Health Insurance and Personal Responsibility

Now that Senator John McCain has torpedoed the plans of his own Republican Party to unilaterally repeal the Affordable Care Act (ACA), what comes next? How can the federal government of the United States repair a national health care system in need of modification?

Senator McCain himself may have described a “way forward” when he called for Republican leaders to invite “input from all our members, Republicans and Democrats … (to) bring a bill to the floor of the Senate …

But is such a cooperative approach possible in an era of vicious partisanship? How can the two political parties bridge the chasms that divide their respective positions about health policy? If you believe that cooperation is an impossible dream, you might wish to ponder the bipartisan origins of the ACA and its doctrine of personal responsibility.

During the early ACA debates, President Obama repeatedly praised Republican Governor Mitt Romney of Massachusetts for leading the Bay State’s successful implementation of a universal health care law. Obama directed the designers of the ACA to adopt many core principles of the Massachusetts system.

And during its earlier development, the Massachusetts law had likewise adopted many core principles of a proposal by the Heritage Foundation. The deeply conservative policy organization had suggested the introduction of an individual mandate to purchase health insurance, as a means of supporting the premise of the value of personal responsibility.

But how does an individual mandate support this premise? Well, any individual who declines to purchase medical insurance may presumedly become a “free rider” if beset by an unexpected health crisis.

Why? Let’s consider a tragic case example. Any hospital in the United States, for instance, would perform surgery on an unconscious and critically injured person who arrives in the Emergency Room with severe brain and spine damage. Even though that person may have previously declined to purchase a health insurance policy, he would receive the costly medical service any way.

And who would bear the cost of that service? The American society and its government would do so, either through the direct application of government “charity care” payments, or through indirect private sector subsidization and cost-shifting arrangements.

The Heritage Foundation, Governor Romney, and President Obama all concluded that an individual mandate to purchase medical insurance would support the doctrine of personal responsibility by discouraging “free riders” on the public purse. They decided that individuals who refuse this mandate should bear a higher tax burden to reimburse society for the cost of guaranteeing emergency medical care.

That’s a fairly simple proposition, isn’t it? And it’s a bipartisan one as well, given that the individual mandate encompasses the philosophies of both political parties.

So please don’t despair when politicians claim that the Republican and Democratic parties are too far apart for cooperative action in health policy. Instead, it may be helpful to keep in mind that those very legislators already agree on the doctrine of personal responsibility. Perhaps, from that point of agreement, a bipartisan plan may spring.

Presidential Debate: The Glaring Omission

Did you watch the U.S. Presidential Debate a couple of nights ago? NBC News moderator Lester Holt promised viewers that the candidates would “explore three topic areas tonight: achieving prosperity, America’s direction, and securing America.”

That’s an incredibly broad set of topics, isn’t it? As promised, Mr. Holt’s subjects focused on everything from the global economy to the natural environment to the sources of social strife.

There was one subject, though, that wasn’t even mentioned during the ninety minute debate. Did you notice what former hot-button topic was completely omitted from the conversation?

It was the Affordable Care Act, commonly known as Obama Care. In fact, there was no reference to any element of health care policy whatsoever. The omission was surprising, given the controversial dominance of the subject in prior elections, and considering the central importance of the industry sector to the American economy and society.

So what are we to make of it? How should we interpret this startling lack of interest in America’s system of health care? Especially given the continuing controversies over the level of access to medical products and services, and the cost of that access, throughout the United States?

One possible explanation is that the very nature of the Affordable Care Act that made it so difficult to implement in the first place is now making it easy to accept in the minds of the American public. As you may recall, although the Act was initially described as a comprehensive reconstruction of the entire health system, its primary beneficiaries were to be the relatively few individuals who desired insurance coverage but who couldn’t obtain it.

Disrupt an entire nation’s system of care to benefit a mere 24 million individuals? In a nation of 300 million citizens? Opponents of the Act portrayed such an venture as a high risk, low benefit leap into the unknown. In retrospect, it was no surprise that so many citizens shrank from it.

