Opinion

Reihan Salam

The death of the Obamacare individual mandate

Reihan Salam
Dec 20, 2013 19:56 UTC

Obamacare is best understood as a collection of carrots and sticks designed to expand access to insurance coverage. But what happens to Obamacare if we get rid of the sticks? It looks like we’re about to find out.

During the Obamacare debate, many conservatives, myself included, warned that once the law was in place, the sticks would prove politically impossible to enforce, the carrots would have to get more and more generous to compensate, and the end result would be a fiscal calamity. We won’t know if this dire projection will be fully borne out for some time. What we do know is that at least one of the most important Obamacare sticks, the individual mandate, is already getting watered down, and it’s not crazy to imagine that it will at some point be abandoned. Before we get to the individual mandate, though, consider the carrots and sticks that apply to state governments and employers.

In the original legislation, states that agreed to expand Medicaid were promised new federal funds to help meet the cost of doing so (the carrot) while states that refused to expand Medicaid had to forsake federal Medicaid funds altogether (the stick). This combination of carrot and stick would have made refusing to expand Medicaid a very costly decision for state governments, virtually all of which are struggling to meet the high and rising cost of providing medical insurance to those who are already on Medicaid. Last summer, however, the Supreme Court ruled that the threat of removing all federal Medicaid funds from states that refused to play ball was unconstitutionally coercive, and so a large number of states have chosen not to expand Medicaid. Eventually, the holdout states might decide that the carrot of new federal money is too tempting to resist, particularly when neighboring states cash in. But for now, the all-carrot, no-stick approach has definitely held down the number of Medicaid enrollees.

Large employers, meanwhile, were supposed to be subject to an employer mandate, the requirement that all employers with 50 or more full-time-equivalent employees either had to provide health insurance benefits or pay a stiff penalty. This was a pretty big stick without much of a carrot attached. Yet the employer mandate was very important, as it was meant to hold down the costs of coverage expansion, as the federal government was expected to subsidize low- to moderate-income workers with employer-sponsored coverage less generously than similarly situated workers on the exchanges. In July, the Obama administration announced that it would delay enforcement of the employer mandate until 2015. And so, another stick was removed from the Obamacare arsenal.

The debates over Medicaid expansion and the employer mandate have been heated. But the individual mandate debate has been the most contentious of them all.

Obama’s apology (of sorts) for his “keep your plan” promise

Reihan Salam
Nov 8, 2013 17:59 UTC

This week, President Barack Obama offered an apology (of sorts) to Americans who believed him when he repeatedly assured the public that anyone who liked their current health insurance plan could keep it under the Affordable Care Act. In an interview with Chuck Todd of NBC News, the president said, “I am sorry that they are finding themselves in this situation based on assurances they got from me.”

Up until now, the president and his allies have insisted that the “keep your plan” promise had been misinterpreted, and that the plans that were being cancelled were “junk plans” that belonged on the scrap heap, a claim that many insurance beneficiaries found objectionable. Keith Hennessey, a veteran of the Bush White House, constructed a flowchart of the “keep your plan” defenses made by the president and his allies, the complexity of which spoke to the president’s political dilemma. One of the architects of the Affordable Care Act, Ezekiel Emanuel, struggled to defend the veracity of the “keep your plan” promise in a recent episode of Fox News Sunday. So the president’s apology will surely come as a relief to those tasked with maintaining that the “keep your plan” promise wasn’t at least slightly misleading.

The president’s apology didn’t prevent him from making other misleading statements during the same interview. Once again, he insisted that the disruption of existing insurance arrangements applied only to people in the individual insurance market, which represents a relatively small share of insurance beneficiaries. But the Affordable Care Act imposes new regulations on employer-sponsored plans, which have the potential to disrupt the insurance arrangements of many more Americans, and the law’s grandfathering provisions are quite narrow. Fortunately for the president, the apology itself will draw enough attention to distract from this looming issue, which could prove far more politically potent than what some are describing, perhaps prematurely, as the slow-motion collapse of the individual market.

Obamacare’s sliding scales and slippery slopes

Reihan Salam
Jul 8, 2013 18:14 UTC

Last week as Americans celebrated Independence Day, the Obama administration made a pair of big announcements about the Affordable Care Act (ACA), the crown jewel of the president’s domestic policy efforts: two of the ACA’s key enforcement provisions—income verification and a mandate for employers to provide healthcare—are being delayed until 2015. The exchanges will still open and subsidies will flow in 2014, but efforts to ferret out fraud, or for that matter honest mistakes, will be put on hold. Reading between the lines, it seems as though the White House was acknowledging that the health system created by the ACA is unworkable in its current form.

