Thursday, July 25, 2013

Total Incompetence or Elaborate Scheme? Demise of Employer and Individual Mandates will Accelerate Erosion of Employer Sponsored Healthcare

Yes, the unraveling of President Obama's health law makes he and his cohorts look incompetent and short-sighted as we head into 2014. Far be it from me to advocate the intellectual giftedness of Nancy Pelosi and Harry Reid, but I think that view is, itself, too short-sighted. These delays, repeals (free choice vouchers, 1099 reporting, CLASS Act), and executive line-item vetoes (employer mandate, small business exchange) are leading us to the decoupling of employers and healthcare and that is going to please many people.

The hard left has long advocated single-payer healthcare akin to Canada's or England's while the hard right has advocated the legalization of an individual's ability to claim a tax deduction for health insurance just like an employer. That business tax deduction monopolization which is not similarly granted to individuals is a leftover from wage freezes in World War II and has been the single strongest driver of an employer-sponsored system in the U.S.

In both the left and right extremities lies a sentiment to dismantle the current system and replace it with single payer or individual free market care. In an unleashed free system people could buy their own high deductible plans across state lines, save for everyday care in health savings accounts, and freely move from employer to employer without regard to their need for corporate health insurance. Tax credits and subsidies could be given to low income individuals, but each person would control their own care and widget makers could focus on making widgets instead of diverting resources to becoming junior healthcare attorneys and compliance wonks.

'Single payer' is comically described in a recent post by John Goodman:
[For those who have been living under a rock, "single payer" is what we used to call "national health insurance," and before that "socialized medicine" and before that "government-provided health care," by people who today call themselves "progressives" but used to call themselves "liberals" and before that "socialists" in some cases — all in the hope that continual re-labeling will make the ideas actually seem sensible.]
The current events take us closer to pleasing both of these populations as the nation readies itself for the next debate: free market healthcare or socialized medicine? At least this will be an honest debate and not the hybrid Frankenstein monster of PPACA replete with political kick-backs, favoritism and perverse economic incentives (to cut people hours, keep employee size below 50, grant exemptions to favored constituencies, etc.)

Some policy wonks, including Dr. John Goodman at the National Center for Policy Analysis believe we will eventually end up with both. We'll have some kind of Medicaid-for-all that will please the socialized-medicine crowd and those who can afford it will enter a private-pay system with shorter waits, more thorough treatment and superior health outcomes. I tend to fall into this camp. I don't think we'll be better off. But I do believe that is where we will end up.

This is from Robert Brooks at Forbes further illustrating how PPACA's delamination takes us down that path, "The Employer Mandate Delay May Have Drastic Consequences":
... The combined effect of these changes [the delay and probable eventual death of the employer mandate and the unenforceability and soon to be political unviability of the individual mandate] will be to transform the health coverage landscape in a completely different way than was envisioned when the ACA was passed. Back in 2009 and 2010, various provisions of the employer mandate were presented by proponents as a “firewall” to prevent employers from “dumping” their low-income employees onto the exchanges, where they would be eligible for substantial subsidies at taxpayer expense. This “firewall” included not only a $2,000 per-employee penalty for not offering health coverage at all, but a $3,000 penalty per affected employee for offering coverage that was “unaffordable,” that is, with an employee share of the premium in excess of 9.5% of the employee’s family income (in which case the employee would be eligible for subsidies in the exchange). That firewall is now completely dismantled. Anyone willing to claim eligibility will be able to obtain exchange coverage, and (in the cases of about two-thirds of households) the premium subsidies that go with it. 
This dismantling of the firewall will have two immediate impacts. First, for a substantial percentage of people who get their health coverage through an employer, subsidized exchange coverage will be a better deal. (For those with income under three times the poverty level, the most they will have to pay in the exchange is less than the most they’d have to pay through an employer.) They will now face no barrier to enter the exchange and claim their subsidy. Second, without the employer penalty, it will be even more attractive an option for employers to let them go to the exchanges (that option is, as Doug Holtz-Eakin puts it, “on sale”) – and shut down their own health plans. For some fully-insuring (usually small) employers this will not even be an option, but a requirement. If enough employees drop out of the health plan at work, the employer will no longer meet the minimum participation requirements imposed for group plans by many insurers, and will be forced to drop its coverage. 
The result could well be a substantial collapse of employer-sponsored health coverage – something which could not be easily be rebuilt the following year if the employer mandate is imposed then. However, even for people who think employer-sponsored health coverage is nonsensical, this is not something to celebrate, because it would be replaced by something even worse. The reason? In the exchanges, the premium one pays is independent of health status – which means of you are relatively healthy can you simply wait until you “needs” coverage, and buy it then without paying a higher premium. In the meantime – which could be a very long time – you’ll have saved a lot by not paying a premium. Most people will save far more than it would cost the individual mandate penalty – and in any case that is most likely delayed for at least a year, and might well turn out to be unenforceable even after that (as explained, for different reasons by Megan McArdle, Michael Cannon, among others). 
When people figure out that they are financially better off waiting to buy health coverage until they need a lot of health care, the insurance pool will consist mainly of people who, well, need a lot of health care. In order to keep health plans solvent, premiums will have to go up – and for every increase, more people will decide they are better off without coverage. (Economists call this “adverse selection.”) 
The individual mandate penalty was supposed to limit this effect, and the employer mandate was supposed to isolate most workers from it. With both of those mandates delayed, unenforceable, or gone completely, there is nothing to prevent an upward spiral of premiums, higher taxpayer-funded subsidies and more people being uninsured. 
Is that what health reform what supposed to be?
My answer to this question is - maybe it is. At least it is certainly starting to look more like that, isn't it?

It is worth remembering that in 2003 Barak Obama clearly articulated his vision for healthcare when he said:
"I happen to be a proponent of a single-payer universal health care program. I see no reason why the United States of America, the wealthiest country in the history of the world, spending 14 percent of its gross national product on health care, cannot provide basic health insurance to everybody. And that's what Jim is talking about when he says everybody in, nobody out. A single-payer health care plan, a universal health care plan. That's what I’d like to see. But as all of you know, we may not get there immediately. Because first we've got to take back the White House, we've got to take back the Senate, and we've got to take back the House."
Video of this speech:

Now perhaps his view on this topic has also evolved like it did on same sex marriage (which he was against a couple of years ago and is now for) or the individual mandate itself. In the 2008 election candidate Obama, in a debate with candidate Hillary Clinton, scoffed at her and her belief that one could solve a lack of healthcare with an individual mandate. He argued that would be like a belief that one could solve homelessness with a mandate that all persons must buy a home. Months later he signed PPACA into law - endorsing that individual mandate. And to date, he has not used his newfound line-item veto power too delay or repeal that mandate. But ultimately he will. It is unenforceable and has been nullified by regulation anyway with no less than 20, yes TWENTY exemptions.

Candidate Obama on the Individual Mandate:

In any event, I'm staring to believe that PPACA might have been strategically constructed to fail all along. It is just too hard to fathom that any group of elected, life-long bureaucrats could have been this incompetent. But perhaps I under appreciate their shortcomings.