But now that the Act has been in effect for six years, it has become the status quo. And guess what? The health care system hasn’t crashed. It’s still plagued with problems, to be sure, but now any future modification to the industry sector can itself be portrayed as a high risk, low benefit leap into the unknown. And that may be why the possibility of repeal or significant revision has vanished from America’s political debate agenda.

Indeed, individuals who wish to engender comprehensive reconstructions of other industry sectors may take heart from the current status of the Affordable Care Act. What lesson does it teach them?

Don’t settle for small, incremental, evolutionary changes. Instead, take a deep breath, swing for the fences, ride out the inevitable backlash, and focus on integrating the changes into the industry sector so deeply that they become inseparable from the status quo.

At that point, the elements of reconstruction may simply become part of the economic and social landscape of the nation. And the public may then simply accept the changes and divert its attention to other concerns.

Et Tu, Aetna?

What a difference ten months makes! In October 2015, after United Health announced its intention to minimize its participation in the online exchanges of the Affordable Care Act (ACA), Aetna vowed to continue its participation in them. Its CEO Mark Bertolini declared, “We view it still as a big opportunity.”

So how long did his view last? Not even a full year! Last week, Aetna reversed its position and announced its intention to follow United’s withdrawal strategy.

Why? Aetna claimed that, after reviewing its recent fiscal data, its executives decided that the firm could no longer afford the costs of care for members inside the ACA exchanges. And yet the insurance giant had previously announced that it had “achieved record annual operating revenue and operating earnings in 2015, and delivered full-year operating EPS that was above (its) most recent projection.” And they produced these results while participating in the exchanges.

Furthermore, Aetna had threatened the federal government that it might withdraw from ACA exchanges if regulators failed to approve its mega-merger proposal with Humana. After the Department of Justice refused to approve the merger, Aetna announced its exchange withdrawal plans.

For obvious reasons, some critics charge that Aetna’s withdrawal represented a decision to “make good” on an inappropriate threat. Whether or not you believe that the insurer acted appropriately, though, it might be helpful to ponder a more fundamental question.

Namely, why should we believe that any large, for-profit health insurer would remain committed to the ACA exchanges? Indeed, why would such firms find it profitable to sell policies to individuals at any time?

Think about it. Large health insurers were never eager to sell affordable policies to individual families before the ACA was passed into law. That’s why individuals who were unable to access health benefits through their employers were often forced to purchase extremely limited plans with very large premiums.

Then and now, major health insurers prefer to contract with large employers that maintain Departments of Human Resources. These Departments employ teams of professionals to help insurers manage their administrative and communications responsibilities with their enrollees, i.e. with corporate employees.

Thus, insurers can achieve significant economies of scale by insuring many employees through each group contract. They cannot possibly achieve such cost efficiencies in the individual market.

So was there ever any reason to believe that the ACA would alter this fundamental economic reality? It’s hard to understand why any large national insurer would maintain a long term commitment to the individual market under any regulatory system.

Of course, this doesn’t necessarily mean that the exchanges should be shut down immediately. For the eleven million individuals who obtain health insurance through the ACA each year, an insurance policy with a non-profit or small for-profit insurer is undoubtedly preferable to no insurance policy at all. Such insurers may remain interested in growth strategies that rely on the individual policy market.

Nevertheless, ACA supporters who are excoriating Aetna for its withdrawal decision may wish to hold their fire. Whether or not they have a point about the ethicality of Aetna’s choice, it may be difficult for them to dispute the inevitability of it.

A Republican Obama Care?

They’ve done it! Paul Ryan, the Speaker of the House of Representatives, has been promising to produce the Republican’s alternative to the Affordable Care Act (ACA) for years. Finally, late last month, he unveiled what he called the Patients’ Choice Act (PCA).

