(Re)Peeling An Onion: Obamacare Edition

Obamacare, like ogres and onions, stinks and has layers. Repealing it involves removing those layers and at the very least putting things back the way they were (ideally, making them better.)

Given that congress never wants to: a) relinquish power or b) stop funneling money to their states/congressional districts, removing these layers was going to be a herculean task. In part, I suppose Obamacare was designed that way.

And so we come to the current plan to peel the onion without actually touching it (and thus avoiding the tears): The “Better Care Reconciliation Act.” I’ll say this up front: They didn’t try to make some dumb acronym out of the bill title.

I haven’t read the bill, I find reading bills to be incredibly dry work best left to people who are learned in such things like how to understand what “Section 4 of USC 10 after ‘of’ shall be replaced with…” means. But I have read a fair amount of commentary on bill and here is my take away: there are basically 2 schools of actual thought* and (as expected) the democrats making of school of whatever-the-opposite-of-thought-is (i.e. screeching.)

The schools of thought are more or less summed up by Avik Roy and Michael Cannon. Roy makes up the booster side of things. Cannon, with his usual flair and (well deserved) cynicism, makes up the critic side.

I find issue with both strains of thought for reasons we’ll get to below. But the TL;DR comes out to basically this: If you prioritize Medicaid reform you’re likely with Avik in supporting this warty bill. If you prioritize deregulating the private insurance market this bill is a steaming pile of shit.**

Considering Avik’s points first: rolling back the Medicaid expansion, followed by slowing the growth of Medicaid is a huge win, if you think it will stick. Cannon, for his part, notes that a lot of the changes are pushed out 4+ years, suggesting they’ll end up like Medicare’s “Doc fix,” often pushed aside to avoid the political fallout. There might be ways to help make it sick (such as encouraging states to rapidly adopt the block grant structure which would make everything harder to unwind.) But I’m unsure how well they would work even if they were implemented.

For the rest of the bill, Avik makes his usual assumptions that government should be involved in some level in insurance. To be fair to him, it’s not an entirely unwarranted assumption given the state of things now. Government is, to an extent, involved in insurance in the sense that it has created a perverse incentive for employers to provide insurance in lieu of cash compensation to employees. Currently there is a difference in treatment between employer provided insurance, which is more or less an untaxed (both at the employee and employer level) form of income, and private insurance bought primarily with after tax dollars. Make no mistake, employees like pre-tax benefits and employers like not having to pay 6.2% payroll tax on that compensation. (Side note: this is partially why unions stock their contacts with crazy lucrative insurance plans and to a lesser extent retirement plans, forgoing salary increases and companies agree to those terms.)

If we’re trying to equalize this differing treatment, tax credits for insurance purchasing are going to be more palatable than taxing the value of the provided employer insurance. For my part though, the structure of the senate bill seems all wrong. We’re still relying on “tax credits” that are paid directly to the insurer masking the true cost of the insurance. From an economics 101 perspective this is bad on about 1000 levels. Pegging the credit to bronze level plans looks like a money saver on paper, but if we can’t control the current explosion of premium costs it won’t matter in the long run enough to count.

Personally, I’d rather see a system that increased parity between employer provided and individually purchased health insurance. One possible vehicle would be expanding pre-tax HSAs and allowing the payment of premiums out of said HSA. Granted the paperwork for this is suboptimal. (One complaint from the left will be “yes, but it requires people to make smart financial choices and people are dumb!” Personal responsibility is a thing, even if the left wants to wish it away.)

Another possibility is a (nonrefundable) tax credit based on the amount actually spent on insurance (not a predetermined subsidy paid to insurers.) If it’s a nonrefundable credit, people who already have 0 or negative tax liability won’t benefit though (so that mechanism is a hard sell.) On top of that, the money would still be subject to the payroll tax (so the parity isn’t 100%.)

