In four months, Americans will have to prove to the IRS that they have health insurance—the kind that qualifies under the Affordable Care Act (Obamacare). The law kicks in on January 1, 2014, and the insurance will either be provided through employers or through the taxpayer-subsidized individual exchanges that will open for business in a little over a month in most states.
Other mandates, including the requirement for employers of 50 or more people to provide insurance to employees and minor children and for insurers to cap out-of-pocket expenses for policyholders, have been postponed unilaterally by the Obama administration until January 2015. The White House tried that strategy to limit the political damage from Barack Obama’s signature legislation during the 2014 elections, but even with the delays, the reaction to Obamacare’s perverse incentives look damning to Democrats in the mid-terms.
Let’s start off with what else has been delayed in the rollout of the ACA. Earlier this week, an unpublished report from the Congressional Research Service reviewed the statutory deadlines in the ACA, and found that the Obama administration had missed more than half of them. Forbes’ Avik Roy counted 82 statutory deadlines in the CRS review, and found that only 49 of them had been met at all – and only 32 on time. As of the date of the review (May 31, 2013) 33 were still overdue, and only nine of those due to a lack of funding from Congress.
That rebuts claims from the White House and its defenders that the only reason for delays is Republican “sabotage” of the rollout.
Second, Congress has almost no control over the rollout process any longer. The ACA assigned remarkably broad power to the Department of Health and Human Services and its Secretary to create regulation and enforcement mechanisms. For better or worse, this has been a White House production since the March 2010 passage of the ACA.
OBAMACARE’S PART-TIME JOB MANDATE
That’s not to say that the law has had no impact. It has, and most of it bad. In the first six months of the year, 97 percent of net job creation came from part-time jobs, according to former Bureau of Labor Statistics chief Keith Hall at George Mason University. In New Jersey, a school district has imposed a four-day maximum workweek for its substitute teachers to avoid the obligation to pay for health insurance.
Businesses have shifted their staffing model to accommodate the perverse incentives of the employer mandate and the requirement to provide and subsidize health insurance for anyone working 30 or more hours a week, whether the mandate gets enforced in 2014 or 2015.
Nor are those the only changes for workers. This week, UPS announced that it would eliminate coverage for 15,000 spouses of workers, explicitly citing the ACA as the reason, with the change saving them $60 million annually. The University of Virginia also announced that they would no longer offer coverage to spouses who have access to their own employer-based health plans, and also cited Obamacare as a cause https://news.virginia.edu/content/university-employees-will-see-significant-changes-health-plan-year .
“Ironically, by providing generous benefits,” UVA’s human resources VP Susan Carkeek said, “the University becomes exposed to a federal excise tax known as the ‘Cadillac tax.’” The ACA will add $7.3 million in other costs to UVA’s budget, even after avoiding the Cadillac tax and coverage for spouses.
THE UNINTENDED CONSEQUENCE
Now employees may get into the act, too. Thanks to the high cost of dependent coverage and the move to eliminate spouses from plans (as allowed by the ACA), employees may soon ask their bosses to stop offering health insurance. While the ACA’s employer mandate forces businesses to provide comprehensive health insurance at no more than 9.5 percent of household income, that limitation only applies to coverage for the workers themselves – not dependent children, nor spouses at all.
Due to the structure of the ACA, workers will get a better deal on family coverage with the taxpayer-funded subsidies available in the exchanges, but they can only qualify if their employers don’t offer coverage. Businesses that will pay much less in penalties than the ACA alternative will leap at the chance to do their workers that favor.
ValuePenguin co-founder Jonathan Wu calls this “weird” circumstance “a clear win-win for both parties." It won’t be a win for taxpayers, who will have to foot a much higher bill for subsidies than ACA proponents proposed, and it will turn Obamacare into both a sinkhole in the budget and a mess on the ground. As employers dump health insurance coverage and millions more people demand subsidies as a result, the red ink will come in a tsunami and the ACA will very quickly become unsustainable.
If this collapses, what’s the endgame for Obamacare? Senator Harry Reid told a Nevada PBS panel that the ACA was only the first step. “What we’ve done with Obamacare is a step in the right direction,” Reid said, “but we’re far from having something that’s going to work forever.”
THE GATEWAY PLUG--UNCORKED
The ultimate goal of Obamacare was to “work our way past” health insurers altogether, Reid explained, and when asked whether that meant a national health program, Reid replied, “Yes, yes, absolutely, yes.” Senator Tom Coburn warned last year that Democrats designed the ACA to be a gateway to single-payer, government-run health care, and Reid apparently agrees.
However, Reid and his fellow Democrats may end up with a much different outcome than they desire. The primary problem with health-care costs is the third-party-payer system, especially for routine care. That system has been resistant to change because of the employer-subsidy model that arose during World War II as a way to get around wage freezes.
The third-party payer system blocks the normal price signaling to consumers in the market, which leads to overuse, rationing, price fixing, and a shrinking number of providers willing to enter the market. The common analogy is hypothetical food insurance: If you paid $1000 a year for food insurance and only a $25 deductible for each visit to the grocery store, how much would you buy on each visit? And what incentive would you have to look for the best bargain? How long would premiums be $1000 a year in that scenario – and how long would food producers keep up with demand when insurers insisted on low reimbursement rates that have nothing to do with quality or production?
The ACA will break the employer-subsidized payer model, but not in a way that makes the government-subsidy payer model work any better. The issue won’t be insurers in the exchanges, but the subsidies themselves. The subsidies are the unsustainable element in a rush away from the employer model. The only rational method to deal with the avalanche of subsidy demands is to allow for less-comprehensive insurance plans that charge lower premium rates or to tax Americans into poverty to fund them.
The most rational choice for coverage, especially for younger Americans, is a policy that covers hospitalizations only, with routine care funded through health-savings accounts. Providers are already moving to retail models, rejecting insurance affiliations (especially Medicare) and the red tape that accompanies that kind of business. That model provides pricing signals directly to the consumer, which will stabilize health-care costs much faster and more successfully than government intervention has.
The control over their own practices would encourage more providers to enter into primary care, an area facing a critical shortage. Insurance would return to its actual purpose – to indemnify policyholders against occasional unforeseen setbacks rather than make every health-care decision in their lives.
Perhaps Reid, Obama, and the rest of the Democrats believe that voter anger over a collapse of the ACA will get directed against insurers, but don’t bet on it. The health-care system before March 2010 had serious problems, but it wasn’t collapsing when people could choose their own plans and didn’t need to check in with the IRS when doing so. A collapse of Obamacare will destroy the credibility of government-payer systems, not insurers, and we may finally try using the rationality of free markets for true reform.