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What Everyone’s Forgetting About Healthcare

It’s the politics, stupid

Republicans finally rolled out their Obamacare replacement, and everyone hates it.

Democrats and some moderate Republican senators oppose the American Health Care Act (AHCA) because it reduces subsidies to buy private insurance and cuts billions from Medicaid. The American Medical Association, hospitals, nurses, and AARP came out against it, as did other major interest groups.

Conservatives in the House and Senate castigated the plan for keeping some of the Affordable Care Act’s insurance regulations and providing some subsidies. So did prominent free market advocacy groups, including FreedomWorks — which called the AHCA “Obamacare-lite” — Americans for Prosperity, the Club for Growth, Heritage Action, and Freedom Partners.

And conservative healthcare experts denounced it for ignoring most of their ideas.

Republicans had seven years to figure this out. But, instead of creating a plan and convincing the public it’s better than Obamacare, they demonized the ACA for political gain.

Republicans attacked Obamacare both for creating a new entitlement and for failing to cover enough people. They sincerely attacked it for forcing Americans to buy insurance, and disingenuously attacked it for high deductibles. They attacked it for healthcare inflation, even though there’s always been healthcare inflation, and it declined after the ACA went into effect.

Or, as I joked in January:

The assault was a huge success. Running against Obamacare, Republicans retook the House in 2010, the Senate in 2014, and then the White House.

By criticizing everything without uniting behind a replacement, they could be anything to anyone. Congressional Republicans could hold show votes to please the 20% of Americans who want outright repeal, knowing Obama’s veto would protect them from the 75% who want to keep the ACA or immediately replace it.

(Source: Kaiser Family Foundation)

This strategy was great in opposition, but governing requires actual choices. And now they have to govern with Donald Trump.

Besides making outlandish and often contradictory promises on healthcare, Trump attracted voters who benefit from Obamacare, making repeal more difficult.

Working class white Americans, especially in rural communities, arguably decided the election, swinging Pennsylvania, Michigan, Wisconsin, and Iowa, all of which Obama won in 2012. The AHCA will hurt a lot of them.

According to an Urban Institute study, 6.2 million white Americans without college degrees gained insurance under Obamacare, reducing the uninsured rate from 20% to 12%. The ACA decreased the uninsured population of non-college whites by about 40% in Pennsylvania and Wisconsin, and about 50% in Michigan and Iowa. In Mitch McConnell’s home state of Kentucky, the decrease was nearly 60%.

Exactly how many would lose insurance under Trumpcare is unclear, but it’s safe to say it’s in the millions.

Many white working class Americans say they want to repeal Obamacare. But, to a large extent, that’s because Trump promised he’d replace it with something better. Something that gave working class voters more healthcare for less money:

We’re going to have insurance for everybody. There was a philosophy in some circles that if you can’t pay for it, you don’t get it. That’s not going to happen with us… [People covered under the law] can expect to have great health care. It will be in a much simplified form. Much less expensive and much better.

But better healthcare for less money isn’t happening. The choice is between saving money by providing less (what Republicans want) and providing more by spending more (what Democrats want).

At this point some readers will object. “Of course we can have more for less,” you’ll say, with progressives pointing to countries with universal healthcare, and conservatives citing market-based plans by healthcare wonks such as Avik Roy.

But that’s my point. It doesn’t matter if it works on paper or in other countries. The United States can’t do it.

Politics is why.

Every other economically advanced country has a form of universal healthcare. And, though the systems vary, they all spend less while achieving better outcomes.

(Source: the Commonwealth Fund)

Compared to every country on that list, the United States has lower life expectancy at birth, higher infant mortality, and higher obesity. And more American seniors have two or more chronic conditions (68%). Canada (56%) and Australia (54%) are the only others above 50%.

The comparison isn’t as simple as advocates make it out to be. With other advanced economies clamping down on the profit motive, the United States effectively subsidizes research and development of drugs and medical devices for the rest of the world. However, it’s fair to say a single-payer system with private health providers (like Canada), a publicly run system (like the UK), or strict price controls and required insurance (like Japan) could plausibly give the United States better care for less money.