And guess what? It appears to be very similar to the ACA! For instance, two of the most prominent concerns raised by opponents of the health care law involve price controls and the mandate to purchase insurance. So how does the PCA resemble the ACA in regards to these two concerns? And how does it differ?

First, let’s address price controls. The ACA stipulates that the premiums charged to older enrollees cannot be more than three times the costs that are charged to younger enrollees. The purpose of this three-to-one ratio is to place a cap on the premium costs paid by older enrollees, even if it results in higher premiums for younger ones.

Republican lawmakers have long criticized this provision as a government price control on a private service, i.e. a regulation that imposes terms that would better be established by the competitive market. So how does Paul Ryan’s plan affect this price control?

Believe it or not, the PCA simply tweaks the ratio by raising it from three-to-one to five-to-one. Despite this tweak, Ryan’s plan allows the price control to remain in our health care system.

Second, let’s address the ACA’s mandate to purchase insurance, which is possibly the term of the current law that is most reviled by Republican politicians. According to the ACA, the mandate employs the tax code to impose a financial cost on individuals who do not sign up for a health plan. At first glance, the Ryan plan appears to eliminate this burden.

But the PCA introduces an alternative burden that does not exist within the ACA. At the moment, health plans are not permitted to deny care to consumers if they are suffering from pre-existing medical conditions at the time they shop for coverage. Such denials would effectively refuse coverage to individuals who need it the most.

Under Ryan’s plan, however, such denials of care would only be forbidden if individuals maintain continuous coverage. In other words, although consumers without health insurance couldn’t be penalized by the tax code under the PCA, they could be denied coverage if they ever experience a need for medical care — and thus for medical insurance — in the future.

Is the threat of losing access to all medical care in the future equivalent to the burden of a tax penalty in the present? That question is a debatable one; reasonable opinions can differ about it. What is not debatable, though, is that the threat of losing access represents a type of mandate to purchase health insurance, even if it exists in a different form than a tax penalty mandate.

In other words, the PCA contains a significant price control. And it contains a mandate to purchase and maintain a health insurance policy. Conceptually speaking, isn’t it simply a Republican version of Obama Care?

Obama Care’s Here To Stay

When did it first become clear that China would be welcomed back into the modern global economy by the United States? Most experts point to Republican U.S. President Richard Nixon’s 1972 trip to that nation as the moment when today’s Chimerica colossus was born.

Why? Because President Nixon was a strident anti-Communist who had spent his career opposing such measures. And yet, when people now say that “Only Nixon could go to China,” they mean that American / Chinese rapprochement only became inevitable when the most powerful political opponent of that policy decided to embrace it.

Likewise, two decades later, it only became clear that America’s liberal welfare system would be dramatically downsized when Democratic President Bill Clinton signed the Personal Responsibility and Work Opportunity Reconciliation Act. Then, and only then, could American citizens truly believe that their government had permanently ended “welfare as we know it.”

So why are these historical events relevant to the continuing debate about the Affordable Care Act (ACA)? Earlier this month, the eminent conservative think tank American Enterprise Institute (AEI) released a major report entitled Improving Health and Health Care: An Agenda For Reform. It was written by a panel of ten illustrious knowledge leaders, and (as expected) it called for the replacement of the ACA with a different set of guidelines and regulations.

Ostensibly, by replacing the current law, the major elements of the existing Act would be swept away. The mandate that citizens purchase health insurance? Gone. The ability to purchase insurance on a web site that lists all available options? Goodbye. The issuance of subsidies that make coverage more affordable? Farewell.

But before we conclude that the AEI actually recommended major revisions to our national health care policy, let’s review some of the elements of its proposed reforms. Its report recommends, for instance, the implementation of a “default enrollment program” that would enable state governments to place uninsured citizens into health plans without their advance consent.

What’s the difference between “mandatory enrollment” and “enrollment by default”? One might argue that the second type of system (i.e. the AEI’s preferred alternative) would place even more regulatory authority into the hands of government than the first type. Indeed, it’s hard to understand how it would actually reduce such authority.

