by Richard A. Epstein
The “Affordable Care Act” is becoming an unsustainable mess. It’s time to scrap it entirely.
On Friday, May 10, President Obama ventured into Ohio to give a Mother’s Day defense of the sagging fortunes of his signal achievement, the misnamed Patient Protection and Affordable Care Act. The law, the President assures us, “is here to stay”—a comment that is best regarded as a threat and not a promise. His conclusion was not coincidental; support for the ACA has dropped from 42 percent to 35 percent between November 2012 and April 2013.
This recent drop in popularity is not a function of some detailed analysis of the ACA’s key provisions. Rather, the public seems to feel that the sheer complexity of the program makes it highly unlikely that it will be able to take effect in any form by its ostensible January 1, 2014 start date. The most obvious difficulty in implementation stems from the unwillingness of many states to participate in its two gargantuan initiatives, even with heavy federal support: the private exchanges (now called “marketplaces”) for individuals, and the Medicaid extension to additional individuals.
Growing Pains for the ACA
The most up-to-date report from the Kaiser Family Foundation reveals extensive resistance on both fronts. The ACA’s new marketplaces are said to allow ordinary individuals to shop for their own policies. This modest goal sounds easy, but it is not. As the current rules demand, all enrollment must be possible online, in person, by phone, fax, and mail. In addition to a website, the exchanges must provide “culturally and linguistically appropriate assistance,” along with a navigator program to promote public awareness. They must offer seamless linkage with other public initiatives, and accurate information on premium tax credits and cost-sharing subsidies, all under a program whose key provisions are not yet fully worked out. Already, HHS has distributed over $3.6 billion to states for implementation, with more to come.
Yet for all of these Herculean efforts, at present, only 18 states have opted to create their own exchanges, and seven are planning for a partnership exchange in cooperation with the federal government. A whopping 26 states have defaulted on their option, leaving the feds to pick up the pieces. Similarly, only 29 states have opted into the ACA’s Medicaid extension program, even though it promises substantial federal support early on. Twenty states have already opted out of the program and two are weighing their options.
At this point, the total administrative burden on the federal government has massively increased. Yet neither the federal government nor the states have the human or financial resources to discharge these tasks in a timely fashion, making it highly unlikely that these exchanges will be up and running by January 1, 2014. To achieve that goal, the various private participants on the exchanges must design and post their policies by October 1, 2013.
Unfortunately, these private insurers cannot do their part unless they have enough information to accurately price the “essential minimum conditions” required under the ACA. At present, it is estimated that only around 2 percent of the current plans meet the ACA’s outsized legislative ambitions. Nor can the federal government set up, all at once, the federal exchanges that are needed to make this system work. Similarly, the tepid reception to the Medicaid extension program only stretches scarce government resources. With each passing day, it becomes clearer that the entire process is backing up.
Then there is the matter of the initial 21-page enrollment form that the Department of Health and Human Services first released to the public. The President’s speech crowed that HHS has compressed that form to 3 pages, making it shorter, analogous to private enrollment forms. Yet like everything else about the ACA, his point is a public relationships ruse that has already backfired. As Grace-Marie Turner has pointed out in the Wall Street Journal, much of the reduction in form length comes from shrinking the font, or from relegating key parts of the basic application to separate forms. Needless to say, HHS has just announced a $150 million grant for its navigation program to help people work their way through the now abbreviated form.
The ACA’s Grim Cost Estimates
The President’s Mother’s Day offensive touts the ACA’s benefits while making only a passing reference to the current implementation difficulties. Most disturbingly, the speech reveals that the President cannot grasp that no insurance program can work unless it can bring its revenues and payouts into line with each other. The President avoids these budgetary issues by putting, as is his wont, the matter in personal terms, by insisting, for example, that all people get coverage for preexisting conditions at standard rates. In speaking of cancer survivor Natoma Canfield, he said:
A few years ago, her insurance company charged her over $6,000 in premiums, paid for only $900 worth of care, told her they’d jack up her rates another 40 percent anyway—even though she’d been cancer-free for more than a decade. Despite her desire to keep her health insurance—despite her fears that she would get sick again—she finally just had to surrender her coverage. Couldn’t afford it. Hung her fortunes on chance. And just a few weeks later, she fell ill, and was diagnosed with leukemia. Just days before health care reform became a reality.
