Tag Archives: Obamacare

Why Republicans Can’t Reform Health Care

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July 26, 2017 —    Why do Republican politicians seem unable to come together on a bill to “repeal and replace” the 2010 Affordable Care Act, also known as Obamacare?  After all, they have spent 7 years with that as their single-minded goal, they campaigned on it in the 2016 presidential election, and they now control all branches of government.

It is tempting to blame lack of experience and competence on the part of the president.  But that doesn’t explain why the Republican congress can’t do it without him.  Some Republicans blame unwillingness of the Democrats to cooperate.  But given their majorities it should not be necessary for the other party to cooperate in dismantling its most important achievement of the last eight years, nor is it remotely reasonable to expect them to do so.

Don’t be misled by the reasonable-sounding formulation that, since everyone agrees that Obamacare has flaws, a bi-partisan replacement to improve it should be possible.  The most important of the existing flaws in Obamacare are there because Republicans insisted on putting them there, not because of unforeseen consequences of the original proposal.

It is a little closer to the truth to say that the Republicans negligently forgot to formulate an acceptable replacement in all their years of voting to repeal Obamacare.  But that makes it sound like they could come up with an acceptable replacement if they tried hard enough.  They cannot.

The relevant division among Republicans

Republicans in Congress are divided.  Whatever version of the bill they try out, they cannot seem to put together the necessary majority.  But the familiar distinction between “hard-core conservatives” and supposed “moderates” is not the most useful way of looking at the split.  They are divided, rather, between those who acknowledge the laws of arithmetic and those who do not.

By the way, it is the same division that has plagued the Republicans over tax policy for almost 40 years: they all want massive tax cuts but some also proclaim their commitments to pay down the national debt while preserving military spending, social security and Medicare, while others recognize that this combination is arithmetically impossible.

When Republicans say they want to repeal and replace Obamacare they mean not just a change in name, but a general reduction in the role of government in the health care system and, in particular, an end to the individual mandate that requires all Americans to have insurance.  They are divided between those who recognize that the result of the various repeal and replace proposals would be a loss of insurance by many and are willing to accept this reality, on the one hand, and those who do not recognize it, on the other hand.   The decline in the number of citizens who have coverage would exceed 20 million, according to estimates of the Congressional Budget Office (which, contrary to some desperate claims, have a very good track record).

An example of the first category is Rand Paul of Kentucky, one of the few more-or-less-consistent libertarians who deserve acknowledgment for intellectual honesty.  But if his policies prevailed, the losses inflicted on lower- and middle-income workers would be so severe that the Republicans would probably be voted out of office for a generation.   That logic assumes that there exists a limit to the scope for large numbers of Americans to vote against their self-interest.  (Indeed, Republican proposals to take away benefits are now very unpopular.)

The second category of Republicans finds the loss of health insurance by 20 million citizens unacceptable.  This group still doesn’t know what it wants, even after all this time.  Some of them may take refuge in a solution where millions end up on skeletal health care plans that don’t offer true protection against the cost of serious health problems, so-called junk insurance.  But this solution is no more attractive than the loss of coverage altogether.

Logically there should be a third group that acknowledges the arithmetic, finds the loss of 20 million uninsured unacceptable, and then chooses to face reality by working for a version of Obamacare or some other plan that can continue to expand the numbers of Americans who have health insurance.  This third group would properly be labeled the moderate Republicans.  Unfortunately there is nobody left in this group (except perhaps Susan Collins of Maine).

Options with an expanded government role

Consider a birds-eye perspective on alternative health care systems.  At one polar extreme is socialized medicine: the government directly provides health care to all.  The British are attached to their National Health Insurance.  But different nationalities have different preferences.   Nobody in US politics is arguing for a government takeover of the health care system, even though some opponents of Obamacare have falsely described it in this way.

