To the surprise of many people, and to the great consternation of Republicans, the Affordable Care Act (ACA, or the dreaded “Obamacare”) failed to fail. Last week, to much fanfare, the Obama Administration announced that the ACA’s enrollment target had been met, which means that the health care law will not collapse from lack of adequate participation.
This was surprising, of course, because of the early software problems that emboldened the ACA’s opponents, and which raised the possibility that technical problems would doom the new law before it could even get started. Now, however, we know that we will proceed to the next stages of our national experiment with a broad expansion of profit-oriented, subsidized health care.
Despite this success, we must now plan to get rid of the ACA, and replace it with something much better. The ACA is inherently incapable of solving the larger long-term problems that our country faces in providing health care to all of our citizens. It was an important step forward, and we should be happy that it did not die a premature death, but we cannot now allow ourselves to believe that the current system is sustainable, or even acceptable.
That is why it is essential to say, clearly and unambiguously, that the United States needs to adopt a system of universal, single-payer national health insurance, as soon as possible. The ACA is as good as it gets, when it comes to basing a health care system on private insurance, and it is simply not good enough. Even as the ACA takes effect, therefore, we need to start planning to make it disappear.
The Success of the ACA, and the Importance of Its Component Parts
The reason that the ACA was at risk of failing to launch is actually a somewhat complicated story, but the explanation is ultimately about the nature of private insurance. If, against all logic, we decide to continue to run our health care system through competition among private insurers, the system must be designed with several key elements, in order to avoid what economists call a “death spiral.”
Insurers, even those that are not-for-profit companies, need to make sure that they do not ultimately have to pay out more in benefits than they take in from customers’ premiums. This means that insurers will try to separate people into different categories, on the basis of how expensive they are likely to become in the future. Smokers, for example, are treated differently from nonsmokers, for obvious reasons.
It is this simple logic that causes insurers to refuse to insure people with pre-existing conditions. If, for example, you have late-stage cancer, and you want to be covered by a health insurance policy, it would make no sense for the insurer to agree to take you on as a customer. Short of charging you exactly as much as you would have to pay directly for your cancer treatments, the insurer cannot help but lose money on you.
If you fail to disclose to the insurer that you have a late-stage cancer, then the insurer would need a way to protect itself from the economic loss that your deception would create. That is why insurance contracts generally exclude coverage for treatments related to pre-existing conditions. The problem is that insurers, over time, perfected increasingly aggressive ways to define what counts as a pre-existing condition, such that too many people who were insured suddenly found (after paying premiums year in and year out) that their insurers were canceling their coverage because, for example, a cancer patient had failed to disclose that she once had an unrelated illness (such as psoriasis).
Public outrage against such abuses grew, and the result was that even most opponents of President Obama understood that the insurers had overplayed their hands regarding pre-existing conditions. This meant that, when serious discussions began in 2009 regarding health care reform, one of the fundamental elements required of any such plan was that Americans could not be denied coverage due to pre-existing conditions.
This, however, raised a further difficulty. If everyone were to know that they could never be denied insurance coverage for an illness, then there would be no reason to take out insurance in advance of getting sick. This meant that people needed to be required to sign up for insurance in advance. Healthy policyholders, in particular, are an essential part of the economic model of private insurance. Without them, no private company could stay in business for long, because it is the currently healthy people’s premiums that finance the benefits that are paid on behalf of currently sick people.
The so-called mandate, which was the subject of the much discussed NFIB v. Sebelius Supreme Court decision two years ago, was thus an inextricable part of the ACA, because without it, no one would have any reason to sign up for health insurance in a world where they could not later be turned away, no matter how sick (and thus expensive) they became. Without the mandate, the entire insurance system would collapse. Hence, the term “death spiral.”
Finally, in order to allow everyone to become part of the insurance pool, the law had to recognize that some people could not afford to pay for their insurance. They would need to receive subsidies, allowing them to sign up, and thus to make the system nearly universal.
When this was all turned into law, however, it turned out that there was still some possibility that a large number of people would choose to pay the tax (or penalty) that was designed to push them into the insurance pool. Hence, the drama leading up to March 31’s enrollment deadline, which was entirely a matter of seeing whether the insurance pool would be large enough—and include enough currently-healthy people—to avoid the death spiral. Happily, it worked.
The System Is Inherently Wasteful, Even When the ACA Is Running As Planned
The success of the ACA will, ultimately, be seen in its expansion of coverage to people who were otherwise uninsured (a longstanding national shame), as well as its elimination of the risk that people will lose their insurance coverage due to abusive practices by insurance companies. This is no small accomplishment, because health-related tragedies have long been one of the leading causes of personal bankruptcies and family ruin.
