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Care for the poor and sick is costly; someone has to pay for it.
During his campaign, then-candidate Donald Trump promised to repeal the Affordable Care Act (ACA) if elected president. As it now stands Congressional Republicans have the power to repeal those provisions of the ACA that involve the budget through a process known as budget reconciliation.
This means the taxes, fees and appropriations that fund Obamacare could go. Presumably the individual and employer mandates, with associated penalties could be repealed. Even the exchange subsidies for moderate-income enrollees could be halted. The cost-sharing reductions for enrollees earning less than 250% of the federal poverty level would likely stop if the administration merely drops the appeal of House v. Burwell.
Despite Trump’s victory, Republicans are increasingly hesitant to gut the healthcare law in this manner. Passing a replacement plan will require convincing a dozen skeptical Democrats to join them.
The ‘redistribution’ scheme
Recent polls found about half the country dislikes the ACA. The law is difficult to repeal, nonetheless. This is because the ACA was designed to solve a public policy problem that is too costly for the government alone to fix. The healthcare law was designed to make care accessible for low-income Americans and those with pre-existing conditions largely through private means.
It would be very costly for a federal high risk pool to subsidize the immense medical needs of every American with pre-existing conditions. Actuaries tell us that a mere 5% of patients consume half of all medical dollars. Indeed 20% of patients are responsible for 80% of medical costs in any given year.
At its core the Affordable Care Act is a wealth redistribution scheme based on health status. The ACA was designed to force the 80% of enrollees who are healthy to shoulder more of the cost for the less healthy 20%. Of course, actuaries will tell you all forms of insurance are designed to pool risk by redistributing premiums from those with no claims to those experiencing losses.
The redistributive intent of the ACA seems more deliberate, however. The ACA banned premiums based on health risk and instead requires community rated premiums grouped within three age bands. The ACA also banned annual and lifetime caps on benefits, and premiums that vary by sex. These provisions collectively have the effect of transferring wealth from younger, healthier and wealthier enrollees to mostly older, sicker individuals.
Consider the example of my wife. Premiums for plans available to her range from $5,676 for a $6,650 deductible to $14,438 for a $1,000 deductible in 2017. My wife is a lifelong athlete, who hits the gym or yoga studio several times a week. She also watches what she eats, maintains a healthy weight and singlehandedly keeps the dietary supplement industry in business. Her medical needs were minor last year; mostly checkups and preventive services. My wife’s medical bills were probably less than $1,000, which she paid entirely out of pocket. She once remarked to me that the ACA was essentially forcing her to write a $500 check to BlueCross every month for which she received nothing in return.
Of course, nobody actually wins the health insurance lottery by having a heart attack. It’s good that most people do not require costly medical care that exceeds their annual premiums.
Unfortunately, premiums are high because ACA proponents wanted society to be generous while doling out other peoples’ money. In a nutshell, the process of repealing and replacing Obamacare involves deciding how much of your money should go to subsidize others whose health is more precarious than yours-including those whose health problems are unfortunate, as well as those with unhealthy lifestyles.
Devon Herrick, PhD, is a health economist and senior fellow at the National Center for Policy Analysis.