I was on the Randy Tobler Show this morning, talking about the Affordable Care Act and everything we’ve learned about it during the government shutdown event. On that, in case you haven’t heard, a small cadre of Democrats voted with nearly all the Senate Republicans to end the shutdown earlier this week. It was a big thing and now everyone is mad at Chuck Schumer.
One of the issues that Schumer and Jeffries were particularly emphatic about was the need to extend some tax deals related to the Affordable Care Act so that people’s premiums didn’t increase. I saw some reports that premiums would double for some, more than double for others, if we eliminated the “enhanced premium tax credits” that were created in 2021 because of COVID but then extended through 2025.
The Affordable Care Act is something that I’ve written about before, but it has been a long, long time. Here I am in Investor’s Business Daily, The Daily Caller, and The Daily Economy, before I worked at AIER (note: I still don’t know why I’m listed as “written in cooperation with David Hebert…” on this). And because of its scope and scale, it’s also something that I’ve talked about with groups plenty, even if it’s not a “primary focus area” for me.
Note: in these talking points, I’m sometimes going to refer to “healthy people” and “sick people” just to make things easier for me.
Background
Affordable Care Act premiums are once again being talked about and taking center stage.
First passed in March of 2010, the bill is now over 15 years old, and was a major and dare I say landmark piece of legislation that fundamentally changed how healthcare worked in the US.
On the stump tour, Obama would consistently say “if you like your plan, you can keep your plan” and similar remarks for your doctor, as well. In other words, if you were happy with what you had and what you were paying, the ACA was supposed to leave your plan alone.
That… didn’t happen. Buried in the ACA was text that required all health insurance plans to comply with new standards for “coverage.”
One of the key passages for the ACA was the forced inclusion of coverage for “pre-existing conditions” and “essential health benefits.”
Insurance plans on the exchange had to cover these things and, importantly, were not allowed to charge certain people who may have been more likely to use these services more than people who were not going to.
This created a problem.
The effect of these mandated coverages without corresponding allowances to charge certain people more created what economists refer to as an adverse selection problem.
Sick people are going to sign up because it’s going to save them money on their health insurance plans!
But what about healthy people, who if they sign up, are going to pay for insurance coverage they aren’t going to use? They’re not going to find this to be worthwhile at all.
As a result, healthy people do not sign up for the insurance through the ACA and only sick people do.
And indeed, this is exactly what we saw in 2015: younger people (who are generally healthier than older people) did not sign up for the ACA in the numbers necessary to make the ACA viable.
Website drama
Then there was the website drama, where the website used to sign up for the exchanges (which reportedly cost about $600 million to build) just… crashed.
So. You have this thing that you need young people to buy. And you can’t put together a website to make it possible for them to buy it?
This does not bode well for “attracting young people” to your product. And that was basically at the roll-out party.
Insurance 101
Insurance is not like a discount shopping card where you magically “pay less” if you have it.
Insurance is about pooling risk and, effectively, eliminating uncertainty from your monthly/annual budget.
During the pandemic, I taught a class on Health Economics at the request of several students. I uploaded tons of videos lectures in 5-7 minute chunks, all of which can be found here.
The relevant lectures for this point are here, here, and here (note: I would suggest watching them in order).
Reality Check
Government needs to quit stimulating the demand side of the market and then acting surprised when price rises.
Health insurance is a demand side phenomenon in the health care market.
We know this because insurance companies are not providing health care.
Instead, to the extent that they are involved in health care, government should be looking to make it easier for the supply side of the health care industry to thrive and flourish.
Doing so would increase the amount of healthcare available and bring its price down.
That’s a win-win for the American people, e.g. patients.
We need to have more choices for insurance plans that better match the risk portfolios and preferences of the American people.
If you want (or need) more coverage in certain areas, you should be able to get it, but you’re going to have to pay for it.
But importantly, if you are able to take steps to reduce your risk in other areas, you should be able to buy less insurance in those areas and save yourself some money.
This re-introduces the concept of personal responsibility into the equation.
I am NOT saying that nothing bad or unexpected ever happens. Far from it. But it is abundantly clear that there are steps that people can take to reduce their risk and, in my opinion, people should be rewarded for taking those steps.
Finally, we need to think seriously about where the re-insurance pools are coming from.
When something unexpected happens and you don’t have enough money and/or coverage, there needs to be some way to help these people.
A friend’s teenage son was in a horrible accident a little over a year ago. As a result, he’s paralyzed and can no longer walk. This necessitated not just a lot of expenses for the care and therapy that he needed, but also home remodels, different vehicles to get people around, etc. A lot of this was not covered by his insurance.
What did he do? He turned to his “village” of friends and connections and we donated to help him out.
Not all of us are rich and doing this because it’s “no big deal.” We’re doing it because 1) it’s the right thing to do because of 2) the love and respect that we have for this person and, by extension, his family.
As I wrote in a different context, the American people are incredibly generous if we see a need and identify a need. We step up and actually do take care of one another. We are capable of this in the healthcare sector, too.
Dave, another relatable distillation of an enormously complex AND existentially important-to-understand topic for every voter. Dare I say ever elected official and nonelected bureaucrat. If they knew that WE know the dirty truth about the mess they passed / administer, they’d fix it in a heartbeat. Keep preaching the truth brother!!
Dave, this is an excellent article on a very timely topic. As you will be able to see, I spend a lot of my time working on the federal debt issue of which Medicare is the biggest culprit.
Use this link to view the latest post on Congress’s Quagmire. There will be several more in this series continuing until at least February. https://tommast.substack.com/p/congresss-quagmire-i?r=b29s7
Please see this link for the updated website Fix Federal Debt Forever. It now features all of the series of Substack posts I wrote on the Federal Debt issue. US Federal Debt| Fix Federal Debt Forever