Likewise, the AEI report proposes to replace the existing internet-based market exchanges with vaguely defined, state-regulated “mechanisms for consumer choice of plans.” It also proposes the replacement of the existing tax subsidies with “refundable tax credits.”

Would any of these changes address the fundamental impact of the law on the daily lives of American citizens? By simply redefining mandatory enrollment techniques as default enrollment techniques, market exchanges as consumer mechanisms, and tax subsidies as tax credits, the AEI appears to recommend the replacement of the ACA with a set of roughly analogous policies.

And so, just as Nixon’s embrace of China and Clinton’s endorsement of welfare reform certified permanent shifts in government policies, this month’s AEI report may have done precisely the same thing for Obama Care. By reading between the lines of the conservative think tank’s self-proclaimed desire to replace the ACA, we might be able to discern an implicit acknowledgment that the health law’s fundamental policies are now here to stay.

Obama Care: All But Useless?

Two days ago, the New York Times published a story with the following provocative headline:

Many Say High Deductibles Make Their Health Law Insurance All but Useless

The ensuing story described certain health plans that are sold at extremely low rates, but that incorporate very high out-of-pocket deductibles. But how low is a low rate? And conversely, how high is a high deductible?

According to the article, in the 38 states that utilize the federal web site healthcare.gov, “8 out of 10 returning customers (can) buy a plan with premiums less than $100 a month …” However, such individuals may be on the hook for thousands of dollars of medical expenses, up front, before they reach their deductible limits and begin to receive claim reimbursements.

Less than $100 a month? That’s a very low rate. And thousands of dollars in expenses? That’s a very high deductible. So, on balance, are such policies worthwhile? Or are they truly all but useless?

Well, let’s think about an analogous example regarding property insurance. Suppose that you spend several thousand dollars to waterproof your beachfront home and fix some minor roof leaks this year, and that you also spend less than $100 a month on property insurance to cover the risk of severe hurricane induced flood damage. If no hurricanes strike your home, should you conclude that your flood insurance policy was all but useless this year?

On the one hand, if you believe that a property insurance policy should reimburse you for the costs of waterproofing and minor roof patching, then you might indeed conclude that the policy was worthless. And yet, if you held such expectations about your policy, you should probably expect to pay far more than $100 a month for your coverage.

On the other hand, if you believe that the purpose of your insurance policy is to protect you against the risk of a catastrophic hurricane induced flood, then you might conclude that the coverage is worthwhile even if there is no hurricane damage. In fact, you might indeed conclude that the purchase of insurance with no subsequent damage (or claim filing) represents an ideal outcome.

And if you scroll down towards the bottom of the New York Times article, that’s exactly what a health plan member with this type of coverage told the Times reporter. Josie Gibb of Albuquerque explained “It’s really just a catastrophic policy.”

Well, in reality, it’s probably a little better than that. When Josie pays for her services out of pocket, she probably pays the discounted rates that are negotiated by her health plan, as opposed to the standard rates that are charged by her medical providers to uninsured individuals.

Nevertheless, she is undoubtedly correct about the essential nature of her insurance policy. It is indeed designed to provide coverage against catastrophic illnesses and injuries, but it is not designed to reimburse her for non-catastrophic out of pocket expenditures.

Thus, it would only be reasonable to consider her plan “all but useless” if she were to suffer through a catastrophic medical event but then fail to obtain any benefits. With that in mind, what should we make of the fact that she has suffered through no such event this year?

It doesn’t mean that she wasted her money. Instead, it means that she’s been blessed with good fortune.

The Affordable Care Act’s Rate Hikes

Health insurers around the nation are now submitting their premium rates to the government for inclusion in the online exchanges during the 2016 open enrollment period. Unsurprisingly, the rates are increasing significantly over 2015.