But it’s politically impossible. That’s obviously true now, with Republicans in charge, but it’s probably true for the foreseeable future.

Look at the success of Republicans’ anti-Obamacare attack about “government bureaucrats between you and your doctor.” ACA regulations affected all private insurance, but in most cases just required them to cover more things (preexisting conditions, birth control, etc.) The only plans Obamacare regulated out of existence — the ones making Obama’s “if you like your health plan, you can keep it” PolitiFact’s 2013 Lie of the Year — offered little coverage at low prices. The attack worked, even though Obamacare got between few patients and their doctors.

Here’s where Americans get their insurance:

(Source: Kaiser Family Foundation)

Obamacare transformed the relatively small non-group market, but single-payer would take away employer-provided insurance from half the population. We just saw millions freak out that the government might take away their health insurance even though it didn’t. A plan that actually takes away their insurance would face strong opposition.

People fear change. And, despite all the problems, most Americans are satisfied with the health system.

(Source: Gallup)

A similar problem affects market-based proposals.

Avik Roy’s Transcending Obamacare and similar conservative reform plans keep the ACA’s private insurance exchanges, but turn them into actual markets by eliminating the individual mandate, employer mandate, and most regulations. Government subsidies would help poor Americans buy insurance, but because competition and less regulation will bring down costs, they’d be smaller.

The main way these plans reduce prices is by raising the portion of health costs paid directly by consumers. That gives them more “skin in the game,” making them more conscientious shoppers.

One reason the United States spends so much on healthcare is overconsumption. For example, Americans get twice as many MRI exams and nearly twice as many CT scans (per capita) as Canadians. Americans also take more prescription drugs than residents of other wealthy countries. These scans and medications are expensive, and, considering America’s weaker health outcomes, many of them are probably unnecessary.

With higher deductibles, American patients would decline some expensive procedures or medications. But the biggest way market-based plans tackle overconsumption is by reducing, or eliminating, the tax break for employer-provided insurance.

During WWII, the United States instituted wage and price controls, but this created labor shortages (on top of those created by the war), and the government responded with tax breaks for health insurance. Businesses could deduct money spent on employee insurance, while individual benefits were exempt from federal, state, and city taxation. Americans liked it, and after the war, didn’t want to give it up.

The system worked for a while, expanding coverage to a large portion of the population. But, among other problems, it encouraged overconsumption. The tax break gave businesses a strong incentive to provide more health coverage instead of higher wages, and unions accepted the deal, since the net value was greater.

As a result, over 100 million Americans have extensive coverage and tiny copays. They don’t feel the cost of their care, so they okay anything their doctor recommends. Providers, pharmaceutical companies, and medical device manufacturers all make more money the more patients consume, and when patients never say no, doctors recommend a lot.

Getting rid of the deduction for employer-provided insurance and pushing everyone into robust insurance marketplaces would make everyone more cost-conscious, flipping the incentives.

As with single-payer, this isn’t as simple as advocates make it out to be. Healthcare is a commodity — meaning it’s bought and sold, and supply is limited — but, as I explained in another article, it’s different from every other commodity in ways that make it less susceptible to market forces.

Nevertheless, it’s fair to say a real market system would probably save money, while maintaining or even improving health outcomes. But it’s politically impossible. Employed Americans won’t support the guarantee of lower benefits now in exchange for the possibility of reduced health costs in the future.

Both universal healthcare and a real healthcare market would probably be better than the cobbled-together American system. But we can’t start from scratch. Political constraints mean the best we can do is reform the system we’ve got.

The genius of the Affordable Care Act is not the law itself — which has numerous flaws — but the way it accounted for political realities.

