Category Archives: Healthcare

Obamacare stubbornly not ruining country

Ezra Klein has an article up talking about Obamacare’s surprising success. Not just about the fact that it hasn’t been a disaster yet, but that it’s actually been more successful than even the more optimistic forecasts called for.

A new report from the Kaiser Family Foundation finds that in seven major cities that have released data on 2015 premiums, the price of the benchmark Obamacare plan — the second-cheapest silver plan, which the federal government uses to calculate subsidies —  is falling.

There are, of course, some caveats. This is just initial data, and the decrease is incredibly small. And the CBO warns that it doesn’t expect it to continue. None the less, it is part of a trend of data that is better than anticipated.

Krugman weighs in too, and I think he has a really good point. A year ago there was general pessimism about the ACA. The idea that it would be successful was not widely held, and most conservatives would have been incredulous at the mere suggestion. Krugman points to John Cochrane and The Hill, and they were hardly the worst. Yet here we are, with data on the ACA stubbornly refusing to look bad. I wish more conservatives were asking why.

Maybe more importantly, I wish this would be a hit to the credibility of the people who were so frantically warning of disaster. They weren’t just wrong, they were spectacularly wrong. It really should make people wonder what else they’re wrong about.

Because it’s not like this is an isolated issue. Many of the same people who were wrong about this have been wrong about a host of other economic and political issues lately. From the last presidential election when conservatives were surprised by the utterly predictable results, to inflation which has miraculously stayed low, to the ACA which hasn’t ruined healthcare or America yet. Any of these things in a vacuum would be reasonable enough to ignore. But I hope that at some point this pattern of making predictions that turn out to be completely untrue will shake their listeners faith in them. Because at this point it’s clearly not just an isolated mistake, it’s something more fundamental, something about their entire approach that makes them unable to see when they are wrong.

Losing or leaving a job?

While they may sound the same, there is a substantial difference between “reduction in the supply of labor” and “Americans losing their jobs.” The first statement is something brought up in the latest CBO report. But many Republicans are using the second phrase to describe it.

The most basic difference between the two is that a person cutting back from full-time to part-time will create a “reduction in the supply of labor,” but obviously is not losing their job. More importantly, though, the report is referring to people who choose to work less, not those who are offered less work by their employer. Obviously, this is important. Rather than evidence that healthcare reform is the disaster Republicans have been hoping for, it’s evidence that healthcare is doing what it was intended to.

Let me explain. We had a system where health insurance is connected to full-time work by both group bargaining and tax incentives. So people with healthcare needs didn’t just need money to buy health insurance, they needed a job that provided health benefits. For example, a young couple has two full-time jobs. One wants to reduce their hours to take care of kids, but their spouse’s job does not offer health benefits. Or consider a person near retirement who keeps working because they wouldn’t be able to get health insurance if it wasn’t provided by their job.

The ACA (Obamacare) allows people buying insurance for themselves benefits similar to those provided by a job. The result is people who were working full-time only for health insurance are now free to reduce their hours or retire. Those are the people the CBO report is talking about when it talks about reduction in the supply of labor. And that’s why it’s a good thing. People being trapped in full-time jobs only because there was no other way for them to receive healthcare was a problem. It’s a good thing that it is being fixed, and the huge number of people changing their work status is evidence not that Obamacare is hurting people, but that this problem was larger than we realized, and fixing it is helping more people than expected.

Also, as noted here by Politifact, this effect of allowing people to retire or reduce hours will create room for the long term unemployed and those who have given up on working to get jobs. Which makes sense. We are still in an economy with more job seekers than jobs, so allowing people to work less if they want to will mean more available work for those who are looking for it. That means that in the next few years this effect will likely aid recovery; it will only start to reduce GDP after unemployment has improved.

Or, to put it in economic terms, this is a reduction in the excess labor supply. It may even help counterbalance the insufficient demand for labor.

Obamacare: On the other hand

Despite the shockingly poor quality of Dave Ramsey‘s critique of the Affordable Care Act, there is currently a lot of bad to say about the law. I don’t want to give a distorted impression of my views of it, so lets look at the problems we’re seeing.

