Diagnosing Reform

Over the last year, we have heard much talk about the Affordable Care Act. Prior to the 2016 presidential election, it was a focus of the candidates’ platforms as Americans seemed split in their support of it. Since the election, there have been attempts to repeal, to replace, and to both repeal and replace. All of those attempts have fallen short. Americans’ support of the measure also has shifted as they saw what a repeal and/or replacement meant to their costs and coverage. The issue has been in the news for decades as several administrations have tried to stem the rising costs of health care and provide more coverage to Americans. While President Trump was hoping the ACA would implode on its own, he is now taking action. Recent news had the president end health insurers’ subsidies that help low-income patients, and a new tax cut and reform bill ended the individual mandate… if those changes remain has yet to be seen. To better understand this evolving issue, we have asked Susan Averett  and Christopher S. Ruebeck to diagnose the economic aspects of health care reform.

Christopher Ruebeck: Health care and health insurance are complex topics. Our current discussion of the American system thus must touch on many dimensions. Let’s begin by noting that universal health care was not a part of the ACA (Patient Protection and Affordable Care Act, or Obamacare) nor was it part of the proposals considered in Congress.

Susan Averett: The ACA moved toward universal coverage in several ways. States were given the option to expand Medicaid at no cost for the first few years. Parents are allowed to keep dependents on their insurance until age 26. Large companies were essentially mandated to offer insurance and small companies received subsidies to do so. And, of course the individual mandate. Everyone not covered by insurance through either an employer or Medicaid/Medicare/VA is mandated to have insurance and if not offered by an employer can purchase it on an “exchange,” which is basically a state (or federal) insurance exchange that exists to provide coverage to those otherwise without. There are still some folks who fall through the cracks. The uninsurance rate is down to about 9 percent now from about 16 percent at the time the ACA passed.

But if the president’s current action to end health insurers’ subsidies moves forward, it could greatly disrupt the ACA’s mandate. The unintended consequence of this plan is that it draws healthier individuals out of the Obamacare exchange markets. This is called an adverse selection “death spiral,” which occurs when people who are currently healthy and low-risk decide that the premiums charged for insurance are so far above their needs or expenses it doesn’t make sense to participate. When this occurs, the healthier people drop out of the insurance pool making premiums rise. As more leave the pool and rates increase, the market eventually collapses.

The ACA was designed to put more people in the coverage pool so the healthy could subsidize the sick. That’s how insurance works.

CR: Exactly. Let’s also talk about a related concept. If getting sick happens by chance, it goes against the commonly held belief that people “get what they deserve.” Americans often perceive the less-fortunate as being in those circumstances by their own doing. This means that others’ higher use of health care is often ascribed to those individuals’ own lack of wellness for reasons under their own control. In this way, we tend to ascribe more power to individual actions than what is really there.

SA: Getting sick can happen to us all even if I seem healthy today.

CR: Maybe if Americans were more familiar with other systems, we would appreciate the value of universal care. Especially considering that universal care has an uninsured rate of 0%. This is what most of the developed world has. That would be surprising enough to many Americans, I think, but what would perhaps be even more unexpected is that these other nations’ systems provide universal care under so many different forms.

There are two systems in particular that we often hear about in the news. Our neighbor to the north, Canada, has single-payer universal health care organized around a private system for both health care and health insurance. Our closest ally in Europe, the United Kingdom, has universal health care organized largely around government-provided services, the National Health Services (NHS). Canada’s system is organized by the provinces, and the U.K.’s by its four member countries.

Now, here are just a few of the many other examples. Switzerland has an individual mandate and a competitive nonprofit insurance market. Taiwan has a single payer like Canada, but a private health market. Taiwan’s funding for health care, unlike Canada’s but like (some of) the U.S. system, is from employee and employer contributions rather than through taxes. Germany’s system is one in which there are both private insurance providers (over 200 of them) and private health services providers (mostly nonprofit, but also some for-profit), with both employer and employee contributing to the premiums. All of these systems are subject to regulations that attempt to address the drawbacks of health care and insurance markets while still benefiting from the competition that markets provide.

Mexico is the only other member of the Organization for Economic Cooperation and Development (the OECD, made up of 35 countries in Europe, the Americas, and Asia) that does not have universal health care. Of the richest countries (including many outside the OECD), the United States is a very significant outlier in our lack of universal health care.

SA: The ACA differs in many ways …Some countries have a national health insurance … U.K., Canada, Australia, which basically guarantees everyone coverage. Others use various ways to insure coverage through what are often termed “sickness funds.” France and Germany as well as many Asian countries (e.g., Japan) fall into this category. In these countries, everyone fits in a “bucket” but how those buckets are determined varies across countries. ACA still relies on the largely private employer sector for much care. Medicare is similar to an NHS model as it is what is known as “single payer.”

CR: Susan hits important points. I’ll add that, as is implicit in her answers, it’s not correct to ask how the ACA compares to other countries’ health systems. The ACA made modifications to the U.S. health system, and that system remains a patchwork quilt of sub-systems—employer-based health care, Medicare, Medicaid, and the Veterans Affairs (VA) system.

SA: We are unusual in that manner as well. Our patchwork has similarities to those other approaches. The VA is like the British model. Medicare is like the Canadian model. When some speak of universal coverage in our country though, the discourse turns into warnings to beware of socialized medicine.

