May 12, 2017

What Politicians Won't Admit About Voters and Health Care

Tyler Cowen

Holbert L. Harris Chair of Economics at George Mason University
Summary

It turns out we value health care for others more in rhetoric than in reality.

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Since the Republican House approved its replacement for the Affordable Care Act, critics of the bill have told us how it will take health insurance away from millions of people, while doing little to control medical costs or bring fiscal rectitude. Those arguments are mostly true, but the same commentators have neglected to acknowledge a crucial point. The House plan won’t work for the same reasons the Affordable Care Act has had trouble -- namely there is no social consensus on who should pay the bills.

Consider the part of the plan that would take away many federal-level protections embedded in the ACA for those with pre-existing conditions. Instead, state governments are to cover those individuals through high-risk pools, with the federal government paying modest subsidies to the states to help. Most likely, millions of Americans will be left at loose ends. 

But keep in mind that the American Health Care Act of 2017 does not prevent states from spending whatever is needed to cover pre-existing conditions, if they so choose. The underlying truth is that voters at the state level just aren’t that interested in paying for these benefits, preferring instead to lower taxes, or to spend the money on roads, schools and prisons.

In other words, when American voters are given a direct bill for health-care expenditures, they recoil, even when the beneficiaries are in needy or desperate situations. The Democrats are good at tarring the Republicans for indifference to the plight of these people, but less keen to admit that the larger popular indifference plagues their own health-care visions as well.

A meme I’ve seen going around on Twitter put it this way: Health-care expenditures are about 1/6 of GDP, but no American wants to spend 1/6 of income on health care. 

Unfortunately, we cannot avoid these costs, so we have taken refuge in the traditional American pastime of trying to hide them as much as possible.

Under the ACA, there are expansions of Medicaid and employer-based coverage, but the signature product is the mandate and the health-care exchanges. In essence, the people who are forced to buy individual insurance on the exchanges are paying for those beneficiaries who have pre-existing conditions.

That’s not an efficient means of insuring against risk. More important, it has led to rising and probably unsustainable premiums in those markets. Not only have some voters rebelled against the ACA, but many healthy people prefer to pay the penalty rather than buy insurance at such high prices. Insurers in turn have been withdrawing from those markets.

One possible solution is to make the penalties for not signing up tougher, to ensure participation. But it is no political accident that the mandate was so lax to begin with, because such tougher pressures would have made the ACA less popular. Furthermore, what is the point of a health-care reform that makes so many policyholders worse off by the standards of their own preferences?

Another way to manage health-care subsidies would be a single-payer system, and some commentators suggest that is where the Democratic Party is headed. I wouldn’t be so sure. Obama made his (partially incorrect) “if you like your health care plan, you can keep it” promise for a reason. The Americans who get health insurance through their jobs often enjoy privileged access to doctors and benefit from superior reimbursement rates.

If the price of covering the sick is for millions of wealthier and more influential people to give up those advantages, I don’t see that happening. The health-insurance industry and other medical lobbies will be opposed, too, with doctors fearing that a single-payer system would bargain down their reimbursement rates. Even a relatively progressive state such as Vermont could not make a single-payer system happen.

You can think of current debates over health policy as a game of hot potato in which “who loses?” and “who pays?” are questions nobody finds easy to answer but also questions that no party can ultimately avoid. The ACA didn’t come up with a sustainable answer; neither, so far, have the Republicans.

To make it all worse, recent research is showing that beneficiaries don’t actually value getting health insurance as much as we might think. So the political upside of expanding coverage isn’t that strong, and under the ACA many people covered by the mandate would have preferred to keep the cash. However much Democrats blame heartless Republicans and President Donald Trump for the difficulties of the ACA -- and there is some truth to this -- the main problems were already there.

The failures reflect scarcity in the world around us. It turns out we value health care for others more in rhetoric than in reality.