I wanted to make a few observations about the editors’ of the Wall Street Journal’s remarks about the Affordable Care Act today. Here’s the meat of the editorial:
Take a recent social-media post from Democratic Sen. Amy Klobuchar of Minnesota. If Republicans don’t extend the turbocharged subsidies, she warned, “early retirees like Bill & Shelly will see their health insurance premiums increase nearly 300%—from $442 to $1,700.”
Wait. Early retirees? This is a tacit admission that ObamaCare encourages Americans to stop working. The Biden subsidies turbocharged that incentive by making subsidies larger and available even to those with incomes above 400% of the poverty line. The couple in Ms. Klobuchar’s example had north of $130,000 of income in 2024, mostly from pensions, according to the media article.
Do taxpayers—many of whom pay for their own coverage at work—want to underwrite baby boomer early retirement? Maybe the politics here aren’t as obvious as Democrats assume.
More fundamentally, Democratic howling about premiums is an indictment of the system their party built. The Paragon Institute offers a helpful chart showing that expiring pandemic subsidies are responsible for about 3% of total 2026 premiums. “The real drivers are the same structural flaws that have plagued ObamaCare since 2014 and rising health care costs,” Paragon notes. The debate isn’t whether premiums are going up, only how much the taxpayer should pay.
Republicans are right to refuse to extend these subsidies—which none of them voted for—as the price of reopening the government. May they all stick to it, especially the wild card who lives in the White House. But the GOP also has an opening to start building lifeboats from ObamaCare.
Table stakes for any ObamaCare negotiation should include codifying association health plans that let small businesses join up to form a larger risk pool to improve the economics of offering insurance. Ditto for continuing to expand plans that can be paired with tax-preferred health-savings accounts.
Republicans could also try to fix some ObamaCare regulations like the medical-loss ratio that obliges insurers to spend 80% of premiums on claims, which in practice is a profit cap that has driven industry consolidation. The GOP goal should be to move as many Americans as possible into better coverage.
Maybe the title of this post should have been “It’s the Incentives, Stupid”. I’m not a fan of the ACA but for almost the opposite reasons the editors dislike it.
The core problem with our healthcare system is that no one has any incentives to control costs and, consequently, the costs continue to increase to and beyond affordability. That didn’t start with the ACA. It was built into the original structure of Medicare.
Since by and large healthcare insurance companies bear no actual risks and just take a percentage of billing to do the administration for the companies that are their customers they have no incentive to control costs.
Since employees, i.e. patients don’t realize how much of their total compensation is in the form of healthcare insurance, so little of the actual billing is out-of-pocket, and they get pretty much any are they want, they have no incentives to control costs.
Since those who obtain their healthcare insurance through the ACA are receiving enormous subsidies even when they earn four times the median, i.e. they are in the top 5% of income earners, they have no incentive to control costs.
Medicare beneficiaries don’t have much skin in the game, either, cf. above.
Since healthcare providers raise their rates to capture any subsidies (as I pointed out in a post some time ago), they have no incentive to control costs.
Since companies are saving money by self-insuring their incentives to control costs aren’t worth the grief they would get if they did control costs.
So costs keep rising.
I stated my preference decades ago. The short version is that everyone’s incentives should be aligned to provide the most health at the least cost (rather than the most care as is presently the case). Until that happens no tweaking around the edges will fix our broken system.
I’ve made it a practice to stop commenting on beaten to death subjects. I guess this is an exception.
All you say is true. After all, its just basic human behavior/economics. “No one eats hamburger on an expense account” blah, blah, blah. The shame is that politicians know this. Democrats are using the pain to drive for universal government healthcare. aka WGYBTB We’ve got you by the balls.
Implicit, but not explicit, in your remarks is that we have a health maintenance system, not an insurance system. Again, incentives. Who changes their diabetes and heart disease producing bacon or soda and chips habits when health care is “free?”
This is step one, because if you don’t fix that you get Rube Goldberg systems and “fixes” like ObamaCare, all political. (No engineers to be found?) I’m not optimistic. Look at the shutdown.
Nice write-up, Dave. Here is one of my favorite quotes to back up your comments: “Incentives are superpowers.” – Charlie Munger
Again, since the ACA passed national health care spending as a percentage of GDP was essentially stable. That’s something we had not seen before in my lifetime. The predictions made by the WSJ and their fellow travelers, I believe you concurred, was that the AA would result in large spending increases. So that leaves me a bit skeptical about their predictions this time. That said, there were some changes made during the pandemic. We should revert those back to baseline. The early retirees can pay what they would have paid before those changes (allowing for inflation, etc.).
Just a note. We have, broadly, the same sort of health insurance the rest of the first world has. The difference is that in the rest of the world it is largely universal and costs a lot less.
Steve
According to the Kaiser Family Foundation, in 2024 enrollment through the ACA’s Marketplaces and the Medicaid expansion combined reached about 44 million people, which is ~16.4 % of the U.S. population under age 65.
Here’s a graph of spending on the ACA:
My eyes aren’t as good as they used to be but it looks like it’s rising to me.