Time and time again both economics and politics somehow remind us of that wonderful scene in “The Wizard of Oz” where Dorothy’s dog Toto pulls back the curtain on the wizard.
The curtain is now being tugged back on the financial dimensions of the Affordable Care Act (ACA), and the picture looks very Oz-like. Instead of going down, health insurance premiums are going up. And after the turmoil, threats, and special-effects accounting, we have 35 million people without medical insurance.
To be sure, this doesn’t come as a surprise to everyone. The ACA, known as Obamacare, was a classic example of confusing intentions with results. There was no doubt whatsoever that health care coverage for every American was a great idea. The problem was how to pay for it.
The financial theory which provided the underpinnings for Obamacare was simple enough. The increased costs of adding millions of free riders to the health care system would be paid by young, healthy people who didn’t want to pay for health insurance and would be forced by the government to buy it. The rest of the funding would by replacing expensive emergency room visits — the refuge of the uninsured — with less costly office and clinic diagnosis and treatment.
If anyone in the administration or its supporting party had doubts about the financial structure, or wondered how the government’s famously inefficient management would play into it all, they were rendered mute.
In any program as large as Obamacare it is reasonable to expect that a certain percentage of new approaches will turn out to be failures. The recent news that just over half of the health care co-ops set up under the ACA have failed, then, was not a total surprise. These co-ops were started with loans underwritten by the federal government, though, and now taxpayers will have to pony up as much as $2 billion to cover the losses to lenders who provided the cash for the startups.
The co-ops were an experiment in market interaction between profit and non-profit elements of the health care industry as well as a way to institutionalize the self-interest of wellness programs and self-rationing clinical visits. In some ways, it was an effort to replicate the success of organizations like Group Health, which the president greatly admires, within the Obamacare structure.
The fundamental problem with the co-op program was that it was written into law while it still smelled of “smart-guys-in-a-room, brainstorming.” As government programs go these days it wasn’t the most bone-headed scheme Washington has ever concocted, and maybe in the grand scheme of things $2 billion isn’t a big enough loss for the government to worry about. What hurts, though is that it is difficult at this point to see that the administration has learned anything from it. In fact, it seems determined not to.
Experiments and innovations have a high rate of failure. It is a price of progress. A more fundamental failure of Obamacare, though, now is allegedly emerging. The Heritage Foundation, a conservative think tank, claims that of last year’s 9.25 million increase in the number of people with medical insurance, 8.99 million came from adding them to Medicaid rolls.
Medicaid is a medical insurance program for people who are unable to pay for their own care. It is jointly funded by federal and state money, in proportions that vary, state-by-state, under a burden-sharing formula of some complexity. So, adding nearly 9 million people to the program will affect state budgets, and tax rates, as well as federal ones.
The run up to Obamacare had been characterized by citing the number of uninsured Americans, estimated to be 33 million at that time, as a national disgrace — and it was, in a sense, even though the uninsured did actually receive medical care through visits to hospital emergency rooms which were legally obliged to provide treatment.
If we had wanted to put all 33 million uninsured into the Medicaid program, we could have done so four years ago, without all the turmoil, fuss, mandates, demolition, and deceit of the Affordable Care Act. After all, taxpayers were already paying for it, indirectly, through the costs of unnecessary emergency room visits.
Instead, what we have now is a gradual, Toto-like drawing back of the curtain, exposing not only the wreckage of the employer-funded medical insurance system but also the flawed financial foundations of Obamacare. Honestly, we can do better than that.
James McCusker is a Bothell economist, educator and consultant. He also writes a column for the monthly Herald Business Journal.
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