And why is that not surprising? The answer to that question might be found in a pair of other news stories that appeared in the press this past week. After Walgreens announced its intention to purchase Rite Aid, news spread of Pfizer’s ongoing negotiation to purchase Allergan.

In a sense, the first news story reflects a trend that is explained by the second news story. After all, pharmacies like Walgreens and Rite Aid purchase the drugs that are manufactured by firms like Pfizer and Allergan. As the manufacturers of any product category merge into more dominant sellers, customers will inevitably merge to keep pace and maintain their own market power.

Likewise, hospitals are now merging into health systems to more effectively transact with the physicians who are merging into provider networks. And as the federal government continues to promote the aggregation of Accountable Care Organizations, these hospital-based systems are increasingly seeking to become larger in order to negotiate more forcefully for both physician services and insurer contracts.

In fact, at every level of the health care industry, mergers and acquisitions are progressively eliminating competition by creating dominant monopolies and oligopolies. It’s the natural evolution of a health care market that is regulated by government officials who don’t seem to be overly concerned about enforcing anti-trust law.

So what happens when such consolidation occurs? Free from any level of competition that might constrain price hikes, the surviving health care organizations pass along rate increases more easily to their customers. Thus, commercial pharmacies charge health insurers more for their products, while health networks charge them more for their services.

And then health insurers pass along these higher costs to consumers on the Affordable Care Act (ACA) exchanges, and to government programs and private employers as well. Politicians then blame the ACA for the rate hikes, and vow to eliminate the law’s regulatory functions over the health care system.

Of course, the prices hikes that have sparked the ire of those politicians are largely attributable to the failure of the regulators to enforce anti-trust law to begin with. If the politicians succeed at abolishing the ACA, insurers will be free to increase their rates even more quickly. And if they fail, then the current trend of industry consolidation will nevertheless enable them to continue increasing rates, albeit more slowly.

In other words, whether or not we agree on the wisdom of passing the ACA into law, we should be able to concur that market competition in the health care sector (or in any other industry sector, for that matter) helps keep prices affordable for consumers.

But if competition in the health care sector continues to be eliminated through mergers and acquisitions, it won’t really matter whether the ACA remains in place. Health care will simply, and inevitably, become unaffordable for all of us.

Obama Care: John Roberts’ Supreme Logic

You’ve undoubtedly learned by now about the U.S. Supreme Court’s decision to uphold the essential income tax terms of the Affordable Care Act. Had the Court ruled differently, millions of individuals would have lost the tax credits that they need to afford insurance coverage, and the entire health insurance market might have plunged into a state of chaos.

What you might not have learned, though, is the manner in which Chief Justice John Roberts deployed the legal theory of Associate Justice Antonin Scalia to eviscerate Scalia’s own dissenting position. Because Scalia bitterly opposes the Affordable Care Act, Roberts felt compelled to address Scalia’s contrary position when he wrote the majority opinion in support of the law.

You see, Scalia is known as an originalist who believes that each law should be interpreted in a manner that reflects the original intent of the legislators who wrote the words of the law. That’s why, for instance, he’s ruled against many (though not all) attempts to impose federal gun control laws on the American people.

The Second Amendment to the United States Constitution states that “the right of the people to keep and bear Arms shall not be infringed.” According to Scalia, the original intent of the Founding Fathers who wrote that phrase was to apply it to purchases and uses of common weapons by the general citizenry, but not to purchases and uses of dangerous and unusual weapons by felons, the mentally ill, etc.

Scalia employed similar logic in crafting his position regarding the Affordable Care Act. He noted that the authors of the health care law wrote that tax credits should be made available to citizens who sign up for coverage on health exchanges that are “established by the states.” He thus concluded that this simple language was designed to prohibit any credits from being utilized by citizens who sign up for coverage on exchanges that are established by the federal government.

Roberts actually agrees that laws should be interpreted in a manner that reflects the original intent of the legislators. Ironically, though, he employed this very theory to refute Scalia’s position. According to Roberts, the United States Congress drafted the Affordable Care Act “in order to improve the health insurance markets and not destroy them.”

