that you leave lots of potential value on the table, or, worst of all, never get to the system that you are aiming for. It is not clear to me that cancellation–either of individual or small-group policies–could be carried out any more slowly without creating much larger costs elsewhere in the system. And as for the raising of the bar–well, put me down as one who thinks that the bar ought to be raised, for most of what is being caught and adjudged as not meeting minimal essential benefits does, indeed, not meet minimum essential benefits.

On to: (3) Problems that seem to me to be problems of implementation: low enrollment in the exchanges, and the dangers of never enforcing the mandate at all…

These, by contrast, strike me as serious, indeed as dire, problems. Community rating is likely to be a bridge too far for a health-care system in the absence of an enforced mandate to purchase. The problem from the left is that, in the absence of an adequate subsidy pool, a mandate becomes an undesirable regressive tax. The problem from the right is that the mandate smells like an infringement on individual liberty (unless, of course, you note that everybody is going to wind up at the doctor’s at some point, and that freeloading is even more of an infringement of somebody’s liberty than a mandate-to-purchase is). Together these two sources of opposition may well be what drives us to single-payer–especially when you combine them with low take-up due to confusion and the extraordinary ineptness of the Obama administration’s launch efforts.

And let us be clear: enrollment in the exchanges is low. Obama is trumpeting “success” with 8 million enrolled through the exchanges when CBO was only forecasting 7 million at this date. But CBO’s forecast was a pessimistic one: that only 1/4 of those who should be in the exchanges would be in the exchanges as of this point, and that actually getting the exchange-marketplaces to do their job would be a long, hard slog. CBO was right. That ObamaCare exchange-marketplaces are doing slightly, slightly better than it forecast does not mean that enrollment in the exchange-marketplaces is not low, is not disappointing, and that raising it will not be a long, hard slog with a doubtful end. result.

On to: (4) Problems that seem to me to be arguably problems of design: that ObamaCare (a) does not break up monopoly hospitals and doctor groups and limits innovation by providers and insurers–not enough flexibility on prices or products that can be offered on the exchanges.

1. Obamacare… limits innovation by insurers and providers that can help contain costs….
2. [ObamaCare] leaves the monopoly power of big medical providers largely untouched….
3. The Obamacare exchanges… don’t give insurers the option of offering consumers a wide range of products suited to their needs, and they don’t offer enough flexibility on pricing.
4. Obamacare is narrowly constraining the kind of products available on the marketplaces….

The first two of these are definitely big problems. But to argue that ObamaCare was not a large and comprehensive enough change in health-care finance–that it should have done more and caused more churning and disruption–seems to me to be distinctly odd. The thing passed with an absolutely minimal coalition–barely 220 votes in the House, the bare minimum of 60 votes in the Senate, the President, and five members of the Supreme Court. It could not afford to include anything else that made any more enemies. The choice was between doing it and doing nothing at all. And Obama, Reid, and Pelosi were desperate for additional supporters: anything anybody wanted that would produce a net gain of votes was theirs for the asking, if they wanted to ask. And, yes, these problems are definitely on the agenda of things to fix–but I cannot help but think that they would have been a lot easier to do with Republican votes for ObamaCare in 2009-10 than assembling a legislative coalition from scratch will be in the future.

The last two of these strike me as not problems at all. This isn’t, after all, a market where we want that much shopping at that detailed a level. As Uwe Reinhardt said:

[T]he often advanced idea that American patients should have “more skin in the game” through higher cost sharing, inducing them to shop around for cost-effective health care, so far has been about as sensible as blindfolding shoppers entering a department store in the hope that inside they can and will then shop smartly for the merchandise they seek. So far the application of this idea in practice has been as silly as it has been cruel…

And what we really need is not more but less options for consumers, so that they actually can comparison shop. What we need is:

reference pricing for health care coupled with full transparency of those prices… [if] raw market forces [are to] work.

And there does seem to be plenty of product variation out there where variation might be worthwhile–low-copay, high-deductible, first-dollar, broad-network, you name it. What is missing?

(5) And then there are problems that seem to me to not be problems at all:

1. [Health care reform should have] more federal funding for high-risk pools….
2. [Health care reform should have] federal and state reinsurance programs designed to make insurance more affordable….
3. [Health care reform should have] tax reforms designed to limit the health insurance tax subsidies that flow to high-income households while increasing those that flow to low- and middle-income households.
4. [ObamaCare’s] sliding-scale subsidies provide at least some families on the exchanges with a strong disincentive against earning more income….
5. [ObamaCare] is pricing a fair number of cost-conscious consumers out of the market, even after factoring in subsidies.

Community rating is a replacement for high-risk pools: have community rating, and there is no point. The same is true for reinsurance programs. Tax reforms to limit the health insurance tax subsidies are on the way: that is the Cadillac-plan tax–if it is not repealed. That it takes a while–two decades–to take effect is not a bug but a feature: we don’t want to churn too much too quickly.

And the last two objections cancel each other out. Lower subsidies to reduce marginal loss-of-benefit rates would price even more cost-conscious consumers out of the market. Higher subsidies would increase the marginal loss-of-benefit problem. A thinner benefit package has its own problems–and, besides, high-deductible plans are the thinner benefit package. If people really want such insurance, they will vote with their feet for it.

After reading Reihan, I find myself more optimistic about ObamaCare. Yes, the failure of the Red States to expand Medicaid is a political and moral crime. Yes, it is going to make their states 3% (or more) poorer relative to the rest of the country until they relent. But relent they will. Then we will see a lot of different models as to how to run Expanded Medicaid. And those states whose models are most successful will be copied: if Arkansas can make Medicaid Advantage–serving the Medicaid population via exchange-purchased private insurance–work, then well and good: it will attract followers. If single-payer standard Medicaid works well, by contrast, pressures to save on subsidies and induce high-subsidy exchange buyers to migrate to Expanded Medicaid will grow. What works will be reinforced.

From this perspective, the major flaws in the ACA as I see it now are:

1. the lack of a public option–Medicare-for-all may well be our proper destiny, and a public option would have been a way for all of us or for those of us who fit such a system to get there via decentralied voting-with-the-feet. That would have been a good thing. That would be a good thing: add a public option.
2. I think that if the system goes well we should speed up implementation of the Cadillac tax and drop the employer mandate. The ultimate destiny is to eliminate the tax subsidy for employer-sponsored insurance and to move more people into the exchanges, and the slow implementation of the Cadillac tax and the employer mandate are there to try to keep there from being too much short-run churning. If there isn’t too much, accelerate the migration.
3. The bureaucratic strait-jacket’s effect on innovation and the monopoly and monopsony power of large provider groups must be dealt with, and the sooner the better.
4. The IPAB must be allowed to function–and must be allowed to do its job and wrest control of Medicare reimbursement away from the lobbyists for the specialists.

But it does look to me like we are now on the road to a much better health-care finance system than we had five years ago.

Unfortunately, we also need a much better health-care delivery system. And ObamaCare does not do that. All it does is clear the ground so that health-care finance is no longer by far the worst in the world, and no longer a total block to delivery-system reform.

But, of course, where are the Republicans and conservatives–Reihan aside–who are talking seriously about the needed patches to ObamaCare?

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