Opinion

Reihan Salam

Obamacare’s threat to healthcare innovation

Reihan Salam
Sep 27, 2013 20:14 UTC

Next week, the new state-based health insurance exchanges established under the Affordable Care Act, better known as Obamacare, will be open for business. Or rather — some of them will be sort of open for business, as the exchanges have been plagued by a series of technical glitches and delays. The Obama administration is now characterizing October 1st as the beginning of a “soft launch,” during which federal and state officials will work out various kinks. And though this might sound like just another bureaucratic foul-up, the success of the exchanges in these first few months will have enormous implications for the ultimate success of Obamacare.

The exchanges are online marketplaces that will allow individuals and small firms to compare the coverage options and pricing of various health insurance plans. They are also the platform through which people will apply for income-based subsidies for purchasing health insurance. One of the biggest challenges facing the officials setting up the exchanges is that applications for subsidies are meant to be processed in real time, to make the experience as easy and accessible as possible. This is much easier said than done. In Massachusetts, which has been operating an exchange of its own since 2007, applying for subsidies is a time-consuming process that involves filling out a 15-page form and providing proof that one is eligible for subsidies in the first place, and then waiting for state officials to get back to you. While Massachusetts’ approach is slow-moving, it has the advantage of being tried and true, as it is very similar to the way the states have been determining Medicaid eligibility for years. Real-time verification, in contrast, represents a break with established practice, and it would be a miracle if it didn’t involve major hiccups.

If the exchanges work smoothly, they have a decent shot at enrolling large numbers of the young, healthy Americans the Obama administration is counting on to make its new coverage expansion effort economically viable. If the exchanges don’t work smoothly, however, they might deter all but the sickest, most vulnerable healthcare consumers from enrolling, and this in turn would make the new insurance pools far more expensive to cover.

But even if the exchanges work smoothly, it’s worth asking whether the exchange model as it’s currently conceived is the best way forward for the American health system. Recently, the Christensen Institute, a small think tank devoted to applying the concept of “disruptive innovation” to solving major public policy challenges, released “Seizing the ACA: The Innovator’s Guide to the Affordable Care Act,” a paper that analyzes the various ways Obamacare helps and hinders new business models that might make medical care more accessible and affordable. The idea behind disruptive innovation, first devised by Clayton Christensen, a management theorist at Harvard Business School, is that in many industries, incumbent firms will focus on the needs and interests of their best customers, which is to say their most profitable customers. When these incumbents innovate, it will generally be to better meet the needs of their existing customer base, or to cut costs. This focus on existing customers means that many less-affluent or less-sophisticated customers are left out, as they can neither afford nor understand the product in question. Disruptive innovations aim to serve this market of non-consumers by offering cheap, easy-to-understand alternatives that might at first be inferior to the highest-quality products offered by incumbents, but which tend to get better and better over time. One classic example of a disruptive innovation is the personal computer, which was much cheaper and easier to use than the mainframes that were once the only game in town, and which spread like wildfire as the market for computers expanded from a handful of big companies to a large majority of U.S. households.

Ben Wanamaker and Devin Bean, the authors of “Seizing the ACA,” argue that while some provisions of the law will make it easier for entrepreneurs to introduce disruptive innovation in medical care, others will make it much harder. For example, they observe that the individual mandate promises to increase the demand for expensive primary care. This in turn will create an opportunity for new care delivery models, like low-cost retail health clinics that use nurse practitioners rather than doctors to treat common ailments. The employer mandate, similarly, will spur firms to offer “good enough” health coverage that meets the basic needs of workers without offering more care, and more expensive care, than what they really need.

Sen. Mike Lee’s plan to bolster middle-class parents

Reihan Salam
Sep 18, 2013 15:11 UTC

On Tuesday afternoon, a small but influential slice of the inside-the-Beltway conservative intelligentsia gathered at the American Enterprise Institute, a D.C.-based conservative think tank, to hear Utah Sen. Mike Lee present his new tax reform plan, the “Family Fairness and Opportunity Tax Reform Act.” Though it is unlikely that the bill will become law, it represents genuinely new thinking about how Republicans ought to approach domestic policy. And as such, it has the potential to break the GOP out of its defensive crouch.