As Eugene Steuerle, a fellow at the Urban Institute, has explained, the ACA establishes a “four-part, nearly-universal, health care system” built around Medicare, Medicaid, employer-sponsored insurance, and the new state-based insurance exchanges. The really confusing thing about our new four-part health system is that the federal subsidies available to households earning the same income can vary dramatically, depending on which part of the health system you find yourself in. As long as you are old or disabled, Medicare treats all comers roughly equally. The federal contribution to Medicaid varies from state to state, but the level of coverage tends to be pretty similar across recipients. Subsidies for employer-sponsored insurance, meanwhile, are much higher for households earning high incomes, and thus paying high taxes, than for less affluent households, while subsidies for the new exchange policies are generous for low-earners and phase out for high-earners. The upshot is that subsidies for many low- and middle-income households are far more generous on the exchanges than they are for employer-sponsored insurance.

Given that the subsidies on the exchanges are more generous than the subsidies for employer-sponsored insurance, the ACA took various steps to contain spending. One of the most important was its employer mandate, which imposed a fine on mid-sized and large employers that failed to provide full-time employees with affordable insurance options. The idea was that the fine would nudge employers to offer affordable insurance options, underwritten by the relatively stingy tax subsidy for employer-sponsored insurance, thus containing the growth of exchange subsidies.

Should Congress create a national health-care exchange?

Reihan Salam
Mar 22, 2013 16:33 UTC

One of the core ideas behind the Affordable Care Act (ACA), President Obama’s ambitious and very controversial effort to expand access to medical insurance, is that state governments will work with the federal government to make high-quality care more accessible and affordable by creating subsidized state-based insurance exchanges. For those who aren’t covered by employer-sponsored insurance or Medicare or Medicaid, the exchanges are meant to offer a range of affordable insurance plans, with subsidies varying by household income.

The architects of the ACA believed the exchanges would be one of the more politically attractive aspects of the law, as they were designed to give states considerable latitude and to harness the power of market competition. But 34 states, representing two-thirds of the U.S. population, have thus far refused to establish their own exchanges, and the federal government is scrambling to create its own exchanges in the states that have refused to play ball.

Defenders of the ACA have noted the irony that conservatives, who tend to champion state autonomy, have led the opposition to the creation of state-based insurance exchanges. Yet as Douglas Holtz-Eakin of the American Action Forum, a leading critic of the ACA, has observed, the state-based insurance exchanges are best understood as “a second Medicaid program,” which will likely suffer from the same misaligned incentives as its more familiar cousin. While the federal government will cover the entire cost of the subsidies designed to make the insurance plans offered on the exchange affordable, state governments will be free to impose regulations and mandates on insurance plans that could raise their cost. State lawmakers might want to reward medical providers by deeming that various expensive and non-essential medical treatments must be covered by insurance, but state governments will be under no obligation to bear the cost of having done so.

No matter who wins, there’s still a healthcare cost crisis

Reihan Salam
Oct 1, 2012 17:10 UTC

One of the strangest aspects of the 2012 presidential campaign is that President Obama has barely bothered to make the case for the Affordable Care Act (ACA) and Mitt Romney has only rarely summoned the will to make the case against it. This is despite the fact that ACA is arguably the most consequential domestic policy legislation since 1965, when President Johnson presided over the creation of Medicare and Medicaid.

The usual explanation for why we haven’t had a serious debate over ACA is that Democrats recognize that the law is not wildly popular and that Romney is boxed in by his continued support for the universal coverage law he backed as governor of Massachusetts. All of this may well be true. But the foundations of America’s patchwork health system are unraveling before our eyes, and conservatives need to make the case for a more cost-effective reform sooner rather than later.

It is commonly understood that the United States spends an incredibly large amount of money on personal healthcare – the number was $2.19 trillion in 2010 – and that health spending is increasing rapidly as a share of GDP. A high level of health spending isn’t necessarily a bad thing. It makes perfect sense that an affluent country will spend a great deal of money to keep its citizens healthy, and medical care is a complex service that demands a lot of skilled labor.

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