As I explained in the previous post, the law is supposed to function by offsetting the cost of community ratings (that is, forcing insurers to accept everyone regardless of health) with the addition of healthy customers through the mandate. And in pure theory it should work fine. In practice, it will depend heavily on how many healthy people actually sign up. For example, concerns that the tax penalty won’t be enough to encourage people to buy insurance are valid. The hard number the Obama administration has estimated is 2.7 million younger, healthier people.

There was always the possibility that they wouldn’t hit that number. But the disastrous launch of has made that more likely. We’re nowhere near hopeless now, there’s still time to turn it around. But since the law depends on certain people signing up there’s a possibility that negative expectations can become a self-fulfilling prophecy.

As for the web site. There are two sides to this. On the one hand, this is arguably the most ambitious web site launch I’ve ever heard of. The fact that they tried to launch such a large and complex site fully featured is extremely unusual, and there’s not much precedent for a system like this getting the kind of traffic it opened up to. So problems were absolutely expected. On the other hand, it’s clear that the problems are much more extensive and serious than that accounts for. While the site I run at my day job is nothing like, it has enough in common with it that hearing reports about the nature of the problems, like purchases being completed with inaccurate data getting to the insurer, make my skin crawl. The only silver lining on this front is that reports of how quickly the problems are clearing up are conflicted, and there is a possibility that it will be really working in the next month or so. If that happens, it’s very realistic to think that damage control could mostly recover anything lost so far.

The other problem is that even though the ACA is now off the ground, it’s still very hard to tell how it will actually effect people. There’s no question that Obama’s campaign promise that people would be able to keep their old plans was completely wrong, since the ACA changed minimum standards. And that means that for people who were trying to get by with the minimum coverage rates are going to go up. We’ll have to wait and see if subsidies cancel that, allowing people who couldn’t afford a rate increase to break even or better. That was the plan, but with the site not working yet a lot of people are in limbo waiting to see what they’ll actually pay. This is one of the areas I think Republicans could really have had a positive effect if they had chosen to be part of the process writing the law.

This isn’t to say I’ve changed my mind. I still expect the law to succeed. I still think it will be a net positive after the dust has settled. But it has flaws and I don’t want to minimize those, and I don’t want to dismiss the possibility that I’ve been wrong. There are a lot of real concerns here, and it’s not going to be a smooth ride.

Back to square one

I have seen a number of people post this video as a good explanation of why they think the Affordable Care Act (aka: Obamacare) won’t work. It seems to be a pretty popular video, so I wanted to write up a general response to it. Dave Ramsey begins by lamenting the state of politics and talks about how people don’t think for themselves, defending the party line without respecting math or truth. He then proceeds to do exactly that, explaining why the first leg of the three legged stool of the ACA can’t stand on its own as if it were the entire law.

If you aren’t familiar with the three legged stool concept, let’s go back to square one. Despite the name, the primary goal of the Affordable Care Act was universal coverage. It is an attempt to allow everyone access to health insurance. There are three core principles that allow this, which is where the stool analogy comes from. They are called legs because without any one of the legs the entire thing crashes. The first is requiring insurance companies to accept everyone regardless of health status or history. Ramsey stops here, acting as if that were all there is to the ACA. The second is requiring everyone to buy health insurance, this provides new healthy customers to offset the costs of requiring health insurance companies to accept sick ones, and prevents gaming the system by foregoing coverage until it’s needed. But not everyone can afford health insurance, so the third is subsidizing insurance so that everyone can actually buy it.

I understand that many conservatives find these ideas ideologically offensive. Risk pooling, at least, is how all insurance works. All policy holders expenses are pooled and everyone is charged a share of the total. Ramsey is right to say adding sick people to the pool pushes costs up, but by the same token adding healthy people to the pool pushes costs down. But no matter how distasteful the ideas are to you, they don’t change the math.

While Ramsey talks a lot about math, it’s obvious that he hasn’t actually done it. When you do the math you end up with numbers. The Obama administration has done the math, and they expect about 7 million people to sign up for health insurance as a result of the ACA. Of those, they will need about 2.7 million to be younger, healthier people who will help offset the increased cost of the newly insured sick for rates to stay low. It’s perfectly fair to think the Obama administrations math is wrong, but doing so for ideological reasons, rather than because you have done the math yourself and found flaws in the administration methodology, is exactly the kind of thinking Ramsey claims to be criticizing.

