Every one of the main claims made for the law is turning out to be false.
By Daniel P Kessler
As the federal
government moves forward to implement President Obama's Affordable Care
Act, the Department of Health and Human Services is slated to spend
millions of dollars promoting the unpopular legislation. In the face of
this publicity blitz, it is worth remembering that the law was
originally sold largely on four grounds—all of which have become
increasingly implausible.
• Lower health-care costs. One key talking
point for ObamaCare was that it would reduce the cost of insurance,
especially for non-group insurance. The president, citing the work of
several health-policy experts, claimed that improved care coordination,
investments in information technology, and more efficient marketing
through exchanges would save the typical family $2,500 per year.
That was then. Now, even advocates for
the law acknowledge that premiums are going up. In analyses conducted
for the states of Wisconsin, Minnesota and Colorado, Jonathan Gruber of
MIT forecasts that premiums in the non-group market will rise by 19% to
30% due to the law. Other estimates are even higher. The actuarial firm
Milliman predicts that non-group premiums in Ohio will rise by 55%-85%.
Maine, Oregon and Nevada have sponsored their own studies, all of which
reach essentially the same conclusion.
Some
champions of the law argue that this misses the point, because once the
law's new subsidies are taken into account, the net price of insurance
will be lower. This argument is misleading. It fails to consider that
the money for the subsidies has to come from somewhere. Although
debt-financed transfer payments may make insurance look cheaper, they do
not change its true social cost.
• Smaller deficits. Increases
in the estimated impact of the law on private insurance premiums, along
with increases in the estimated cost of health care more generally, have
led the Congressional Budget Office to increase its estimate of the
budget cost of the law's coverage expansion. In 2010, CBO estimated the
cost per year of expanding coverage at $154 billion; by 2012, the
estimated cost grew to $186 billion. Yet CBO still scores the law as
reducing the deficit.
How can this be? The positive budget
score turns on the fact that the estimated revenues to pay for the law
have risen along with its costs. The single largest source of these
revenues? Money taken from Medicare in the form of lower Medicare
payment rates, mostly in the law's out-years. Since the law's passage,
however, Congress and the president have undone various scheduled
Medicare cuts—including some prescribed by the law itself.
Put aside the absurdity that savings
from Medicare—the country's largest unfunded liability—can be used to
finance a new entitlement. The argument that health reform decreases the
deficit is even worse. It depends on Congress and the president not
only imposing Medicare cuts that they have proven unwilling to make but
also imposing cuts that they have already specifically undone, most
notably to Medicare Advantage, a program that helps millions of seniors
pay for private health plans.
• Preservation of existing insurance. After the Supreme
Court upheld the constitutionality of health reform in June 2012,
President Obama said, "If you're one of the more than 250 million
Americans who already have health insurance, you will keep your
insurance." This theme ran throughout the selling of ObamaCare: People
who have insurance would not have their current arrangements disrupted.
This claim is obviously false. Indeed,
disruption of people's existing insurance is one of the law's stated
goals. On one hand, the law seeks to increase the generosity of policies
that it deems too stingy, by limiting deductibles and mandating
coverage that the secretary of Health and Human Services thinks is
"essential," whether or not the policyholder can afford it. On the other
hand, the law seeks to reduce the generosity of policies that it deems
too extravagant, by imposing the "Cadillac tax" on costly insurance
plans.
Employer-sponsored insurance has already begun to change. According
to the annual Kaiser/HRET Employer Health Benefits Survey, the share of
workers in high-deductible plans rose to 19% in 2012 from 13% in 2010.
That's just the intended consequences. One of the law's unintended
consequences is that some employers will drop coverage in response to
new regulations and the availability of subsidized insurance in the new
exchanges. How many is anybody's guess. In 2010, CBO estimated that
employer-sponsored coverage would decline by three million people in
2019; by 2012, CBO's estimate had doubled to six million.
• Increased productivity. In
2009, the president's Council of Economic Advisers concluded that health
reform would reduce unemployment, raise labor supply, and improve the
functioning of labor markets. According to its reasoning, expanding
insurance coverage would reduce absenteeism, disability and mortality,
thereby encouraging and enabling work.
This reasoning is flawed. The evidence
that a broad coverage expansion would improve health is questionable.
Some studies have shown that targeted coverage can improve the health of
certain groups. But according to the Robert Wood Johnson Foundation's
Economic Research Initiative on the Uninsured, "evidence is lacking that
health insurance improves the health of non-elderly adults." More
recent work by Richard Kronick, a health-policy adviser to former
President Bill Clinton, concludes "there is little evidence to suggest
that extending insurance coverage to all adults would have a large
effect on the number of deaths in the U.S."
The White House economic analysis also
fails to consider the adverse consequences of income-based subsidies on
incentives. The support provided by both the Medicaid expansion and the
new exchanges phases out as a family's income rises. But, as I and
others have pointed out in these pages, income phaseouts create work
disincentives like taxes do, because they reduce the net rewards to
work. Further, the law imposes taxes on employers who fail to provide
sufficiently generous insurance, with exceptions for part-time workers
and small firms. On net, it is hard to see how health reform will make
labor markets function better.
Some believe that expanding insurance coverage is a moral imperative
regardless of its cost. Most supporters of the law, however, use more
nuanced arguments that depend on assumptions that are increasingly
impossible to defend. If we are ever to have an honest debate about
entitlement spending, we will need to distinguish these positions from
one another—and see them for what they really are, rather than what we
wish they would be.
Mr. Kessler is a professor of business and law at Stanford University and a senior fellow at the Hoover Institution.
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