Reflections on Impending Obamacare
Reform was surely needed to remove distortions imposed on medical care by its financing. The next big questions are what the Affordable Care Act really reforms; and, whether the result will be affordable for the whole nation. Here are some proposals, just in case.
In a new system involving three hundred million personal situations, some difficulties take time to come to the surface. Other crises can be anticipated in advance. It's like the Salvation Army or the Red Cross: mostly, you get an appeal for donations just before Christmas, but sometimes there's an emergency that comes unexpectedly. Three months before implementation, Obamacare's first crisis seemed somehow steered at small business, since compulsory health insurance for big business was postponed for a year, whereas individuals and small groups were relentlessly ordered to implement on time. Which was it? A rebellion by big business to be pacified, a rebelliousness by small business to be whipped into submission, or a need to have the two separated in time? In 2013 there are only two important elections, for Governor in New Jersey and Virginia, whereas 2014 will have many elections. An administration which seemingly puts politics ahead of every other consideration, undoubtedly takes the calendar into account. The thought suddenly occurs: is this what we can expect in constant succession for the next three years? Are tidbits of information to be timed with current events, while the great mass of information is withheld about the true scope and direction of some new proposal? Even worse, is health insurance regulation to be played off against a similar game in financial regulation, using the issue of Dodd-Frank regulations as a foil? By the way, what happens to our national attention when Syria, China, North Korea or Iran act up? And finally where do we go if the bond market gets fed up with its tormentors, and runs away with interest rates? To be sure, politics ain't beanbag, but does it have to be played like a children's game?
Community rating is a term of art for everybody to pay the same premium, regardless of previous health status. People in bad health get a big bargain, people in good health pay more than their share, and squashing it all together leads to a community rate. Not for everybody in the community, but for every member of an employer group, working for the same company or bargaining unit. By definition, these are healthier people because they were selected for it when they were hired, and for the most part they remained healthier than average just because they were able to work. Inevitably, industries with many women employees had more pregnancies, heavy industry had more accidents than white collar businesses, so community rating worked best in large corporations, while small businesses knew their employees personally and could manipulate the policy benefits to get the best rates for a small minority. Stated broadly, big white collar businesses got the cheapest community rates, heavy industry got higher rates, small businesses got still higher rates, and individual policies had the very highest community rates. When you squash a lot of communities together you might get a real community rate, but competition between insurers soon forced a graded outcome. The Affordable Care Act anticipated that it might at least achieve regional community rates, and still be able to absorb the differences caused by pre-existing condition exclusions, age and gender rate differences, and other purely insurance responses to public demand for truly uniform rates. Actuaries have computers and lots of data at their disposal, so presumably they advised the politicians it was possible to design a system with close-enough-to uniform premiums that any remaining flaws would be excused at the next election. The arithmetic is not so hard, it is the assumptions you have to make.
Whether you are an actuary or a politician, you have to make the assumption that the people who must pay more, will be willing to pay enough more. For that calculation, certain benchmarks are available. There are 42 states which require that the premiums for the subscribers who pay the most, may not exceed five times the premium paid by subscribers who pay the least. State insurance commissioners are charged with protecting the public against insurer bankruptcies, and apparently it is the collective judgment of such officers that companies which allow much greater premium disparities are in risk of consumer rebellion, potentially leading to collapse of the insurance system even for those who are willing to pay more than a 500% premium for it. The term in common use is "unsustainable". Perhaps the nation is fortunate to have had the example of a state which actually attempted to run a system of absolute community premiums.
New York, New York The Mario Cuomo administration of New York attempted such a system in 1992. Premiums rose by more than 30% the first year, enrollment fell by 38% in three years, and among individual subscribers the number fell from 1.2 million to 31,000. For some types of policies, every single insurer in the state abandoned the business.
To return to the present situation, it would appear that individual and small group subscribers were facing premiums much higher than they were willing to pay, and alarming numbers of them indicated they would rather pay the fine than accept the overcharge. At present, these people are being told to take it or leave it, presumably counting on political sympathy plus subsidies to hold them there. They would have to wait at least a year, and very likely longer, to be able to compare their "community rate" with the "community rate" for big business. Even then, there is considerable possibility for creative accounting measures to obscure a fair comparison.
In addition, there is the possibility of U.S. Supreme Court action, questioning the right of the Executive Branch to change a law signed by the Legislative Branch. Even beyond that point, there is a question of equal justice under the law for doing so. In view of the likelihood that it is far easier to implement a few large groups than many small ones, the reasons given for partial postponement seem to require considerable argument to be convincing. The number of instances in which a Constitutional challenge to some feature of the Affordable Care Act is possible, seems to grow regularly. The Court won't hear a case until someone files it, so the Judicial option appears to lie with the opposition.