The insurance companies have done the math too, and their early offerings on the marketplaces indicate that they do not expect costs to go up. That’s the part about the actuaries, if you watched the video. The actuaries have already put their money where their mouths are and predicted that the law will work. In Indiana, for example, the most expensive plan on the exchange has costs comparable to the average cost of employer provided insurance.

To be clear, again, this is square one. I’m not criticizing average people for not knowing this. They rely on experts like Ramsey and their politicians and the news to explain this to them. For Ramsey to talk about the health care law without this basic level of understanding is absurd. And when people who try to be informed don’t have this basic level of understanding it is an indictment of the news sources they use and the politicians they trust.

The problem with health insurance

The central problem with health insurance is simple: everyone in America has had a form of free health insurance since 1986 . But it’s the worst form possible, maximizing both suffering and cost. It comes from the Emergency Medical Treatment and Active Labor Act (EMTALA), which says hospitals that accept Medicare cannot turn people away if they need care, regardless of their ability to pay. So if an uninsured person needs care the hospital has to give it to them. But they have to wait till they need care. Who pays? It’s left to the hospital to figure that out, the law does nothing to cover the costs. It’s a terrible way to get health care. It guarantees that people without private insurance get the least effective, most expensive form of care possible. And while the patient will be charged, anything they can’t pay has to be covered by the hospital, resulting in both crippling debt for the patient and huge losses for the hospital.

So who doesn’t have insurance? Generally two kinds of people: the ones who can’t afford it and the ones who can but choose not to buy it. The second kind are the people the health insurance mandate applies to. By choosing not to buy private health insurance they are relying on the EMTALA, whether they mean to or not. These are generally people who recognize that health insurance is expensive, and that as long as they are healthy they are unlikely to need it. It’s a gamble, and for most young healthy people it pays off. But because they will receive help if they need it, they aren’t just gambling their insurance premium. They’re gambling other people’s money.

If these people lose the bet, if they need treatment they can’t afford, the hospital eats the cost. That cost gets absorbed by the system. This is one of the reasons American health insurance is so expensive. It’s generally, and appropriately, referred to as the free rider problem.

So how do we solve this problem? The Affordable Care Act, Obamacare, says we should charge an additional tax to those people who choose to be free riders. Romney says we shouldn’t, that charging more tax to people for not doing something is unconstitutional. Instead he wants to give tax breaks to everyone who does buy insurance. The Supreme Court just ruled that the two are legally the same, which seems surprisingly reasonable to me. But if you don’t like those solutions, what’s yours? Do you want to allow hospitals to turn away the free riders? Do you think we shouldn’t do anything about free riders?

This is what baffles me most about the outcry against the insurance mandate. It is literally conservatives arguing against punishing people for being irresponsible. Why the intense defense of people who choose to let others shoulder the burden for their health insurance? Why such extreme opposition to fining people who try to get a free ride on health care? Choosing not to buy health insurance they can afford is often a good deal, financially, for a healthy individual. But it is socially destructive and carries a huge risk to society. It is in everyone’s best interests to remove that financial incentive to let others pay for their risk.

Is the mandate the best solution to this problem? Absolutely not. But conservatives hate the alternatives even more than the mandate. More importantly, we have spent the last 20 years trying to improve this system, and have thus far failed. We can’t afford another 20 years of failure. We can’t afford another 5. There are legitimate flaws in this law, but it is a positive step, and we desperately need to start moving in that direction.

Healthcare projections are hard

If you’re into this sort of thing, you probably heard about a new study by Chuck Blahous that says the ACA, or Obamacare, is much more expensive than anyone thought. In essence, Chuck Blahous argues that the accounting methods used by the bill and the CBO evaluations double dip, applying spending as savings and creating an illusion of debt reduction when the reality will be a larger debt. Unsurprisingly, proponents of the bill say that this report is dishonest, making up new rules just to make Obamacare look bad.

