Even Democrats Can’t Fix Obamacare, Because Everything Popular Is Disastrous

Even Democrats Can’t Fix Obamacare, Because Everything Popular Is Disastrous

The only way to make the Affordable Care Act sustainable while not eliminating its benefits is to double down on the parts people hate.
Scott Ehrlich
By

When the American Health Care Act passed the House by the thinnest of margins a few weeks back, Democrats were apoplectic. After all, why start anew with a health-care plan when we could just take the fantastic one we were gifted in 2009 that just needed a few tweaks to work?

Yet while admitting that the Affordable Care Act needed to be tweaked, specifics were never forthcoming. Why? Because pushing what it would take to repair the ACA would be electoral suicide.

Democrats often touted how, if you cut the ACA into pieces, it was quite popular. Community rating, guaranteed issue, subsidies for purchasing, staying on your parents’ plan until age 26—all were very popular. Of course, polling about any benefits without taking into account the costs will always poll very well. Take someone’s opinion on whether he’d support being given a new car, and I’m sure it would have sky-high ratings. Poll people about paying $1,000 a month for this “benefit,” and that may bring down the approval rating quite a bit.

The things that people had to both give up and take on to attain Obamacare’s benefits—its costs—were disliked more than its benefits were liked. So even if people loved all the above benefits, they hated having a more narrow care network, paying more for premiums, having higher deductibles, seeing taxes go up, seeing the national debt go up, and having to pay a penalty for non-compliance even more. Continuously, Obamacare’s costs outweighed its benefits for the majority of Americans.

This is important, not to take shots at Democrats, but to point at the key issue that caused the ACA to be tremendously unpopular (until the Republicans did their best to make people forget how much they hated it). This is important because the only ways to tweak the ACA and make it sustainable, while not eliminating the benefits, is to take the parts people hated and make them more prevalent. This is no doubt why Democrats are so desperate for Republicans to work with them on repair now, when they had no issues passing the initial law on party lines. Any effective repair would be extremely unpopular, and they have no desire to walk that cliff alone.

What Makes Obamacare Work Is Unpopular

Without reiterating the much-discussed problems with ACA, the quick version is that everyone is required to pay health costs but sick people are charged the same rates as healthy people. If enough healthy people sign up, they balance out the risks of the sick, the pool remains stable, and most people can remain insured for the foreseeable future.

This is a great deal for those who are sick or very likely to be sick soon, and a terrible deal for those who are healthy and not likely to be sick soon. That is why many young, healthy people have chosen to remain out of the insurance market indefinitely. There is no compelling reason to get insurance when they are healthy when they know that, if they do get sick, they can buy insurance at the community rate and still be covered without having paid premiums while healthy. In fact, they can, as many people have, stop paying as soon as they get treated and play this game all over again.

So, how do you get healthy people to pay for something they don’t really want at rates they don’t want to pay? Well, the ACA contains a provision to do exactly that: the individual mandate. Of course, consumers hated being forced to buy insurance. They felt it was unfair they could be charged for not engaging in commerce, and railed against it.

So, for political reasons, the mandate was made very weak. For this year, it costs $695 or 2.5 percent of income for individuals and $2,085 or 2.5 percent of income for families to ignore. But it’s actually weaker than that. The penalty can’t be assessed like a criminal penalty, it can only be taken from your tax refund. So even if your income was $1 million a year, and your penalty therefore $25,000, set yourself up with minimal withholding and end the year owing the government money. Then your actual penalty is zero.

The math doesn’t have to be that severe to make people avoid the individual mandate. For a 30-year-old not making a huge income, $695 is only about two months of the average premiums for a bronze plan and less than two months premium for a silver plan. So if you are a young individual not likely to get sick, and don’t game the tax system on withholding, you can buy a bronze plan for about $3,700 a year that has, on average, a $6,000 deductible, meaning you spend $10,000 before seeing any return on your insurance investment. Or you can pay a one-time $695 penalty then cash-pay for any medical needs, where just about anything short of hospitalization will make this the much better financial option.

