Debates about health care reform in the United States are not really about health; they are about financing health care and deciding who pays.
And those decisions have far-reaching consequences for everyone: patients, insurers, providers, employers, and taxpayers who bear the costs of publicly subsidized care. In a May 22, 2017 discussion moderated by institute cochair Kevin Murphy, three fellow health economists explored some of those consequences.
Health care reform is an issue precisely because the cost of care is rising fast—with health spending growing faster than real GDP per capita—and for the many uninsured, care is beyond their financial reach. “Those two issues feed each other,” said James Baumgardner, senior research economist at Precision Health Economics.
When uninsured people can’t afford care, their health gets worse and more expensive to treat. And the higher health costs rise, the harder it is for the uninsured, he noted. The lack of insurance “is very much an income distribution problem,” he added; 80 percent of the non-elderly uninsured population have incomes below 300 percent of the poverty level.
“That’s a problem for reform. To provide coverage [for low-income individuals] requires a means-tested program, under which earning more knocks you out, and that leads to work-incentive problems,” Baumgardner added.
Given that health care spending is heavily concentrated in the last years of life and the elderly population eligible for Medicare (and sometimes Medicaid) is growing, health spending is projected to consume a steadily growing share of the federal budget. That makes health care financing “an issue that’s here to stay,” Baumgardner concluded.
Health insurance doesn't assure health
Addressing the policy alternatives, Anup Malani gave a quick comparison of provisions that expanded coverage in the current Affordable Care Act (Obamacare) and the proposed American Health Care Act “as far as we know.” (At the time of the talk, the House of Representatives had passed the bill, but the Congressional Budget Office had not yet released its scoring report, and the Senate had yet to take up the bill.)
“I’ll tell you what the AHCA doesn’t do. It probably doesn’t affect health outcomes, because insurance coverage has been shown to have surprisingly little effect on health," Malani said. “The best literature has a hard time showing that health insurance improves health, and we’ve tried. We’ve tried really, really hard,” he noted. “We know that health insurance increases health care usage, but only a few studies show that insurance improves health, and that effect is small.”
“Really, health insurance is about who pays,” added Malani, the Lee and Brena Freeman Professor at the University of Law School and a professor at the Pritzker School of Medicine.
One reason insurance doesn’t make a large difference in health status is that in the United States, people who get sick will, by law, receive care—an effective but unrecognized safety net that provides treatment, but may saddle patients with a lot of debt.
A possible upside of the ACA is that it reduced the risk of crippling debt that faced many without good insurance. “But the ACA is not the only thing that manages debt. We have bankruptcy; we have a system of trying to deal with that,” Malani said.
One way to evaluate those different policy options was based on income redistribution, or how progressive or regressive the plans are. When the federal government pays for health care, “it’s fairly progressive. You’re taxing the rich to pay for programs that help the poor,” Malani said. State coverage is less progressive.
Private insurance must now set premiums using community ratings established by the ACA. That means insurers must charge sick and healthy patients in a region the same price, with some adjustments for age. “The healthy tend to be young, while the sick tend to be old. The old are rich, so [by charging similar premiums] you’re cross-subsidizing the sick, wealthy old with [the premiums of] the young, healthy poor. That’s not super-progressive,” Malani commented.
In short, Malani said, “The ACA was not nearly as progressive as you think; the ACHA is likely not as regressive as you think. It’s just a different way of financing.”
Casey Mulligan shifted the discussion to the core principles that should guide health reform and effects on labor markets. “It’s about how we split up the economic pie; if you change how we split that up, you may change the size of the pie,” Mulligan said.
Deciding who pays for health care runs into the conflict between "productivity" and “free stuff and fairness”—and you can’t have both, Mulligan said. “The main reason people work is that stuff is not free,” he noted. When government policy provides “free” benefits, “that free stuff has to be financed” by working taxpayers.
When the ACA provided a pathway to health insurance not provided by employers, it changed individuals’ incentives to work. Citing evidence from his book Side Effects and Complications: The Economic Consequences of the Health Care Reform, he showed that when new taxes on employers were fully implemented under the ACA, the increase in hours worked slowed and flattened. New evidence is also showing that, because the ACA requires firms with more than 50 employees to offer insurance or pay a tax, firms are shedding employees to stay below that limit, he maintained.
Employers are reporting that “they changed the way they run their business because of the ACA,” he added.
What should the policy be?
Moderator Kevin Murphy asked the panel, “What should we be focused on in dealing with the uninsured or designing a system that will cover the previously uninsured? What are the big issues that really need to be solved?”
“Figuring out an efficient way for the poor or uninsured to pay for care they actually want,” Malani responded. “If it’s insurance, great; if it’s loans or tax credits, that’s great too.”
Mulligan noted that when he was in Washington talking with policymakers, he half-jokingly suggested, “Why don’t we just give them the cash, and everyone immediately said, ‘No, no, no.’” This response shows that there is a disconnect “between what people want to spend money on and what we want them to spend money on,” and that’s a policy conversation we’re not having, Mulligan said.
Baumgardner called for a better safety net, and public discussion of reasonable amounts people should pay for health care at different levels of income. “We’ve never had that dialogue.”
Audience members raised questions about the quality of Medicaid (it varies); coverage for preexisting conditions (addressed by high-risk pools in AHCA proposals) and why the possibility of universal health care was not raised.
To the latter, Mulligan pointed out that countries with free public health care fund it with explicit taxes, rather than the more hidden taxes we face in the United States. Both kinds of taxes make the entire economic pie smaller.
Asked about whether the current mix of health care finance was sustainable without reform, Baumgardner said it was a political question of whether taxpayers were willing to bear the escalating cost of Medicare for the aging.
In the policy debates, “What gets people excited is their own health consequences,” Malani commented. “Finding out that insurance is not the same thing as health is an eye-opener and a good thing.”
“What we want to focus on is whether or not we’re getting a good return on our spending. That’s not the debate in the ACA or AHCA, but it’s a debate we should be having.”