Obamacare Meets Reality

The February flap over whether the Patient Protection and Affordable Care Act, better known as Obamacare, can require religiously affiliated institutions to dispense birth-control services under employer-based health-insurance coverage was an object lesson in why Democrats should have opted for a government-run, single-payer plan in reforming the medical system. President Obama managed to finesse the situation and avoid all-out war with the conservative Catholic bishops, but the fact is the issue never should have arisen and would not have under a more sensible health regime.

Given that Obamacare relies on overlaying rules and regulations atop the existing ramshackle private health-insurance system, rather than on fundamentally changing that system, more of the same can be predicted for the future. Lobbyists wrote the healthcare law and attorneys will interpret it — with an assist from federal and state bureaucrats. Expect a proliferation of lawsuits in upcoming years, assuming the Supreme Court does not invalidate the entire Rube Goldberg contraption by judging the individual mandate unconstitutional, a distinct possibility.

The polar opposite to the complexity of Obamacare is our existing single-payer program, Medicare, which covers only a minority of the population but provides a large enough sample (45 million beneficiaries) to establish its conceptual superiority; it should have been the basis for reform in 2010. Under a Medicare-for-all system, one’s employer — approximately 60% of Americans under age 65 are presently covered by job-based insurance — would be irrelevant. The employer’s moral beliefs would no longer matter because employers would cease to fit the mold of General Motors, once described as an insurance company that makes cars; except for voluntary supplemental plans, health coverage would be entirely in the public sector — as a right of citizenship and not a perk of employment.

A single-payer system, which could have been implemented incrementally if necessary by gradually ratcheting Medicare coverage down from age 65 until universality was reached, would have avoided fear and confusion, excessive out-of-pocket expense, and the need to “shop” for policies at health exchanges. Elimination of the aggravation factor alone would have made it worthwhile, and economies of scale would have rendered the per-capita tax bite far smaller than the price of individual monthly premiums. Furthermore, the low administrative costs of single-payer systems are well documented; Medicare spends only 3% of its revenues on overhead compared to 20% for private insurance.

Undeniably, Obamacare provides some positive benefits. Supporters invariably point to its mandate that children can be carried on their parents’ insurance policies until age 26, although with unemployment remaining high, that begs the question of what happens after that time. Obamacare also marginally reduces the gross disparity between overhead costs for private insurance versus Medicare by limiting the allowable “medical-loss ratio” (percentage of premium set-asides for profits, salaries, and marketing) to 15 percent of total insurer revenues; this helps, but it’s manifestly insufficient.

In addition, new insurance rules guarantee policy availability for those with preexisting conditions and eliminate monetary caps on coverage. There is also more free preventive care, and there are tax credits for small businesses insuring their employees. These are all good things, but most of them could have been accomplished through specific legislation and not tied to the cumbersome and controversial individual mandate.

Some of the claims on behalf of Obamacare are clearly specious, foremost among them the assertion that it achieves “universal health coverage.” On the contrary, the new law, when fully implemented in 2014, will still leave an estimated 31 million Americans uncovered, a figure that will only drop to 23 million by 2019. Some of these uninsured millions are to be absorbed by expanding Medicaid, the joint federal-state health program for the poor.

But it is here that Obamacare first encounters reality. Although it is often referred to (along with Social Security and Medicare) as one of the federal “big three,” Medicaid is partly funded (up to 50%) by the states and likewise managed by them; in theory, state participation is also voluntary. It is Medicaid, more than any other major social program, that has been targeted by ideologically motivated fiscal hawks; the proposed Ryan budget of the House Republicans would virtually dismember it by slashing federal contributions.

Nonetheless, it is at the state level that the budget axe is immediately falling. Obamacare’s Medicaid expansion requires additional combined state spending of $20 billion in the face of a disappearing federal stimulus and enrollments that have already increased exponentially because of the Great Recession. In response, governors, especially in the red states, are tightening eligibility, cutting benefits, and reducing reimbursements to providers. Some would like to opt out altogether. So much for achieving universal coverage.

There’s a bigger elephant in the room than even the Medicaid crisis, however. Obamacare, whatever its beneficial aspects, puts little priority on solving the problem that led to calls for health reform in the first place. To date, it has no real answer to the inexorable rise of private health-insurance premiums, which, truth to tell, is built into the system – baked into the pie, you might say.

The freedom of insurers to make money on the 29 million or so Americans involuntarily added to the insurer rolls by the individual mandate (in addition to the 155 million already there by virtue of job-based coverage) was part and parcel of the compromise that created Obamacare. Unsurprisingly, the chickens are coming home to roost.

Obamacare’s enabling legislation merely instructs federal health bureaucrats to “review” premium increases over 10% per year. No problem for insurers, who, according to the Kaiser Family Foundation, raised premiums on employer-provided health insurance an average of 9% in 2011, the most in six years and three times the general rate of inflation. That’s in keeping with a cumulative increase of 113% since 2001, which has prompted most employers to gradually shift the cost burden to their workers in the form of sharply rising employee contributions.

The fatal flaw in Obamacare is its reliance on overpriced private health insurance, whose annual cost per enrollee, calculated by the Centers for Medicare and Medicaid Services, has exceeded Medicare’s by fully one-third for a decade. As Vermont’s pending conversion to a state single-payer system reminds us, it’s still not too late to switch.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy.

From The Progressive Populist, April 1, 2012


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