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Tom Firey: "Understanding Obamacare's focus on health insurance"

January 15, 2013|By THOMAS A. FIREY

The Patient Protection and Affordable Care Act (often called Obamacare) is lauded as a broad reform of American health care. In fact, PPACA focuses on only one goal: expanding health insurance coverage. It does this, in part, by subsidizing insurance premiums for lower-income households, and by fining people who don’t have coverage and employers that don’t provide it to workers. PPACA largely overlooks other, arguably worse, problems such as the high cost of care and insurance, the financial problems of Medicare and Medicaid, the frequency of iatrogenic (doctor-caused) injury and death, and the utter mess that is medical malpractice.

Given PPACA’s focus, one might think coverage is a panacea that solves the other problems. But no; as discussed in my last column, coverage can exacerbate those problems because it involves third parties — insurers, employers and government — in the patient-doctor relationship. Those third parties have demands that can conflict with patients’ interests, contributing to the problems of health care’s cost and quality.

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In fairness to PPACA, coverage does seem to be important. Little rigorous empirical work has been done on the health effects of coverage, but some new research finds that covered people report feeling better than similar people without coverage. There is better research on the health and economic effects of particular types of coverage. Interestingly, coverage that incorporates deductibles, co-pays and other “cost-sharing”— that is, the type of coverage that has become common — appears to produce health outcomes as good as more “generous” types of coverage (including a single-payer system), but at much lower cost. So it’s understandable why PPACA’s architects want to expand the current system of coverage rather than transform U.S. health care into a single-payer or socialized system. Yet, to say that the current system is better than no coverage at all and more efficient than some alternatives is to offer faint praise.

Why has the current system, in which three in four Americans receive coverage through either employers or government, become predominant? To answer that, we first must recognize that the typical U.S. health plan is not simple insurance. Insurance, properly understood, covers events that are unlikely but are costly, such as a car crash or house fire. It operates by pooling a large group of at-risk people, and assessing each member a premium reflecting his individual risk. The resulting money covers the cases where the risk is realized, along with the insurer’s operating costs and profits.

“Mutual aid” societies and some insurance companies operated under this model in the 19th and early 20th centuries. However, the development of modern medicine and changes to U.S. law have produced today’s “comprehensive” model that is usually sponsored by employers or government and that covers medical costs far beyond those of unlikely — but costly — events. The biggest contributor to this transformation was the Revenue Act of 1954, which allowed employers to deduct payments for worker coverage from their business taxes, but affirmed that workers don’t have to pay income taxes on the benefit. This tax break incentivized employers to include coverage as part of their workers’ compensation.

As a result, employer- and government-provided coverage expanded dramatically. But this has yielded some long-term problems. First, coverage is connected with employment, which means that people who lose employment risk a loss or change in coverage. Second, because few workers stay with a single employer for their whole career, employers purchase coverage focused on providing benefits only when they employ the workers; this hurts workers with long-term (pre-existing) health problems. Third, the market for individual coverage has become limited and peculiar. Fourth, because health care costs have risen dramatically in recent decades, so have employers’ labor costs, causing economic problems for employers and stagnant wages for workers.

To its credit, PPACA tries to address the individual coverage and pre-existing condition problems. But its attempted solution might cause serious problems for the entire coverage system. That’s a topic for next time.

Thomas A. Firey is a senior fellow for the Maryland Public Policy Institute and a Washington County native.

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