Even so, the very difficulty of explaining why the ACA had to include its three component parts—(1)universal coverage, (2) mandated participation, and (3) subsidies—gives us some sense of what is still wrong with our system now. Private insurers are still in the business of sorting customers, and trying to get them to take on more of their own health care expenses, so that insurers can spend less money on benefits.
However, this effort to get people to take on more of their own costs up front, and to bear more risk of higher expenses later, is itself an expensive proposition. Even if insurance companies can no longer kick people who become sick off of their rolls, insurance companies still have every reason to try to extract more money from people.
The most direct way in which we can see these additional costs in action is, in fact, in the sign-up process itself. The insurers were allowed to create different types of plans (Gold, Silver, and Bronze) on the basis of costs, deductibles, and so on, for people who were willing to take on different degrees of risk. People then needed to figure out which of the available options was best for them.
Every step of this process involved needless expense. Designing the choices was expensive. Building the website was expensive. Advertising the coverage was expensive. Helping people navigate the exchanges was expensive. And, going forward, insurers will spend a great deal of money trying to poach their competitors’ best customers, by spending money on promotional materials, hiring attractive representatives to talk to the public about why Insurer A is better than Insurer B, and so on.
Why is that expense “needless”? Because, if there were only one insurer, there would be no need to get people to sign up for one insurance company rather than others, and there would be no reason to spend money and resources getting people to choose insurance as if they were choosing among different brands of breakfast cereal.
The Potential Savings From Adopting a Single-Payer System
How much extra money do we spend in the U.S. because of our commitment to keeping private health insurance companies in business? In 2012, we spent nearly 18% of total U.S. gross domestic product (GDP) on health care, or about $2.8 trillion. The Congressional Budget Office estimates that this amount will rise to 22 percent of GDP by the year 2038.
By comparison, the next most expensive health care system, among our economic peers, is France’s, which devoted less than 12 percent of its GDP in 2012 to health care. If the U.S. had been able to accomplish that feat, we would have spent almost one trillion fewer dollars on health care in that year.
The United States government could take on the role of “insurer” in the sense that it would use revenues to pay doctors, hospitals, and others for providing treatment to all Americans. It would, like other advanced countries’ governments, become the single payer, making it unnecessary to have private insurers engage in destructive competition that wastes so much of the nation’s resources.
We already have such a system for a sub-group of Americans. It is called Medicare, and it is extremely popular. It is true that Medicare faces possible financial difficulties, but any such problems loom only because we insist on treating Medicare as a stand-alone system financed by payroll taxes, rather than admitting that it is simply a well-run government program that provides insurance for nearly everyone over age 65. It has extremely low administrative costs, and its costs for paying for medical care have risen more slowly than those for private insurers.
Is Medicare’s success expandable, such that we could cover the entire U.S. population? There is, in fact, a proposal in Congress that would put the United States on the road to a single-payer system. The Expanded & Improved Medicare For All Act (H.R. 676) would expand our current elders-only single-payer health care program into a universal program, available to all regardless of age.
But would such a program actually save money in the United States? The economist Gerald Friedman, of the University of Massachusetts, has studied H.R. 676. He estimates that, by 2023, the U.S. could shave 7 percent of GDP off of the costs of our health care system, compared to the costs of continuing current law. At that point, that will amount to almost one and a half trillion dollars.
There are many subordinate questions regarding the adoption of a single-payer health care plan for the United States, which are beyond the scope of this column. For now, however, it is important to remind ourselves just how much we are wasting because Republicans as well as Democrats (very much led by President Obama in this regard) peremptorily ruled out any consideration of transitioning to a single-payer system.
People who oppose single-payer thus need to confront a simple question: Do your reasons for protecting private insurers justify the diversion of over one trillion dollars per year, rising every year in perpetuity, from other productive uses into unproductive health care expenses?
As happy as we should be that we now have moved our country forward, coming closer to the laudable goal of universal health care coverage, we cannot let that accomplishment obscure just how absurd our health care system is, at its core. It is expensive and wasteful, and we have the means to change it. It is time to get started.
It’s working? Net increase of 50 million uninsured means it’s working? Someone’s head is in the sand.
Neil lives in a dream world where a pseudo economist sells his degree to the Demicratic party An unbearded version of former Enron adviser Krugman
Your head is in the sand.
You are way off. I get it. You don’t like the new ACA law.
Too bad but it is now the law of the land.
I have my complaints about it too but they pale when compared to the benefits. The insurance industry is ripping off all of us who pay for it’s dubious benefits. They are guaranteed a profit, there isn’t any transparency to consumers about where all the mony is going.
