Point/Counterpoint on the the PPACA

You might be interested in the Washington Post’s latest point/counterpoint on the Affordable Care Act. Is it entering a “death spiral” or not?

Taking on the defense of the PPACA are Ezekiel Emanuel (Rahm’s brother) and Topher Spiro. Their defense is the conventional one—it’s just growing pains:

So why are insurers substantially increasing premiums or withdrawing from markets? They are making a one-time correction to bring premiums in line with costs. Setting a price is difficult when entering new markets — when the ACA was implemented in 2014, many insurers did not initially price their products accurately, and some may have even underpriced their plans deliberately in an attempt to establish market share.

conjoined with a circular argument—the PPACA won’t collapse as long as more money is put into subsidies by the federal government:

Second, policymakers can take action to further improve the risk pool — for instance, by making student loan payments deductible from younger enrollees’ incomes to boost their tax credits.

The subsidy they’re proposing must come from somewhere. The only available candidate is Uncle Sugar.

This was the statement from their op-ed that caught my eye:

Finally, keeping health-care costs under control is the best way to minimize premium increases. The rising cost of prescription drugs is one major component of growth in medical costs, and the insurance industry must get off the fence and back meaningful solutions, such as value-based pricing.

According to the Kaiser Family Foundation here’s how healthcare dollars are spent:

It might well be true that spending on pharmaceuticals is increasing rapidly. From that you might reasonably conclude that an increasing proportion of healthcare spending is devoted to pharmaceuticals but that doesn’t appear to be the case. Over the period of the last 35 years spending on pharmaceuticals as a proportion of all spending has varied within a fairly narrow range, from 8% to 12%.

What does appear to be the case is that pharmaceuticals are a large proportion of out-of-pocket spending on the part of the elderly. I suspect that Dr. Emanuel is engaging in a political calculation rather than a policy analysis.

In contrast Avik Roy makes the opposite case:

All but the most hardened partisans understand that the Affordable Care Act’s insurance exchanges are in serious trouble. In 2010, the Congressional Budget Office predicted that 21 million people would have exchange-based coverage in 2016; the real number was about 12 million. As insurers head for the exits, the gap between initial hype and final reality will widen.

The tragedy is that this was entirely avoidable. The ACA’s exchanges were fundamentally flawed in their design, something that private-sector experts tried to point out at the time. In October 2009, PricewaterhouseCoopers published a report projecting that by 2016, the ACA would cumulatively increase individual-market health insurance premiums by 47 percent. (PwC’s estimate was conservative. In fact, premiums increased by 49 percent in 2014 alone and by 77 percent through 2016.)

My assessment is that the PPACA wasn’t designed to succeed. It was designed get through the Senate. That means that it satisfied the shibboleths that had surrounded the consensus that had arisen in the leadership of the Democratic Party.

Now it’s become a sacred cow that will be very difficult to amend even when amending it makes sense.

13 comments… add one
  • steve Link

    Always remember that Roy’s numbers are suspect. He is a GOP operative. Health Affairs, I subscribe, just covered this.

    http://healthaffairs.org/blog/2016/07/21/obamacare-premiums-are-lower-than-you-think/

    Steve

  • I hate to break it to you, Steve, but everybody’s numbers are suspect.

    My concern is more that the PPACA is such a partisan football that it will be difficult to amend. The exchanges were never intended to be self-sustaining and (like Medicare) they will continue to operate as long as the federal government continues to subsidize them.

    With the advent of the PPACA “average premiums” have become a meaningless noise. Total spending (premium + out of pocket + subsidy) is what’s important.

  • PD Shaw Link

    I like how the ACA taxes young people with higher premiums in order to make premiums more affordable for old people, and when it turns out the cost discourages young, healthy people, the answer is . . .

    subsidies for college education.

    We have a problem: health insurance is too expensive for many, and instead of helping that class of people, Democrats help two other classes of people: older Americans and the college-educated.

    Why must we swallow the spider to kill the fly? Because that’s where the votes are.

  • CStanley Link

    What never seems to be addressed or even discussed is why health care costs are rising at rates well above CPI, year after year. The article Steve cites is lauding the fact that insurance premiums would have been even higher without ACA. But why is it normal to start with the assumption that the 5-10% rate of annual increase was baked in??

  • walt moffett Link

    The other important thing is where the money to pay for all is coming from. Who will propose the necessary budget trims and tax increases for it to work?

  • steve Link

    “I like how the ACA taxes young people with higher premiums in order to make premiums more affordable for old people”

    More accurately, it taxes healthy people to pay for sick people. In effect, that means more money goes from younger to older in the exchanges. However, there are also those now eligible for Medicaid and people who can stay on their parents plan up until the age of 26. When you add these in net spending between old and young evens out and may tip towards the young.

    Steve

  • Guarneri Link

    “I hate to break it to you, Steve, but everybody’s numbers are suspect.”

    Heh. All we know is that the greedy, profit hungry insurers who never miss a chance to make a buck……………are pulling out of markets.

    “But why is it normal to start with the assumption that the 5-10% rate of annual increase was baked in??”

