The Agenda

On Framing the Affordable Care Act

I found J.D. Kleinke’s defense of the Affordable Care Act so wrongheaded that I was convinced I’d have to write a detailed reply. But James Capretta has written a reply that does an excellent job of addressing Kleinke’s misapprehensions.

Eugene Steuerle of the Urban Institute, a scrupulously nonpartisan centrist who favors universal coverage and the individual mandate, has written one of the most compelling critiques of the Affordable Care Act:

This decision to ignore the math has created far-reaching consequences:

* Those in the exchanges will get substantially higher subsidies than will many households that remain in the less subsidized employer-provided insurance market, as well as those on Medicaid.

* To prevent too many employees from getting the new subsidy, employer penalties and other tactics try to keep people within the less subsidized employer network. Even so, droves of employees—potentially tens of millions—are likely to shift out of employer-provided insurance over the next decade or two, especially as newer firms and their employees find it more profitable to get the exchange subsidies than the subsidies for health insurance provided by the employer.

* To try to prevent small employers from bearing the burden of the new system, yet more subsidies and exemptions from employer penalties were created but not distributed fairly according to need.

* To prevent states from shifting from Medicaid, which they help fund, to the exchanges, which they don’t, still more restrictions and incentives were designed.

* If, despite all these provisions, these incentives cause too many people to shift to the new, most generously subsidized tranche (the exchange), the four-stream system becomes even more unsustainable from a budget perspective. After all, every person who receives a higher subsidy will impose additional cost on government

* The exchanges don’t just handle health insurance. Rather, they are expected indirectly to operate an entirely new “tax” system that collects another 9 or 10 cents from most insured household for every additional dollar earned and a new “welfare” system that tries to determine in advance and at various later stages households’ eligibility for different subsidies.

* It may not be possible for various employers, exchanges, Medicaid systems, and the IRS (which is expected to verify income statements to the exchanges on initial applications, but not later amendments) to share all the data needed to enforce the new subsidies. Think about the logistics of updating the information every time an individual becomes eligible for a higher subsidy because he or she marries, divorces, gains a dependent, moves, changes jobs, and earns less over a stretch of time.

Clearly, to create an administrable system, we need some certainty about the size of the subsidy; to be fair, we need to make the subsidy about the same for all those with equal incomes. This suggests that we must give households throughout the middle-income range (and perhaps those in some Medicaid and higher-income ranges too) about the same level of premium support, while eliminating discrimination against workers with employer-provided insurance. Rather than clawing back the subsidy indirectly with a new, hard-to-administer tax, we must use the current tax system to provide fewer subsidies, on net, to those with higher incomes.

I am willing to accept that a health system overhaul that sounds like the Affordable Care Act might have been broadly compatible with conservative goals. For example, a law that equalized the tax treatment of employer-sponsored health insurance and insurance purchased by individuals by establishing a universal tax credit and that encouraged the creation of state-based exchanges might have been a very good way to go. It would sound much like ACA, but it would in practice be very different.

To address the problem of pre-existing conditions, this law might generously fund well-designed high-risk pools, as Capretta and Thomas Miller recommended in National Affairs in the summer of 2010. Drawing on the research of University of Pennsylvania health economist Mark Pauly, one of the first health policy scholars to champion the individual mandate, Capretta and Miller start with the assumption that America’s under-65 high-risk population is about 4% of the total non-elderly population. A population of this size would vastly outstrip the capacity of current state-based high-risk pools, yet the cost of bolstering them would be relatively modest:

Assuming that the higher ranges of these estimates are correct, what would it cost to use high-risk pools to cover between 2 and 4 million people? For an initial assessment, it might be best to start with the 2008 average subsidized cost of $4,341 per pool enrollee — the amount states contributed to their programs beyond the premiums paid by enrollees. If we assume that as many as 4 million more people might need (and seek) high-risk pool coverage, the annual cost of public subsidies could be as high as $17 billion. Other variables might include whether the new enrollees are likely to be somewhat less costly than current ones (since their situations might be less dire); whether benefits and cost-sharing levels are more or less generous than under current high-risk pool coverage; and whether additional income-based subsidies for enrollees are included. All of this suggests a rough estimate of between $15 and $20 billion per year for a comprehensive set of high-risk pool programs.

Because the states are not well-equipped to meet this need, Capretta and Miller suggest that pro-market advocates of health reform embrace a federal role in funding high-risk pools:

Champions of pro-market health-care reform should therefore urge states to properly design and operate high-risk pools, and should call on the federal government to properly fund them. Such pools would offer an effective, yet far less expensive and intrusive, approach to the problem of covering pre-existing conditions than the tack taken by the new health-care law. And very soon — well before its most important provisions take effect in 2014 — that law will put pre-existing conditions and risk pools front and center in our national health-care debate.

Later in their article, Capretta and Miller go into greater detail regarding how the federal government might address the needs of the high-risk population. And they conclude that meeting these needs is possible at much lower cost to the taxpayer than the Affordable Care Act. That might prove an overly optimistic assessment, but it seem worth a try given that it is far more compatible with the goal of curbing public social expenditures — which, incidentally, is a goal shared by many liberals as well as conservatives. Kleinke’s tic of identifying ideas like “accountability” with conservatives alone is one of the more egregious aspects of his op-ed. 

So what is actually going on here? Evan Soltas of Bloomberg View has a post that sheds light on a larger phenomeon:

By co-opting the language — but not (fully) the ideas or the intentions — of the opposition, Obama creates a valuable appearance of ceding more ground than he actually has.

Republicans, in contrast, have gone in the opposite direction, according to Soltas:

There are a few issues on which Republicans have lurched to the right. In the 2008 election, for example, John McCain’s platform included a carbon cap-and-trade plan, which today Romney wouldn’t touch with a ten-foot pole. On most issues, however, the Republican platform has gone unchanged, whereas the rhetoric has taken a turn to the Manichean, invoking a voice of puritanical extremism that reflects the policy views of but the slimmest sliver of the party’s right wing.

It’s as if they are applying the strategy which has worked for Obama, and fantastically well for Clinton before him, in reverse.

Some will say that Soltas has been ungenerous. But the salience of his observation becomes particularly clear when we consider the political success of Indiana Gov. Mitch Daniels, a staunch fiscal conservative who managed to advance his agenda by effectively employing non-ideological language. 

Kleinke believes that the Affordable Care Act is something that is not, and that is actually by design. Republicans, meanwhile, could have more effectively countered the Affordable Care Act had they embraced Capretta and Miller’s approach of devising a health system overhaul that would include more generous funding for state-based high-risk pools. 


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