Even existing Medicare is flawed since in order to participate in Part D insurance companies are still involved and there is a huge “donut hole” when the prescriptions are nearly full price until the catastrophic clause kicks in. That is about $3400 plus you still pay about $400 in monthly premiums.
The ACA has not increased the number of uninsured.
The failure of one state, Florida, to expand federally funded Medicaid expansion leaves nearly one million without coverage.
States like Florida are holding back the number of those entitled to coverage and there are too many other states also failing to expand Medicaid.
It is a travesty.
You want to prove it is working, eh? Then you need to publicize real-world “Thanks, ObamaCare” success stories and real-world “Thanks, neo-GOP” tragedies.
Did you hear about the Charlene Dill, a 32-year-old woman in Florida who just died because Rick Scott didn’t find it politically expedient to provide health care for poor people? That’s a REAL-world REAL tragedy.
However, I strongly agree that the profit motive is a problem in healthcare, which should not be regarded as a for-profit business in the first place. Insurance companies fundamentally have no incentive to reduce costs. Higher medical costs? Great! Let us sell you bigger insurance policies!
P.S. Short version of my own story: I would have been bankrupted by medical expenses when I was young and “invincible”, but the other driver’s mandatory “no-fault” auto insurance saved me. Turns out that the fault mattered, and it was all his. Actually, I probably could have sued him for twice his coverage, and the insurance companies would have loved me for it. Now I live in Japan, which basically uses ObamaCare with a public option. I’m inclined to agree that single-payer (or even single-provider) is better, but Japan proves that the insurance-based system can work, though it takes a LOT of regulation and government interference to keep the costs down while sustaining the good healthcare results.
IMO, the goals of ACA would have gone a lot further by not allowing the health insurance industry continue to be a part of the so called solution. For once, a problem cannot be part of the solution. People are so trained to think by that same industry, that without insurance people are unable to have healthcare. Healthcare insurance is not health care as long as the focus is on treating the economy of healthcare and not the care of the patient. To do it for any other reason is both unethical and immoral. Personally I am in favor of the movement in Colorado for its residents to form a healthcare cooperative, thereby making them co-owners and directors of their own access to care. This bypasses the need for insurance sponging, shell games and Federal hoop jumping.
Single payer with a 5K deductible for everyone would provide catastrophic insurance and create a free market for everything else. That would protect people and use the market to control a large percentage of costs.
Instead of mandating insurance create a new financial instrument, a health insurance option that can be excercized at any time even from an ambulance. This means that once activated you would still have to pay your deductible. Since it is a given that people using this would only be activating insurance once they get sick it would have to be appropriately priced by underwriting. So what is the benefit?
1 The administrative overhead (medical loss) would be very low and similar to other insurance products. Since all costs prior to activation would be out of pocket and none of those costs would need to be administered by an insurer overhead would be very very low, with those savings passed on to the patient. Currently medical loss for insurers individual policies is set by law at 20%. An option would be less than 1%.
2 Consumers would be able to negotiate for themselves with doctors from the position of offering to pay with cash at the time of service. They would not be locked into provider networks with highly inflated pricing for care during the deductible period.
3 Patients would behave like motivated consumers in a free market because they would scrutinize prices like the do for everything else they buy. This will be a force moderating prices across the board for everyone.
4 These options eliminate free riders because you are still paying into the system. You are just not paying for an administrative burden that you don’t need.
5 Money from the options will be used to subsidize the cost of sick people entering the system.
6 Doctors would save money (to be passed on as discounts) because their billing costs would be reduced because they will be paid with cash or credit cards.
All told the combination of lower administrative medical loss, lower provider billing costs (passed on as discounts), & motivated consumers shopping for prices (instead of paying inflated fixed prices in network) should reduce the total medical costs for users of these options by at least 30-40%.
Another way to do the same thing using the current ACA structure would be to have open enrollment 365 days a year and increase the penalty tax so that it correctly approximates the true value/benefit of the option.
Yes there’s no time to waste; if only to restore some level of human dignity against insurers exploitation. The single payer could begin as an option offered by Government for choice. I would opt for single payer with no hesitation. indeed, medicare can be changed too so seniors don’t have to buy the 20% supplement which is set up with monthly paperwork claims copays deductions, on and on when all they need is to see their doctor.
With single payer, insurers can become government contractors by competitive bids.
When one is sick and aging one should not have to deal with so much paperwork from government and from insurers very month; life is too short to worry
A single-payer system is an affront to individual liberty. It should not be adopted in the US, at least. If Europe does it, it’s not a big deal. After all, they have all sorts of laws against liberty — e.g. “hate” speech laws.
I don’t care what your politics are for when it comes to comparing a system like our present one where there are middlemen(insurance companies and single payer, the single payer system will always be less expensive.