    Because that’s the nature of playing with other people’s money. And when you are being paid for by Uncle Sugar – let me amend that, paid by the dollars taken from your neighbor by Uncle Sugar or printed on Uncle Sugars press – the results are inevitable.

    At least you get to keep your doctor, and have your premiums go down, or not pay ransom to the Iranians……………or something like that.

    A few weeks ago a plea was made for factual assertions. I’d like to see the evidence that the young are not paying for the old, especially since you can replace those labels with healthy and sick, respectively, and not have too much divergence. I’d like to see that evidence. I really would.

  • What never seems to be addressed or even discussed is why health care costs are rising at rates well above CPI, year after year.

    I know that Steve disagrees with my explanation.

    The basic answer is because they can. It’s what the market (such as it is) will bear.

  • steve Link

    Dave- I would give a more nuanced (and long, rambling) answer, but you are partially correct.

    Drew- I have not sen a comprehensive look on old vs young. There are lots of people writing noting that premiums are higher now for healthy young people, though in general they are also getting better plans. Those fail to note that healthy older people pay (up to) 3 times as much as the healthy young people. However, what they leave out is that we saw a very large increase in young insureds (19-25), mostly we think because they could stay on their parents plan. We also know that a large percentage of those who gained new Medicaid were also young. I hope someone does the numbers soon, but I am betting that because of the very large increase in new insured among the young, it would totally offset the 20%-30% increase in premiums younger people see, remembering that we are talking only about the individual market. The following is from health insurance.org

    “In September 2015, HHS released data regarding changes in insurance coverage across various demographics in the years before and after implementation of the ACA. Determining exactly how many young adults have remained on their parents’ health plans is challenging, but we do know from the HHS data that coverage across young adults (ages 19 – 25) increased by 5.5 million people from 2010 through September 2015.

    Nearly half of that gain (2.3 million people) occurred between 2010 and October 2013, before the bulk of the ACA’s reforms were implemented (exchanges, guaranteed issue coverage, premium subsidies, etc.). So it’s likely that a good chunk of those 2.3 million young adults gained coverage via a parent’s plan. In the ensuing two years, the increase has likely been a combination of young adults remaining on their parents’ health plans as well as young adults purchasing their own plans in the exchanges.

    Steve

  • PD Shaw Link

    @steve: “More accurately, it taxes healthy people to pay for sick people. ”

    No, you are assuming second order effects, which is my point. The ACA limits pricing risk based upon age by a factor of 3:1, which means that younger peoples increase in order for older peoples to decrease. The rule differentiates on a class defined by age, not “sick people.” There are older people that are not “sick people” and there are older people than can afford premiums without the government subsidy from younger people.

    “However, there are also those now eligible for Medicaid . . .”

    True and I support the expansion of Medicaid, but younger people were supposed to enroll in the exchanges to make the risk pools viable. The predictions were wrong, no doubt partly because of the premium shift.

    “. . . people who can stay on their parents plan up until the age of 26.”

    Again, this is helping a class of people whose parents can and are willing to pay for their kid’s healthcare through age 26. This is not a class defined by inability to pay the premiums.

  • steve Link

    PD- Does it cost a lot to take care of a 20 y/o with leukemia? Healthy old and healthy young people pay for the care. Take a 60 y/o with leukemia. Healthy old people and healthy young people pay for the care. The commonality is healthy. The actual costs to take care of a healthy young persona and a healthy old person are about the same. So on a per person basis the healthy old guy really gets shafted since he pays 3 times as much but only costs as much as the young person. In practice because of the demographics of illness, you see money going to the old-timers.

    Glad you agree on Medicaid. Having more young people would help. The rate has been lower for many reasons. Premiums is just one of them. Of note, there is a reasonable expectation that if you set the ratio at 5:1 you would sign up more young people but the government would need to pay more as old people would then drop out. The premiums for the young just aren’t that high and it takes a lot of them to make up for old people not in the plan. Even with very low premiums for the young some just won’t sign up anyway.

    “This is not a class defined by inability to pay the premiums.”

    Because the parents are willing and able to pay does not mean that was true of the young people. I think you should define the class by the ones being insured, not who is paying for it. In this case, we are talking about young people. I suspect a lot of them actually were unable to afford it, some could afford it but didn’t care so Mom and Dad paid for it and some just never got around to it.

    Steve

  • Mercer Link

    Pretty pathetic the only suggestion to restrain cost by ACA supporters is to complain about drug prices and talk about a public option. ACA mandates free annual physicals for example that are of questionable value to most adults. Many on the left also want sex change procedures covered by insurance.

  • Focusing on drug prices is to limit your attention to the increases in the 8-10% of healthcare spending that drug prices represent. Since that doesn’t make any sense from the standpoint of optimization, I can only conclude that the motivations are political.

    Since pharmaceutical companies are so highly dependent on rent-seeking, there are plenty of options for exerting control on them. We don’t do it. Why? The evidence (as I presented it in one of my earliest posts here) suggests that Big Pharma is composed of lobbying organizations with small research wings.

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