His compassion for Ms. Canfield’s woeful situation is to be commended. But two key blunders reveal the President’s naiveté. First, it is incorrect to suggest that Ms. Canfield got a raw insurance deal because she only received $900 worth of care for her $6,000 of insurance payments. The only way any insurance system can work is for some policy holders to receive less than their premium dollars to free up funds to care for the sick. Second, the refusal of the insurer to renew the policy at older rates doesn’t look unjust when the cancer reoccurred just as it had feared.
No one can say in the abstract whether 40 percent was the right markup. But the President has precipitated a budgetary crisis now that “companies can no longer impose lifetime limits on the amount of care you receive, or drop your coverage if you get sick, or discriminate against children with preexisting conditions.” If these individuals are to receive insurance at bargain rates, the program must be able to find added revenues from other individuals to cover the financial short-fall lest the entire program go belly up, leaving everyone worse off.
Getting Health Insurance: A Civic Duty?
This last point has not escaped Ezekiel Emanuel, one of the key drafters of the ACA. In his recent Wall Street Journal op-ed, Emanuel pleaded with the “young invincibles” to enroll in the healthcare program from, as he notes, “a menu of subsidized options.” But why should they? As noted, the entire system of exchanges operates on the view that the young and the healthy should be required to contribute enough to cover not only their own costs, but those of the groups who get low rates, lifetime coverage, and protection for preexisting conditions. This prompts Emanuel to suggest, “Every commencement address by an administration official should encourage young graduates to get health insurance.”
Emanuel’s expansive view of civic duty plays the game both ways when he accuses individuals who don’t purchase health insurance of “freeriding” on the public. But their purchase of insurance will allow the preferred plan recipients to free ride on them. Let young people buy their own coverage at market rates, and both forms of freeriding will vanish without the public relations campaign.
The gravity of this financial hit remains, for there is no place for anyone, young or old, to hide themselves from a tide of red ink. The President misleadingly has said that right now the 85 percent of Americans who have private coverage do not have to trouble themselves with doing a thing, because their protections are already built into the ACA “with a wide array of new benefits, tough new consumer protections, stronger cost control measures than existed before the law passed.”
But this glittering array of benefits does not come cheap. The current statutory definition of essential minimum benefits is so lavish that no one knows whether that coverage can be afforded at reasonable rates through the private sector. Right now, our collective generosity will mean that the cost of individual coverages in the United States on the exchanges could move up by about 32 percent, in light of the new coverage requirements based on best actuarial estimates.
Unfortunately, what the President neglected to mention is that there is no assurance that employers will decide to keep that coverage once the costs are brought home. It turns out that the penalties for employers will be in the range of $2,000 to $3,000 to dump their coverage, which is far less than the $16,000 or so that it costs them to maintain the existing coverage. It takes little imagination, therefore, for employers to announce to their employees that they will divide the gains from dropping their current coverage through a salary increase of say $7,000, which makes it likely that the public exchanges will be inundated with new applications for coverages even at the higher rates now predicted for the bloated ACA coverage. That cost could be in the hundreds of billions if even 10 percent of the roughly 157 million individuals now covered through employee plans find that their coverage has been terminated. Ordinary people are hurt both ways.
In this sorry state of the world, the only short-term mechanism that could stop the general blood-letting is a much-needed reversal that pushes back all the key dates for running the plan. The respite in question should not be used only to iron out the difficulties in securing the needed coverage. It should be used to update the information base to decide whether the ACA, on which billions have already been squandered, is so unsustainable that it should be scrapped in its entirety.
As I have noted before, there is only one type of reform that can make progress in meeting the three goals of a sensible health care system: cost reduction, quality improvements, and public access. That reform requires massive deregulation of the many market impediments that are already in place. Lower the costs, drop the excessive mandates, and thin out administrative costs, and people will flock back to the system voluntarily. Do none of these things, and we can be treated to yet another round of presidential anecdotes that ignore the systemic social costs caused by these initiatives.
Richard A. Epstein, the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution, is the Laurence A. Tisch Professor of Law, New York University Law School, and a senior lecturer at the University of Chicago. His areas of expertise include constitutional law, intellectual property, and property rights.