No amount of rhetoric can change this fact.
What an idiot and partisan hack. If this is an example of the editorial thinking Justia uses in moderating this blog and selecting posts to be included herein, then I have to completely rethink whether Justia has sufficient competent judgment to offer services to mine or any other company. First the writer claims that Obamacare is a great success, without any justification for such claim other than just regurgitating Obama Admin talking points about the number of enrollees (a number the administration refuses to provide any details for) and then immediately move to further moronic position that a government monopoly third party payer/single payer system is the way to go. With Obamacare causing a huge spike in insurance premiums tremendous waste of money with multiple layers of bureaucrat reporting and RATIONING AND DEATH PANELS, in effect. All that’s left to completely screw the middle class would be a government monopoly single payer/third party payer system.
Oh, gag me.
This is not a defense of the insurance industry as now structured. There was a time when insurance was a voluntary, state regulated enterprise. To drive an automobile on public roads only required of Financial Responsibility, insurance optional. Workmen’s comp required for employers, health insurance optional. Doctors and hospitals took only money and left it to the individual to settle with the insurance company, pay out of pocket or apply for private or government charity. Knowledge of health care came from many sources. Some private, some public. But in all these endeavors there was competition for fame and fortune. The ACA removes all economic reality and protects the evil insurance companies against losses. Medicare and the VA are two examples of what happens in bureaucracies. Medicare started simple. Annual deductible and copays for which one could buy a supplemental policy or not. Today, purchase of Medicare Part B for a premium is mandatory with penalties for not purchasing within a set time. Companies and unions have been allowed to “skinny out” on health and drug coverage with the individual and the government stuck with the tab. Had the government not been there, I suspect the promises to the retirees would have been met, thus saving the taxpayers. Medicaid is a federal welfare program paid by the States that pretty much replaced all state and local welfare programs. Somehow, there have been doctors and other health care professionals that have become multimillionaires under these federal programs, so I can see where they are highly supportive. However, a person can only do so much in a day, so it would seem that if the compensation was divided by the hours required for the procedures and the dividend exceeded the number of hours available in a given time period, that would raise a red flag. Secondly, the cost of the procedure should be thoroughly analyzed to see if the cost is unjustifiably excessive. Comparing other countries costs without comparing level of care is useless and misleading. ACA is just another government boondoggle that creates and continues a problem by rewarding the rich and powerful while punishing the “worker bees” and using the drones to maintain political power.
You have a good grasp of this situation Victor. I would like to add something that my father told me many years ago (he was born in 1904). “Son, when I was young, insurance was considered a scam!” Yes folks in the early part of the century insurance was a “scam” that is now indispensable. You used to be able to hear older folks say things like “when the time comes we trust that God will provide” No more of that now, that belief in the Almighty is considered aberrant behavior.
Because insurance was such a “scam” it became heavily regulated. New York state regulated the heaviest and thus many ads use to say “licensed in New York” to indicate trustworthiness. But, there were also local insurance pools and mutuals. The common ingredient was that the State Insurance Commissioners controlled rates and where money was invested. The insurance industry was a second, non Federal Reserve source of funds from autos to college loans to industrial developments. A cash value life insurance policy used to be exempt from bankruptcy and a quick low interest loan could be attained against the policy’s cash value. Deregulation changed that. Suddenly, purely speculative investments were allowed. As losses began to mount, insurance companies looked to the policy holders. There was more trading than investing. That led to many private sector retiree health plans being unsustainable when with the phenomenal stock market growth should have left them flush with cash. Suddenly, an insurance clerk that probably had less training than I did as an AFRes medic was telling medical professionals how to practice medicine. Time limits, often with bad results, were put on hospital stays. If union workers got a raise, their health insurance premiums rose. There were more administrative staff than medical practitioners in doctors offices. If ACA addressed any of those issue, I missed it. It did bailout the insurance and pharmaceutical industry. Administrative costs were closely watched in the regulated days because companies would often use those for a justification to raise rates. Under our current system, I don’t believe I’ve ever seen a breakdown of actual administrative and health delivery costs. So, when people say our system of health care cost too much in percentages of GNP, remember, that insurance clerk and the tort lawyer that insists a consulting physician be brought in, although you trust your doctor, is all part of “health care costs”. How are are you ever going to get a single payer system when auto, boat, airplane, homeowners, workmens comp, Jones Act(longshoreman)and Railroad workers all have medical components as required by law? Then there is ex-military and Indian Health Care which applies in U.S. territories and possessions. If they gave Rube Goldberg prizes for financial engineering, ACA would win hands down. Doubt if single payer would address the issues and I’m not holding my breath waiting for the Republicans to point out these flaws.