After reading a few articles on the matter I found the issue kind of tricky. Blahous’s argument sounds plausible, and defense of the standard methods of accounting are complex and not intuitive. Fortunately, Ezra Klein points out a fairly simple test. Take Obamacare out of the equation, and instead look at the country’s long term fiscal prospects according to the rules Blahous uses in this paper.

Blahous baseline

Note that the lines represent the government deficit under current law without Obamacare. The blue, which is the baseline used  by the Congressional Budget Office for their analysis of Obamacare, shows the deficit essentially stabilizing and holding steady. When people talk about the dire state of our country, they are generally taking into account other factors that would push the line higher. The red line represents the rules Blahous uses, and show the deficit disappearing entirely without Obamacare by 2050.

So according to this report, we have no problem with growing deficits. To get there Blahous applies the letter of the law as it currently stands, assuming tax cuts will happen as scheduled and in the case of budget shortfalls government services will cease. Does Blahous truly believe the deficit is going to disappear on its own and that Obamacare is our only serious long term fiscal problem?

Unfortunately, despite the fondest hopes of its supporters, the passage of the ACA unambiguously darkens a dim fiscal picture.

Clearly not. Yet when presented with this criticism, Blahous insists that his analysis is correct because it is supported by a strict reading of the law.

I think this is an excellent example of why our political and economic systems are performing so poorly right now. Issues like this are at the heart of making good decisions, but they’re also much too complex for most people to have the time and patience to sort through. If someone like Blahous presents a logical sounding argument that plays to people’s prejudices and has a lot of detail backing it up, many voters will be convinced. The fact that it is ultimately incorrect doesn’t matter unless people are willing to look beyond the narrative and their expectations and try to understand the details.

What is so unique about health insurance?

This week the Supreme Court heard arguments about the Affordable Care Act, focusing primarily on the constitutionality of the mandate that all people buy health insurance or face a financial penalty. I’ve been reading a lot about the case and found the arguments very interesting. I want to address two items that seem likely to be important to the eventual decision.

First, is health insurance fundamentally different than other forms of economic activity? As Justice Scalia asked, is requiring all individuals to purchase health insurance the same as requiring them to buy a new car? The prominence of this question surprises me, because it seems like it should be very simple to answer. Healthcare is unique in that every member of society will be a consumer of it at some point, and when and how much is completely unpredictable.

This takes two forms. The first is in terms of risk: Anyone who cannot afford to pay for emergency surgery out of pocked, which is most of the population, is gambling by going without health insurance. If they were to have an accident or contract a disease requiring expensive treatment there would certainly be consequences for them, but they would receive the treatment they need, and society would bear the cost. In many cases opting out of treatment entirely isn’t even an option. Part of being a member of our society is having the protection of our medical system available to us.

The second is in terms of time: A young healthy person who does not need health insurance will, again with the exception of the incredibly wealthy, someday become sick and need health services they cannot afford. In this regard the individual mandate is forcing people into the market earlier, rather than forcing people into a market they could otherwise choose not to enter.

Many people seem certain that it is unconstitutional for the government to require an activity vs. an inactivity. There is no such language in the constitution. Rather it is an interpretation of it, and, at least according to some credible people, has very little to do with the text of the constitution.

Charles Fried:

Now, is it within the power of Congress? Well, the power of Congress is to regulate interstate commerce. Is health care commerce among the states? Nobody except maybe Clarence Thomas doubts that. So health care is interstate commerce. Is this a regulation of it? Yes. End of story.

Here’s another thing Marshall said. To regulate is “to make the rule for.” Does this make a rule for commerce? Yes!

Akhil Reed:

 The limit is the Constitution. What Congress does has to be in the enumerated powers. One of those powers is the Interstate Commerce Clause. What are the limits on that power? It only applies to regulations that are interstate and commercial. So Congress has to be actually trying to address a commercial problem that spills over state lines. And that’s clearly true here.

So here it seems there is a clear answer to “where in the Constitution does congress get this power?” The question I’ve not seen addressed clearly is why that answer isn’t enough. Most of the argument I’ve been able to find calling the mandate unconstitutional focus on the curtailment of freedom, the unprecedented nature of the law, or some other ideological opposition that addresses what limits they want on the government rather than the text of the Constitution.