Who supplies health care is a different question than who pays for it.  A substantial fraction of Americans would support a single-payer system.  It can be described as “Medicare for everyone.”  Other countries like Canada make it work, delivering high-quality health outcomes at a fraction of the cost of the US system.  Advocates point to cost savings from paperwork reduction, for example.  Still, it would be unrealistic to think that US government health insurance for all would be anything other than a very expensive new mandate – at a time when voters are unwilling to pay the taxes that would be necessary to finance the level of mandates that we already have.  Certainly it will continue to be opposed by three influential groups: the insurance industry, those consumers who are happy with their current employer-paid plans, and Republicans in general.

Is there a free-market option?

What would the oppose polar extreme look like, a system where the ethic of “personal responsibility” insists that nobody gets health care unless they or their employers pay for it?  It is hard to imagine such a system.  It is not what we had before Obamacare; that system was not a model of personal responsibility. The uninsured imposed costs not just on themselves but on the rest of us as well, in ways that go well beyond expensive medical attention in the emergency room.  Those who don’t see a doctor regularly are more likely to fall victim to alcoholism, obesity, smoking, and addiction to opioids or methamphetamine.  Even leaving aside the emergency room, many of the uninsured end up receiving some longer-term care for which hospitals are not reimbursed so that they must spread the cost to the rest of us.

If the objective were to stamp out such nefarious practices it would require an active reversal of government policy, to stop the medical profession from providing care that it feels ethically committed to provide.  Taking government policy out of health care would include depriving non-profit hospitals of their tax-exempt status, for example.  Perhaps there could be a new federal law requiring ambulances to leave accident victims by the side of the road unless they can show proof of health insurance.  I have yet to meet a free-market conservative so extreme as to favor such a system, when pushed.

No free lunch

So, as often, the right answer must lie somewhere between the polar extremes (socialized medicine at one end and a pursuit of pure laissez-faire at the other).  It must have something like the key features of Obamacare.  The famous three legs of the stool are:  the individual mandate, no discrimination against pre-existing conditions, and a means to pay for it.

The individual mandate is a key component that makes Obama’s Affordable Care Act work.  Many forget that it was originally an idea that conservative think tanks developed in order to devise a workable system of national health insurance with the minimum possible role for the government and a maximum possible role for the market.  It played the key role in the Massachusetts health care reform signed by Mitt Romney when he was Governor in 2006. (Analogously, two other ideas originally designed by conservatives to achieve agreed goals in a market-based manner were  the negative income tax and cap-and-trade environmental regulation.)

A heavy majority of Americans — including those who thought they hated Obamacare, at least until recently — want to retain the provision that insurance companies can’t discriminate against those with pre-existing conditions.  [They also tend to favor the provision that parents’ policies must cover children up to age 26.]  But they can’t have these popular benefits without also accepting the unpopular individual mandate.  It is simply not financially feasible for private insurance companies to insure people who are already sick or at high-risk, if the still-healthy can opt out of the pool.  The fundamental source of market failure is known to theorists as adverse selection.  This is the origin of the famous “death spiral” that dooms plans lacking the mandate or something like it.  The “no discrimination” leg won’t hold up the health care stool, if the individual mandate leg is removed.

So it doesn’t matter how many permutations of the legislation to replace Obamacare the Senate leadership tries.  They won‘t come up with something that decreases the role of government without increasing the ranks of the uninsured.

[A shorter version appeared at Project Syndicate.  Comments can be posted there or at Econbrowser.]

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What Do Obamacare and the EITC Have in Common with Cap-and-Trade?

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My preceding blog post described how market-oriented mechanisms to address environmentally damaging emissions, particularly the cap-and-trade system for SO2 in the United States, have recently been overtaken by less efficient regulatory approaches such as renewables mandates.   One reason is that Republicans — who originally were supporters of cap-and-trade — turned against it, even demonized it.

One can draw an interesting analogy between the evolution of Republican political attitudes toward market mechanisms in the area of federal environmental regulation and hostility to the Affordable Care Act, also known as Obamacare.   The linchpin of the program is the attempt to make sure that all Americans have health insurance, via the individual mandate.  But Obamacare is a market mechanism, in that health insurers and health care providers remain private and compete against each other.   

