Back in 2010, President Barack Obama and the Democratic Congress took the wrong fork in the road to health care reform. To be sure, the case for some reform was very strong, given that the mixed health care system in the United States provided inferior health care at premium prices for large portions of the population. But identifying a problem does not point the way to the necessary cure. What is needed is a clear theory of what has gone wrong and why.
In this regard, there were two diametrically opposed paths for reform. The first was to double down on failed regulatory and subsidy strategies. The second was to deregulate in an effort to unleash market forces to meet the strong and persistent demand for health care services. Unfortunately, in 2010, the road taken was the former: double down on combining government regulation with government subsidy.
The results are now clear. The Affordable Care Act has done nothing to unravel the past mistakes that in large measure were (and still are) attributable to excessive regulation and transfer payments. To give but one example, the voluntary coverage supplied by employer plans has dipped sharply from about 60 percent in 1980 to 50 percent in 2010, which on an employment base of 150 million workers translates into a 15 million increase in the number of uninsured persons in the United States.
It would be very difficult indeed to attribute this decline in health care coverage to some hidden form of market failure. What reason is there to think that employers have become more stingy, or employees more indifferent to their health care needs over the last 35 years?
In market settings the usual response to changes in technology and cost is to alter the coverage provisions, the price provisions, or both. Generally, so long as there are gains from trade, these incremental adjustments minimize the loss from adverse developments, and increase the gains from favorable ones. Given the massively improved technologies over the past two generations and an aging population, the proper prediction 30 years ago was that employers should have increased the level of health care coverage, not reduced it.
So we have to look elsewhere for the culprit, and that place is the regulatory state. One key feature of the Affordable Care Act was its ambition. The sign of a good health care plan, we were told, was one that covered all persons from the full range of adverse health events. The new deal was that the state mandates, of which there were hundreds, put to the employer this unhappy choice: either increase the benefit coverage of your plans or exit the markets. The implicit subtext is that employers would choose the former so that reformers could promise an ideal world in which coverage increased while costs remained about constant.
But the actual response proved otherwise. Employees will resist paying for plans that make them pay for a set of benefits that they don’t want to have, whether they be annual tests, annual physicals, or specialized coverage for alcoholism and psychological illnesses. In some cases, the increased costs will not result in coverage termination, but will only reduce the net gains that employers and employees can share from their previous policies. But as the mandates continue to pile on, the logic starts to shift. Now the extra coverage can be the straw that breaks the camel’s back, so that both sides now prefer less health care coverage and higher wages, which is what the market has given us for over 30 years.
Given this pattern, the correct approach in 2010 was to remove the obstacles to more effective market participation. It is very cheap to repeal legislation that does not make sense economically, including those pesky multiple mandates at the state level. By the same token, it is also cheap and easy to remove long-standing barriers to competitive markets, so as to relax licensing laws, such that physicians in good standing, say, in New York, can practice medicine without having to go through an onerous relicensing process in, say, Florida or California. The same can be said about barriers that prevent insurance companies headquartered in one state from selling their products in another, or removing the barriers to the corporate practice of medicine.
But such was not to be. Instead, the ACA introduced a bewildering set of mandates and taxes that have become increasingly difficult to undo over time. The most notorious of those is perhaps the special 2.3 percent excise tax on the sales of a wide array of medical devices used to help fund the program. Taxes like this should be dead-on-arrival, because the sound principles of political economy point to this enduring principle: the right balance between revenues and expenditures will never take place if special taxes on particular activities are deployed to fund programs that purport to provide widespread public benefits. The ability of powerful factions to force costs on to some small market segment allow them to externalize the costs of the programs, which in turn will lead to a systematic overfunding of unwise programs.
The point here should rise, I believe, to the level of a constitutional scrutiny, because there is no reason whatsoever to have to go through the same fundamental debate on an ad hoc basis. But weak judicial controls over taxation have blocked that sensible improvement. So it is back to the political process, where the repeal of this tax, for which there is substantial bipartisan support, should be high on the agenda of the new Congress.
The question of what to do, however, gets harder in other cases, which leads to the problem of the second-best that now faces Congress on the key question of how far employee coverage should extend under the ACA. Once again, it is easy in my view to identify the first best solution to this problem. Never have notches in the coverage system, such that people below a certain level are out while those above that level are in. The argument against notches does not in principle depend on where that discontinuity is placed. Instead it depends simply on the fact that we have one at all. The dangers of these discontinuities are two.
The first is that it is often hard to classify people on one side of the line or the other. ... (read the very worthy rest at link): http://www.hoover.org/research/obamacares-slow-death
No comments:
Post a Comment