It is worth noting that Mike Lee isn’t exactly the most likely messenger for family-friendly tax reform. He first emerged on the national scene when he challenged three-term incumbent Sen. Bob Bennett, a Republican widely lauded for his willingness to work across the aisle, in a hard-fought primary race. Lee, a constitutional lawyer with a distinguished resume, ran as a Tea Party stalwart. As a senator, he has led the fight for a balanced budget amendment and against new gun control laws. Most recently, he has rallied Senate conservatives around the idea of defunding the Affordable Care Act, an effort that has been condemned by the Wall Street Journal editorial page and key members of the congressional Republican leadership as reckless and irresponsible. No one questions Lee’s conservative bona fides. What is new is Lee’s willingness to venture outside of his comfort zone. While many leading Republicans have insisted that conservatives do more to better the lives of middle-income voters — the bedrock of the GOP coalition — Lee is actually putting his money where his mouth is with his new tax plan.

Conservatives will find much to like in Lee’s plan. Though it is not a flat tax, an idea Lee has championed in the past, it does reduce the tax code from seven individual income tax rates to two, set at 15 percent and 35 percent. The first rate applies to income up to $87,850 for single filers and $175,700 for joint filers, and the second applies to all income above those thresholds. As of 2010, a single filer earning $87,850 would find herself in the 95th percentile of individual earners, while a married couple earning $175,700 would find themselves in the 87th percentile of married households. The plan also eliminates the taxes included in the Affordable Care Act and the Alternative Minimum Tax, the goal being to improve incentives to work and save.

How Larry Summers could fix his reputation — and help millions of Americans

Reihan Salam
Sep 6, 2013 17:03 UTC

Right now, it looks as though Larry Summers has the inside track to be named the next chairman of the Federal Reserve. This is despite the fact that many on the left, from Democratic lawmakers like Oregon Senator Jeff Merkley to influential activists like Mike Konczal of the Roosevelt Institute, are deeply skeptical of Summers, owing to his ties to the financial sector, his impolitic reputation, and the fear that he might be more concerned about the dormant threat of inflation than the very real scourge of long-term unemployment. The discouraging job growth numbers released by the Bureau of Labor Statistics earlier today can’t help his case. But Summers, the former chairman of President Obama’s National Economic Council, seems to have the trust and respect of his former boss, and that may be all he really needs to secure the most powerful economic policy-making job in the country.

So it is worth thinking through what Summers’ priorities might be as Fed chairman. Though the Federal Reserve is responsible for setting monetary policy, it also has a great deal of influence over the larger workings of the U.S. financial system. Zachary Goldfarb, a reporter for the Washington Post, reports that Summers hopes to use the Fed’s influence to restructure the financial system to better serve the interests of low- and middle-income households. This could be a ploy on the part of Summers’ allies, who understand that his reputation as a friend of Wall Street is his greatest political liability. If it’s more than that, however, Summers could use his bully pulpit to great effect.

One of the greatest challenges facing poor families is a lack of savings. Households that are “liquid-asset poor” are two to three times more likely to experience material hardship after a job loss, health emergency, or other moment of crisis than those with liquid assets. These moments of crisis are when many families are forced to turn to public assistance. In an ideal world, we’d want to find some way to prevent families from falling into crisis in the first place. The trouble is that merely transferring financial assets to households is not likely to yield the same benefits as cultivating the opportunities and habits that lead families to accumulate assets independently. The financial crisis profoundly damaged the balance sheets of U.S. households, which is one of the leading causes of stagnant growth. Addressing the underlying drivers behind weak balance sheets has the potential to yield significant benefits for the broader economy as well as for poor families.

  •