Rx: Repeal, Don’t Replace

“Where powers are assumed which have not been delegated, a nullification of the act is the rightful remedy.” –Thomas Jefferson, 1798.

In March, we wrote a post entitled Death of ObamaCare about the constitutional aspects of the Affordable Care Act (ACA). This was penned in anticipation of a vote to replace the ACA with something else later in the spring. That never happened because Senate Republicans could not agree on a replacement plan. Now it looks as though there will be a vote this week in the Senate to simply repeal the act without any immediate plan to replace it. If that vote fails, the ACA remains the law of the land. If it passes, the original debate will likely recur as to what a replacement plan should include and/or whether we really need another health care program at the federal level. Since we didn’t discuss these topics in our post back in March, we take them on here.

First, let’s assume the Senate vote to repeal the ACA fails – what will happen? The phrases “death spiral” and “implosion” have long been tossed around in Republican circles predicting ill fate for the ACA. Initially, these words referred to a theoretical demise of the program. However, those predictions are now proving prescient as real-world events have made it clear that the ACA is on an inevitable path to self-destruction. Health insurance companies nationwide are slowly and inexorably withdrawing from the ACA marketplace. Why?  The ACA’s plan to increase national health insurance participation depended in part on requiring each state to greatly increase its Medicaid participation. This mandate to the states was ruled unconstitutional by the Supreme Court. That ruling removed an essential underpinning of the ACA. The Administration responded by making low-income residents of non-participating states ineligible for ACA subsidies. That led to a reduction in markets that the insurance companies had counted on in 19 states who chose not to expand Medicaid.  With no viable market for insurers in the low-income counties of these states, insurers have announced their intent to pull out of them next year. That will leave residents of those counties with no health insurance option at all.

Currently about one quarter of US counties currently have only one health insurance provider remaining. Come this November, a few will have none. In single-provider counties, competition with other insurers has been removed eliminating any need for those health insurance providers to innovate or improve. Also, as a direct result of the “minimum” set of services that every insurer must cover per the ACA, health insurance premiums are continuing to rise far beyond what ACA architects anticipated. This has occurred even in areas where there is competition among insurers. Ballooning of premiums has gotten so out of hand that the projected cost of all federal healthcare programs by 2019 will be more than double the defense budget. Our founding fathers are surely turning over in their graves. These numbers simply aren’t sustainable, particularly in a Republican administration with no appetite to prop up the ACA.

Worse, since few if any low-income customers can afford the inflated cost of ACA-mandated health insurance products, the government gives them money, subsidies, to make up the difference. The lone health insurer in these counties knows this and can, if they choose, charge any outlandish price they want because they know the government has committed to paying via the subsidies.  Other insurers are eschewing the market altogether. They realize their product has no real world value since the purchase of their product is completely dependent on federal support. It would clearly fail in the marketplace if government support is withdrawn or reduced.

And what if the Senate repeal vote passes? The question will again be asked – Do we even need another federal healthcare program? Medicare has been around for over 50 years to fill the most critical gaps for older Americans. Medicaid has a similar gap-filling goal for the poor. Unfortunately, the ACA has made a vain attempt to mutate Medicaid into the basis for a national single payer health insurance system (with the federal government as the single payer). The big problem with this is that fewer and fewer doctors are now taking Medicaid patients. Despite all the money being spent on this program, the average health of a Medicaid recipient today is only marginally better than a person with no health insurance at all.¹

We question the validity of the assumption that the 30 million uninsured Americans are all both desirous of insurance, and unable to access healthcare without it. Politics has clearly overwhelmed any hope of a pragmatic discussion of these questions. Consider this – before the ACA became law, the following things were in place:

• Medicare and Medicaid existed and filled many coverage gaps.
• There was (and still is) a law in place requiring all hospital emergency rooms to treat/stabilize anyone who comes in, regardless of their ability to pay.
• People had a cornucopia of choice when it came to health insurance plans, with the ability to choose a plan tailored to fit their budget and risk tolerance.
• Within state boundaries, insurance companies competed, encouraging innovation in the plans offered.
• Insurers had to find ways to make the raw cost of their plans affordable because there were no government subsidies in play.

Faced with the numbers still uninsured, the government took the paternalistic stance that this was a hardship and required a Federal solution. But was this a false assumption? Many of those people were uninsured by their own choice. Nevertheless, compassion for the uninsured was used as a weapon to convince the public that those people were instead unable to receive healthcare. Further, if action is needed, we argue that the private sector is much better equipped to administer a solution than the Federal government.

Having the government subsidize the cost of health insurance policies, made astronomically expensive due to an extensive list of government coverage requirements, only makes the overall fiduciary part of the problem much worse. Capitalism’s greatest strength its ability to self-correct when things go wrong. Interfering in that self-correcting process disrupts healthy and studied competition which in turn delays innovation and invites artificial price control. The forces of capitalism in the health insurance market were unnaturally perturbed by the ACA. For Star Trek fans, this interference is akin to the violating the Prime Directive. Whether you’re a fan of capitalism or not, it is the fundamental basis of the US financial system and has been so since the country’s founding (thanks to Alexander Hamilton). This is why government interference in markets rarely works.

An alternative approach to the government directly participating in the health insurance market could be to allow capitalism to flourish on even grander scale in this arena. For example, permitting insurers to compete for business across state lines and eliminating absurdly burdensome requirements for their least-expensive offerings, would spur even more competition and therefore lower cost.

One last thought we must mention – Before the ACA was made law, the US was on the leading edge of medical knowledge, advanced techniques, and safety in procedures and drug research. While this world class-state-of-the-art care is (fortunately) not needed by every US citizen, the fact that its epicenter is here in the US should never be put in jeopardy because of political maneuvering. The Affordable Care Act threatens to do just that by shifting how money flows within the system. Its ramifications threaten to divert funds from the crucial investment needed to push the envelope of medical science.

¹ From a study titled “Oregon Health Experiment” published in the New England Journal of Medicine on May 2, 2013.