As has been pointed out countless times, this was originally a conservative approach, designed to work via the marketplace:  The alternative is to have the government either (i) directly provide the health insurance (a “single payer” system, as in Canada; or under US Medicare for that matter) or (ii) directly provide the health care itself (“socialized medicine,” as in the UK; or the US Veterans Administration hospitals).  The new approach was proposed in conservative think tanks such as the Heritage Foundation. It was enacted in Massachusetts by Republican Governor Mitt Romney. By the time President Obama adopted it, however, it had become anathema to Republicans, most of whom forgot that it had ever been their policy.

One can trace through the parallels between clean air and health care.  The market failure in the case of the environment is that pollution is what economists call an externality:  In an unregulated market, those who pollute don’t bear the cost. The market failure in the case of health care is what economists call adverse selection:  Insurers may not provide insurance, especially to patients with pre-existing conditions, if they have reason to fear that the healthy customers have already taken themselves out of the risk pool.  

Government attempts to address the market failure can themselves fail.  In the case of the environment, command-and-control regulation is inefficient, discourages innovation, and can have unintended consequences.   For example, CAFÉ standards (Corporate Average Fuel Economy) were partly responsible for the rise of the SUV.  Corn ethanol mandates raised food prices and accomplished nothing for the environment.  When “New Source Review” requires that American power companies adopt the most stringent available control technology if they build a new power plant, they respond by keeping dirty old plants running as long as possible (Stavins, 2006).  

In the case of health care, a national health service monopoly can forestall innovation and provide inadequate care with long waits.  In general, the best government interventions are designed to target the failure precisely – using cap-and-trade to put a price on air pollution or using the individual mandate to curtail adverse selection in health insurance — and otherwise let market forces do the rest more efficiently than bureaucrats can.

American conservatives often talk as if the alternative they would prefer is no regulation at all.  But few in fact would want to go back to the unbreathable pre-1970 air of Los Angeles, London, or Tokyo.  Even those few who might want to should recognize that most of their fellow citizens feel differently.  Political reality shows that the alternative in practice is an inefficient rent-seeking system in which solar power, corn-based ethanol, and fossil fuels all get subsidies or mandates.  Analogously, few conservatives in fact will say that they want hospital emergency rooms to turn away critically ill patients who lack health insurance.  Even for those who might want this, reality shows that the alternative in practice is hospitals that give emergency care to those who lack insurance, whether because of personal irresponsibility or for reasons beyond their control, and then pass the charges on to the rest of us.

A third example is the Earned-Income Tax Credit.  It was originally considered a conservative idea: an implementation of Milton Friedman’s proposed negative income tax, it was championed by Ronald Reagan as a pro-work market-friendly way of addressing income inequality.   President Obama proposed expanding the EITC in his State of the Union address last month.  But conservatives, again forgetting that it was their own creation, have opposed expansion of the EITC as verboten redistribution.   So proposals to increase the minimum wage get more political traction as a way to address income inequality, even though that approach is more interventionist and less efficient.

[This is the second of a two-part post, which in turn is the extended version of an op-ed published at Project Syndicate.  Comments may be posted there; or join the debate at Economist’s View.]

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Will Financial Markets Crash Before October 17, or After?

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October 4 is the first Friday of the month, the day when the Bureau of Labor Statistics routinely reports the jobs numbers for the preceding month.   Is the havoc created by our current political deadlock over fiscal policy showing up as job losses?   We have no way of knowing.  On October 1 the BLS closed for business, like many other “non-essential” parts of the government.  There will be no more employment numbers until the shutdown ends.

Last week, Wall Street economic analysts responded to the usual surveys as to what they thought the upcoming employment numbers would be.   (These surveys are what the media refers to each month when they tell you that employment rose or fell “more than economists expected.”)    The median forecast in last week’s  Bloomberg survey, for example, was a prediction that the BLS would report that “Payrolls increased by 175,000,” the biggest gain in four months.   But there was no word on how many of the respondents recognized that there would in fact probably be no number at all on October 4, because the Labor Department would have been closed by the government shutdown.