Democrats wanted to expand insurance coverage for decades, but never succeeded until Obama. Most notably, Bill and Hillary Clinton tried in 1993 with a plan requiring all Americans to get private insurance, overseen by a National Health Board. Industry groups fought it, and it failed, even though Democrats controlled both houses of Congress.

Obama succeeded by bringing powerful stakeholders to the table and giving them something they wanted:

  • Where Clinton sought to break private insurance companies, Obama won their support by forgoing a powerful oversight board, expanding Medicaid so they wouldn’t have to cover people near the poverty line, and promising them new, healthy customers.
  • He got backing from hospitals by expanding health coverage so they’d have fewer uninsured patients showing up in emergency rooms, and in exchange they agreed to lower Medicare prices to make the ACA numbers work.
  • He got pharmaceutical companies on board by banning the government from negotiating drug prices.
  • And the AMA, AHA, ANA and AARP all participated in discussions, and all came out in support.

Progressives hated these deals, and called Obama a sellout. But in 2010, unlike 1993, industry groups backed the legislation, and it squeaked through.

As Bismarck said, “politics is the art of the possible.”

Under current politics, repealing Obamacare may not be possible.

The Republican civil war has returned with a vengeance. The glow of electoral victory papered over the problem, but the election actually highlighted the schism. Most Republican leaders are conservatives, but millions of Republican voters are not.

Right-wing populists make up a significant portion of the party, and they’re the reason Trump is president. They do not revere the free market, blaming it for their poor economic circumstances. Their animating issue is immigration, not taxes. And they like big government, as long as they’re the ones benefiting.

Now the Republican party is trapped between conservatives, who want government to provide less healthcare, and populists, who want government to provide more (at least to them).

When it comes to repealing and replacing the ACA, Paul Ryan, Mitch McConnell, and the rest of the Republican leadership want (in order):

  1. Cut taxes on the wealthy
  2. Win future elections
  3. Improve the healthcare system

The AHCA eliminates taxes that fund ACA subsidies, about $60 billion per year, almost all of which will go to the richest Americans. Members of the top 0.1% would save almost $200,000 annually. This will also set a new baseline for upcoming tax reform, helping Republicans game Congressional scoring systems to make larger cuts permanent, instead of needing them to expire after 10 years like the Bush tax cuts.

They could cut Obamacare taxes by repealing the ACA outright, but only 20% of Americans want that. What a majority wants — this certainly won’t shock conservatives — is to keep the benefits while scrapping the parts that pay for them.

(Source: Kaiser Family Foundation)

77% of Americans support subsidies, including 65% of Republicans. 70% support “guaranteed issue” (AKA forcing insurance companies to cover preexisting conditions) including 69% of Republicans. Trumpcare keeps guaranteed issue, and offers smaller subsidies with a different structure, most notably giving less to poorer and more rural Americans.

Many white working class Trump voters probably won’t like that. But priority #1 is priority #1, and, under that constraint, keeping guaranteed issue and partial subsidies is the best they can do for priority #2.

The AHCA also gets rid of the individual mandate, which only 35% of Americans, and 16% of Republicans support. Doing so will be popular, but it will also damage insurance markets.

If insurance companies have to cover preexisting conditions, they need healthy people to buy insurance. Otherwise, everyone just goes without coverage until they need care, destroying the private insurance profit model.

Trumpcare tries to address this with a “continuous coverage provision.” Anyone buying health insurance after going uncovered for two months would have to pay 30% more. That’s supposed to encourage everyone to maintain coverage, but, more likely, it will discourage anyone without coverage from buying it until they absolutely have to, exacerbating the original problem.

Conservative critics are right to deride Trumpcare as “Obamacare-lite.” If anything, it’s worse, with more uninsured, higher costs for patients, and more dysfunctional markets.

Starting from scratch would probably lead to a better system. But politics won’t let them.

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Nicholas Grossman

Nicholas Grossman

Senior Editor at Arc Digital. Poli Sci prof (IR) at U. Illinois. Author of “Drones and Terrorism.” Politics, national security, and occasional nerdery.