Saturday, November 23, 2013

The ACA and Market Based Health Care Reform

What exactly is the ACA?

Many on my side of the political spectrum claim that it is a government takeover of the health care system that will ultimately lead to a disasterous socialized medical system. Others on this side claim it is merely a large expansion of the federal government that will lead to all sorts of practical and unintended problems.

On the other side of the political spectrum we see some claim that the ACA is a heroic (but politically feasible) piece of legislation that reduces many of the injustices present in our current health care system. Another group claims it was a pathetic attempt to achieve a progressive goal (universal health care) largely through private entities. The latter typically support single payer health care. 

So, who's correct?

In my opinion, it is the latter group on the right who claim that the ACA's flaws lie in the practical problems that will come about with it.

Regardless, there is one thing the ACA clearly is not: market based health care reform. As a supporter of market based health reform, I have found that many ACA supporters think that I should support ACA. Indeed, a liberal friend of mine recently asked me why I oppose a bill that is so market oriented. Well, the reason, as I explained to him, is that the ACA does not move us towards market based health care. It moves us in the opposite direction.

From my point of view (an advocate of consumer based health care), there are a number of strong critiques of the ACA:

1.) The insurance regulations are far too comprehensive. If we are to have a health care system with a greater role for market incentives alongside an individual mandate, that mandate has to only mandate catastrophic coverage. I want to go into more detail about the specific benefit mandates in the future. No health care plan that mandates anything more than catastrophic insurance cannot be considered market oriented.

2.) The subsidies are a more complex issue. They don't actually interfere with the workings of the market in any major way. However, the fact that these subsidies are heavily means tested creates the unintended consequence of high implicit tax rates (IMTR). As income rises for individuals with subsidies, the subsidies are phased out which creates a disincentive to work. I support the general concept of subsidies (or tax credits) to help individuals purchase plans and finance health savings accounts (which have been impacted negatively by ACA).

3.) The Medicaid expansion is problematic as well. On top of being a means tested program that also creates higher IMTRs, Medicaid offers extremely low quality coverage. Indeed, the quality of care offered on Medicaid is simply unacceptable for a nation as wealthy as ours. Expanding the program without any major effort to improve the quality of care offered by Medicaid would actually hurt the very people the policy intends to help. One very smart blogger accurately labeled Medicaid a "humanitarian catastrophe".

4.) The employer mandate exacerbates one of the worst features in our current system: the connection between health insurance and employment. This mandate also has the unintended consequence of increasing the cost of employment which will likely lead to reductions in total employment.

5.) The tax increases are another major element that very few advocates of markets in health care would be comfortable with. This is especially true since a major tax increase is aimed at investment income which is an extremely inefficient form of taxation.

6.) I don't have a problem with IPAB per say. However, I do have a problem with the law's assumption that IPAB will save such a large sum of money. Given the nature of our political system and the limits on IPAB, it is unlikely that IPAB will achieve any major cost savings. This means that the health care law will likely add a significant amount to the national debt. This is especially true after we consider lost revenue from the deadweight loss resulting from the hikes in both IMTRs and MTRs.

Having said all of this, the ACA does do do a few things that will truly lead to a more competitive market. The health exchanges, despite their technical problems, have great potential in this respect. Indeed, if the comprehensive mandates and large amount of regulations included in the ACA get rolled back, the health exchanges could offer a path to true consumer based medicine. This would also likely require a rollback of the Medicaid expansion and elimination of the employer mandate.

All in all, I'm not a supporter of the ACA. However, I am also a political realist. Even a Republican president and congress would not be able to repeal the bill come 2017. However, the optimist in me thinks it is possible that a coalition of pragmatic Democrats who recognize that the law has many shortcomings and pragmatic Republicans who realize repeal is no longer a politically viable option may come together to fix the aforementioned problems and, perhaps, bring us something much closer to a consumer driven health care system than we had even before the ACA.

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