Because Scalia’s position would have denied tax credits to millions of Americans and thus rendered health insurance unaffordable to them, Roberts concluded that Congress must have originally intended to write that credits should be available on exchanges that are established by or for the states. The omission of these two implied words, according to Roberts, must have represented a case of “inartful drafting.”

In Roberts’ own language, “the statutory scheme … would destabilize the individual insurance market in any State with a Federal Exchange, and likely create the very ‘death spirals’ that Congress designed the Act to avoid.”

In other words, Roberts fully agrees with Scalia that the original intent of the legislators must be upheld in court cases about the law. But then, employing that very principle, he wrote that “the combination of no tax credits and an ineffective coverage requirement could well push a State’s individual insurance market into a death spiral. It is implausible that Congress meant the Act to operate in this manner.”

Whether you agree with Roberts or not, it’s hard not to admire his logic. Likewise, it’s also difficult to avoid admiring his ability to use Scalia’s own legal philosophy to rebut his position.

Obama Care: The Attack Of The 29ers!

The Republican Party is now firmly in control of both houses of the United States Congress. So how will life change for all of us?

One result is that the Grand Old Party can now set the agenda of all Senate Committee meetings and other formal activities. So the American people won’t simply hear a few broadly described “talking points” any longer. Instead, they’ll hear each and every detailed talking point, down to the smallest detail.

Consider, for instance, the Affordable Care Act. For many years, Republicans like Senator Ted Cruz have told Americans that “Obamacare is causing millions to lose their jobs, be forced into part-time work, lose their doctors and health insurance, and pay skyrocketing premiums.”

Those were fairly broad assertions, weren’t they? Now, though, Americans are hearing that the ACA is destroying the traditional 40 hour work week as well.

Whoa! Does the health care law literally vanquish the 40 hour work week? Well, in a sense, it does indeed obviate the 40 hour standard. In fact, it defines a full-time employment schedule as one that only requires a minimum of 30 hours of work.

A 30 hour definition sounds quite low, doesn’t it? After all, even employees who only work seven hours per weekday manage to “clock in” for 35 hours a week. So why does the ACA set the proverbial bar at such a meager level?

Oddly enough, the law explicitly establishes a minimum work week of 30 hours because of a desire by lawmakers to protect a traditional 40 hour work week. But why does it need to do that? Why not simply define a work week at 40 hours, instead of establishing a minimum that understates that amount by 25%?

Well, the ACA requires most employers to provide health insurance to all full time employees. But if the law had defined a full time employee as an individual who works a minimum of 40 hours per week, employers could easily instruct their workers to be 2.5% more efficient with their time by completing their responsibilities in 39 hours.

That way, their employees would work a 39 hour work week, but would not be classified as full time employees under a 40 hour standard. As a result, the employers could deny health insurance to their workers.

But because the ACA defines full time work as 30 (or more) hours, i.e. well below the 40 hours that most full time employees actually work, employers would need to instruct their workers to be 27.5% more efficient with their time (and thus to complete their responsibilities in 29 hours) in order to avoid the full time classification and to withhold insurance coverage.

Although employers can easily squeeze their employees to work 2.5% more efficiently, it’s much more difficult to require them to work 27.5% more efficiently. Indeed, at most organizations, it would be impossible to require employees to complete a full time set of responsibilities within 29 hours.

Nevertheless, that’s not what Republican Congressman Paul Ryan believes. He asserts that the ACA has created an entire class of workers called “the 29ers” who are actually being limited to 29 hours of work per week. Nevertheless, he hasn’t offered much evidence of that assertion.

Whether or not such evidence exists, though, it is apparent that Republicans have moved far beyond any broad characterizations of the health law. They’re now utilizing the platform of Senate leadership to dig deeply into such details as hourly work week definitions, and they’re not likely to let up any time soon.