Both of these mechanisms run into trouble with people who are already barely getting by (and thus can’t afford to shuffle money to a HSA or wait for a year end tax refund.) Frankly, those people were ill served by Obama care’s insurance mandates and Essential Health Benefits (EHBs) that drove up the cost of insurance while also making it basically worthless through sky high deductibles. Which brings us to Cannon’s point.

Cannon is right that the current bill does (less than) nothing to relax the market for health insurance making it more affordable. If anything, by leaving the bulk of the Obamacare structure in place, the bill may hasten the collapse of the individual market. Rejiggering Medicaid and the low income subsidies such that more young (hopefully healthy-ish) people may enter the private market might help a bit; but, as I alluded to above, Cannon makes several points that suggest the Medicaid rollback won’t stick. Plus, there’s always the question of whether the new subsidy getters will really go into the market rather than just going without insurance. Even with the mandate, there’s evidence they are going without now, suggesting that it will get worse without the mandate.

Still there’s something wanting in this analysis. I’m sympathetic to the argument that the individual insurance market is a mess and even if we could go back in time to Jan 21st of this year and pass a perfect repeal, I don’t think we could fix said markets by 2018 enrollment. Plus, like it or not, we have expanded Medicaid in 31 states and simply ending it immediately (or even at year end) is an unlikely sell. What this means, functionally, is that any change will have to be phased in. There are legitimate questions as to how long this phase in should be. And the current bill’s structure suggests an attempt to “fake it” in that it pushes the changes out long enough that they won’t ever materialize.

Cannon has, previously, advocated for HSA paid premiums like I discuss above, suggesting, at least to me, that this would be his preferred route of reform. Though as I note, it faces some problems at the lower ends of the income scale.

So where does that leave us? I’m probably more sympathetic to Cannon’s arguments than Avik’s. I’m not entirely convinced their ideas can’t be synthesized at some level though. At this point, it may be better to split off the Medicaid portion, while adopting some changes that would help make the reform of this program stick. Obamacare did this for the expansion by encouraging rapid uptake and rendering it hard to undo. A similar mechanism allowing for rapid conversion to block grants may help serve our cause here.

This would still leave the Obamacare mess in place, but frankly I’m unsure the senate bill doesn’t do that anyway. At least in the case of the split bill, we’d only assume responsibility for the Medicaid changes (while I suppose taking flack for not fixing the dem created mess, but that’s a messaging problem.)

From there, maybe we can start to reform the system. There seems to be some agreement between Avik and Cannon that the tax favored status of employer plans (relative to individual plans) is an issue that needs addressing. Where they differ is how to address that issue. But there’s common ground between these two seemingly disparate positions, and maybe from there we can work to actually address the insurance system and start incorporating free market reforms. And while we’re at it, maybe we can incorporate Graboyes’s school of thought too, and have a true healthcare overhaul.

But this bill isn’t that, it’s something that’s insufficient to the point of being a mess. The argument that it’s “merely a first step” doesn’t hold water to me because it’s at best, a step sideways with no clear path to step 2. The speed of the collapse of Obamacare does suggest a need to act quickly. But the stakes at play here create an overwhelming need to act correctly. Artificial time lines (“before the July 4th recess”) are counter productive. At this stage, any changes to the insurance market may not even filter down in time for 2018 enrollment, which means we can act more deliberatively. Yes the Republicans had 7 years to come up with a plan. Yes they’re dumb for not doing it. But that’s no reason to double down on stupid. To me, panic about the 2018 midterms can be managed by articulating a coherent message for what reform looks like and showing progress towards it. There’s still time to do that, but not if we rush.


*There’s also Robert Graboyes “we should be reforming how we deliver care, not the insurance market” school of thought, but this goes back to even before ACA. It’s important, and yet no one seems to take it seriously! So we’ll set that aside for another post.

**This oversimplifies both sides’ argument for the sake of brevity. Do yourself a service and read them both.

2 comments on “(Re)Peeling An Onion: Obamacare Edition
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