The pre-Obamacare of 16 percent uninsured was outrageously high compared to the other developed countries….why lower it? Equity issues and also issues of costs—it could be cheaper to insure people rather than have them run to an ER or need complex care because they didn’t get primary/preventive care.

CR: Let’s make that 16 percent figure more personal: It’s about one-sixth of the population. Think of a dozen people you know. Which two would you choose to not give coverage? Here’s what’s worse: A large fraction of the 16 percent who didn’t have coverage really should have had coverage because of their more-precarious income, wealth, and/or health conditions. Post-ACA, we’re down to 9 percent uninsured. Now think of 11 people you know: which one shouldn’t have health care?

SA: American Health  economists also talk about the term moral hazard. This is the idea that if you are insured you might use more care than is necessary. Because of this potential, policymakers want individuals to  “have skin in the game” so they don’t overuse health care. We do that with copays and deductibles. It is really hard to tell how  much of a problem moral hazard presents for our current system.

CR: As one example, we have what some call a “technological imperative” in which patients and doctors tend to over-use new and high-tech services. This ingrained attitude can make it difficult to move forward. You may remember when mammography recommendations changed not too long ago, indicating that women didn’t need to start as early or have them as often. The reaction was strong from women and doctors saying that they’d miss cancers. The data showed, though, the technology was being used far more than needed, and at a high cost. Now, when this debate is taken to extreme, the charge of so-called “death panels” arises.

SA: It comes down to how we ration care. Other countries have long waiting times or use gatekeepers to ration care. Those ration methods are unacceptable to us. What folks don’t always like to see is how we ration care by cost. If you can pay, you can have as much care as you want. If you can’t pay, then you can’t get it. Some would go so far as to say you don’t deserve it.

I think that much of what we see along party lines is differences in how much risk-sharing folks want to do. The more we spread the risk across groups, the lower premiums are. I also think there is just general lack of understanding of how insurance markets work so that people identify with the policy proposed by the person in their chosen political party. That notion seems to be breaking down a bit as we saw when Medicaid rollbacks caused the last Trump/Senate proposal to fail. But, I am purely speculating and stepping a bit out of my economic comfort zone.

As for shifting to a universal system, there are many ways to do that. You can still have a “patchwork” system but universal coverage. In some ways, that is what the ACA aims to do. However, some want to have a single-payer system–more like Medicare for all. In that case, you can just declare everyone to be covered and fund it through payroll taxes.

CR: There are benefits to all of us from promoting the general health of our fellow citizens. For example: improved productivity on the job, healthier children, decreased calls to the emergency room, and many more advantages in which we all would share. An economist would summarize this by saying that there are “positive externalities” in health care. One individual’s improved health creates benefits to others “external” to the transaction between that person and the health care provider, health insurer, or health system.

It has been shown, for example in a RAND study published in the Journal of Health Economics, that this country’s relatively low rate of small-business creation is in part due to employer-provided health care. Leveling that playing field by creating a market for health care outside of employment can address a big drawback of a worker leaving a larger firm to start a new business: “What will I do about my health care?” is a question that entrepreneurs may ask themselves as they think about striking out on their own.  The RAND study used two interesting techniques. First, it considered the effect of a spouse’s health care on business creation. Lacking a spouse with health care was shown to decrease the likelihood of pursuing an entrepreneurial venture. The other technique the study considered was qualification for Medicare at age 65. That new access to health care increased the likelihood of entrepreneurial activity.

How did the ACA address this issue? It created markets to help people get insurance, and include subsidies for those with lower incomes. We’re using another economic concept here, that of “market failure” when markets don’t necessarily provide the best outcome on their own. Economists often argue in favor of creating markets rather than creating government control, and this is what Obamacare did. In creating those markets it’s necessary to have some government intervention, but there’s already significant government intervention in every market you can imagine. The question is, how does government intervene in the best way possible? Or the flip side, when should we limit government intervention?

Getting rid of the ACA actually means getting rid of a market solution. The drive to repeal and/or replace the system that enables those markets paradoxically pushes those who care about universal coverage toward thinking that single payer—Medicare for all—is the only solution.

SA: I don’t know if the best thing to do is to build on the ACAs (shore up the exchanges … increase penalty for being uninsured and beef up subsidies). Getting more states to expand Medicaid (currently 19 have turned down the offer from the Federal Government to expand Medicaid at no cost) would help provide more coverage. That is largely a political decision but also gets at the root of something I’ve been talking to my students in Health Care Economics about: Moral Hazard. American policymakers, insurers, and health economists often believe that individuals overuse care so we have less than full insurance. That certainly plays into the lack of enthusiasm for expanding Medicaid. That the Oregon Medicaid Experiment (http://www.nber.org/oregon/) did not find that giving insurance always improved health (though some other important health indicators got better for those with insurance) plays into this idea that perhaps no insurance is better than public insurance. However, insurance provides valuable protection from expensive bills–health care expenses can add up quickly and some go bankrupt without having health insurance if they have a bad health shock.

Health care is a basic right in other developed countries. The U.S. is unusual in this respect. Yet, Medicare is really popular… even among politicians. Negative health shocks can happen to any one of us at any time. Why we don’t provide insurance to everyone suggests, as Chris has mentioned, that the health care debate isn’t necessarily about health care at all.