To Solve This, We’d Have to Up the Mandate

So the key to getting people like that insured is simple: raise the mandate. Bring it much closer to the total premiums plus deductible someone would have to pay for not insuring. Make it so people can’t game the tax code to avoid it, and just like that, we’ve stabilized the pools. Here the Democrats, with the help of Republicans’ favorite Supreme Court justice, John Roberts, have backed themselves into a corner. In addition to being horribly unpopular, likely causing electoral backlash, this would also cause significant legal backlash.

As Roberts said, “there comes a time in the extension of the penalizing features of the so-called tax when it loses its character as such and becomes a mere penalty with the characteristics of regulation and punishment.” He added: “Congress’s ability to use its taxing power to influence conduct is not without limits.”Basically, Roberts concluded the existing individual mandate was permissible as a tax because it wasn’t a huge amount of money compared to the cost of buying health insurance. But setting it up as I suggested above likely would run afoul of his test and be considered unconstitutional. So raising the individual mandate to make the law work is out.

That brings us to the other big area that could stabilize the pool: incentivize insurers to stay in it at reasonable rates. Again, the ACA took care of this, through something known as risk corridor payments. This was a fund to provide money from insurance companies that were making money through the exchanges to companies that were losing money on the exchanges while the exchanges stabilized. It aimed to encourage low initial pricing to entice people into the marketplaces and keep insurance companies in the exchanges by allowing them to stay in without losing a fortune even if their risk pools took a while to stabilize.

Unfortunately, either to make the bill get a lower Congressional Budget Office projected cost or simply as an oversight, Obamacare included no provision on where this additional funding was to come from if it wasn’t self-sustaining. It hasn’t been, so funding would have to come through general revenue. Congress, led by Sen. Marco Rubio, decided they weren’t willing to pay for it.

So while the risk corridors did get lower-priced policies into the exchanges and maximized insurance company involvement, it wasn’t sustainable without a continual influx of cash. With all Democrats’ demonization of insurance companies in the last decade, it would be politically tough to go back to voters and justify creating an annual guaranteed subsidy of billions directly to them to remain in the exchanges, let alone get the Republicans to sign on to this. So that is out.

Within These Parameters There Are No Good Options

What else is left? Nibbling around the margins. We could increase the amount or range of people who get subsidies, therefore making policies cheaper for more people, but doing so means tapping general revenue or future debt, drastically adding to the cost. We could modify the ratio that can be charged to older people versus younger people, something the Trump administration is already trying, to lower prices for younger people to induce them into the markets.

The only two real ways to prop up this law are politically untenable and of questionable legality.

Of course, this will likely hardly benefit people who don’t want insurance while increasing the cost for people who do need it, something the AHCA prides itself on not doing. There’s also changing the enrollment period and removing people’s ability to insure themselves anytime, reducing people’s ability to enter the market as soon as they get sick then dropping out as soon as they consider themselves healthy again.

All of the above, while needing to be addressed, does very little for ACA’s long-term viability. If you can’t get enough young and healthy into the exchanges to pay for the old and sick, you don’t have a sustainable pool, meaning insurers won’t continue to offer policies. And if you don’t have that, there is no marketplace, and that whole illusion of insurance access for all falls apart.

Unfortunately for ACA supporters, the only two real ways to prop up this law are politically untenable and of questionable legality. That is what happens when a complex, hastily put together mishmash of legislation is done on party lines (expect my similar article on AHCA in 2020).

For now, the onus is on the people who wrote this legislation to come up with actual solutions, or to at least be honest with voters. I suggest changing their ACA slogans from “Tweak it, don’t repeal it!” to “Raise the individual mandate and subsidize insurers!” Good luck taking back Congress on that.

Scott Ehrlich is the COO of DTC Perspectives and the host of the upcoming health policy radio show "Debating Health." You can see more about his show at www.debatinghealth.com or contact him on twitter @debatinghealth. He lives just outside of Atlanta with his wife, son, and 3 pugs.

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