Tyler Cowan: Obamacare not as egalitarian as it appears

Obamacare Not as Egalitarian as It Appears

By Tyler Cowen
The New York Times, November 6, 2015

The Affordable Care Act has generated an enormous amount of partisan rancor, but with more access to data, it is worth taking stock of how it has actually been working.

We can safely say that the policy is costing less than anticipated, perhaps 20 percent less, according to a Congressional Budget Office estimate, and that it has reduced the number of Americans without insurance. But the numbers also suggest that by some measures, the Affordable Care Act has had only a limited impact on economic inequality. In fact, I view the policy as an object lesson in the complexity of reducing the harmful consequences of inequality in the United States.

The act has many parts, but let’s focus on the mandate, a core feature that requires those without insurance to buy it. It was intended to help millions of Americans who did not have health care coverage. Under the program, government subsidies are available for the needy, and there is clear evidence that the poorest people, who receive the largest subsidies, are better off under the health reform law.

In that sense, the program has been a success. But whether other individuals subject to the insurance mandate — those who qualify for lower subsidies or for none at all — are also better off is much harder to say, some recent research has found.

Of course, this question may seem simple if you consider health care coverage to be an essential component of a good human life, and perhaps of social justice as well. If you begin with those assumptions, you might conclude that when you require people to buy insurance coverage you are improving their lives — even if they are not willing to pay for the insurance without prompting from the government.

But there is another way of looking at it, one used in traditional economics, which focuses on how much people are willing to pay as an indication of their real preferences. Using this measure, if everyone covered by the insurance mandate were to buy health insurance as the law dictated, more than half of them would be worse off.

This may seem startling. But in an economic study, researchers measured such preferences by looking at data known as market demand curves. Practically speaking, these demand curves implied that individuals would rather take some risk with their health — and spend their money on other things — partly because they knew that even without insurance they still would receive some health care.

One implication is that the preferences of many people subject to the insurance mandate are likely to become more negative in the months ahead. For those without subsidies, federal officials estimate, the cost of insurance policies is likely to increase by an average of another 7.5 percent; even more in states like Oklahoma and Mississippi. The individuals who are likely losers from the mandate have incomes 250 percent or more above the federal poverty level, the paper said. (That figure is $29,425; the federal poverty level is $11,770 for a single person, more for larger families). They are by no means the poorest Americans, but many of them are not wealthy, either. So the Affordable Care Act may not be as egalitarian as it might look initially, once we take this perspective into account.

It is a matter of philosophy whether we should help people even if they may not want to bear the costs, or instead should honor their individual preferences, but either way there is a sustainability problem. Consider that the health law was enacted to replace an unsustainable system in which uninsured people relied on last-ditch emergency room care. Yet enrollment projections suggest that the Affordable Care Act’s insurance mandate may face sustainability issues of its own.

In short, while numerous government programs redistributed income toward the poor successfully in the past, successive improvements, as exemplified by the Affordable Care Act, have become harder to accomplish, as many of the easiest and most efficient opportunities have already been exploited. We have ended up at margins where political divisions and interest group capture make further progress harder to carry out, no matter how good the proposed policies may seem on the drawing board.

(Tyler Cowen is a professor of economics at George Mason University.)

http://www.nytimes.com/2015/11/08/upshot/obamacare-not-as-egalitarian-as-it-appears.html

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Comment:

By Don McCanne, M.D.

Is our health care system under Obamacare (ACA) an egalitarian system? Although ACA includes numerous policies designed to improve health care equity, it still falls far short. Conservative economist Tyler Cowen agrees, although his proposed solutions may be somewhat different from ours.

For a health care system to be egalitarian, it must be equitable. A well designed single payer system would achieve that equity. As an example, the financial burden on middle-income families that Tyler Cowen and many others have described would be lifted.

In the past, Cowen has supported “a Singapore-style system, with single payer on the catastrophic side rather than mandates for private insurance purchase.” Thus he would move us toward a more egalitarian system as well. But the many problems created by moving to the requisite health savings accounts would threaten health care equity, and, thus, threaten egalitarianism itself.

Single payer is the way to go, but let’s make sure that the system design maximizes egalitarianism.