It seems to me that this minor blind-spot is symbolic of a failure of Wall Street to focus adequately, until now, on the long-impending government shutdown and still-impending October 17 deadline for raising the national debt ceiling.   One reason for the lack of concern up until this point is that observers are jaded; they feel they have seen this movie before (with fiscal cliffs, sequesters, shutdowns, and ceilings); that it is “only politics;” and that Washington always averts catastrophe at the last minute. Well, maybe not this time. 

Another reason is that the financial markets all summer long were busy over-reacting to developments regarding the Federal Reserve.   The stock market reached a high two weeks ago on the information, which was considered news, that monetary policy was not going to be tightened imminently after all.   Now the fixation is passing from monetary policy to fiscal policy. Not a moment too soon.

Both sides in Washington are firmly dug in, and don’t plan to back down.  If the politicians don’t get their act together  and the debt ceiling is really not raised, the results will be very bad indeed.   I actually mean “if the Republicans don’t get their act together.”  I think President Obama is fully credible when he says he will not let one faction in one party in one house of congress, in one branch of the government, threaten to blow us all  up if they don’t get their way on the Affordable Care Act.

The US has never defaulted on its obligations before.  Some continue to imagine that the government could stay within the debt ceiling but meet its obligations out of incoming tax revenue.  This is wrong.  Even if there were enough tax revenue to service the treasury debt for awhile, there would not be anywhere near enough to meet all the other legal obligations that the federal government has already incurred under the congressionally passed budget.  If the government doesn’t pay Staples the money that is owed for office supplies that it bought last month, that is a legal default just as much as if it fails to service its bonds.  

Perhaps, given the desperation of the situation when the time comes, President Obama could try one of the gimmicks that have been proposed, such as minting the trillion dollar coin or taking the position that the debt ceiling violates the constitution or other laws.   These are not attractive options because they would probably provoke a constitutional crisis.   So let’s assume that he doesn’t take them.

It seems to me that this then leaves two possible outcomes: either the financial markets fall before October 17 and the Republicans respond by backing down or the financial markets fall after October 17 and the Republicans respond by backing down.   Precedents for financial markets forcing such a reversal include the delayed congressional passage of the unpopular TARP legislation in the fall of 2008 and the delayed passage of an unpopular IMF quota increase 10 years earlier.   (In the last debt ceiling showdown, in August 2011, default was avoided at the last minute;  but the stock market fell sharply anyway, when S&P for the first time ever downgraded US debt from AAA.)

After a remark by Obama about the markets yesterday, some accused him of “scare tactics,” of fanning Wall Street fears for political advantage.  The reality is almost the reverse:  if Obama thinks like a pure politician, he will let the Republican Party complete the process of committing suicide (suicide by means of binge tea partying).  The way to do this would be to wait until October 17 and let the Republicans take the blame not just for a decline in the stock market or for the inconvenience to anyone who has to deal with the government during the shutdown, but – if there is no resolution in time to raise the debt ceiling – to take the blame for the likely result: a second global financial crisis and global recession.   

But that would be a very high price to pay for political advantage.  Even if the Republicans cave in within a few days after October 17, so as to avert the global recession, by then the creditworthiness of US Treasury debt will have been irreparably harmed.  My guess is that Obama thinks it would be much better for the country if the markets were to tank and the Republicans to back down before October 17 rather than after, even though the Tea Party would then live to fight another day.

[I discussed these matters this morning on BBC radio, “US Shutdown Risk to Global Economy,” and Fox Business News, “Who Will Listen to the President’s Warning to Wall Street?” Varney & Co..  One of the Fox team claimed that the stock market has usually gone up in government shutdowns.  It turned out that her statistic referred to the subsequent month;  in other words the market goes up when the shutdown is ended.  In fact it typically goes down during shutdowns, by 2 ½ % in the case of those lasting 10 days or more. It looks to me that this exchange was excluded from the segment posted on the Fox website.] 

Comments can be posted at the site of the Project Syndicate blog version of this post.

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