President Barack Obama’s healthcare reforms are complex, but modest – though you wouldn’t know it from the rows they’re causing. Simon Wilson reports.
What is it?
‘Obamacare’ is a complex, but fairly modest, set of reforms designed to improve America’s costly healthcare system – and in particular improve access to healthcare for the less well-off by subsidising near-universal private health insurance.
The Patient Protection and Affordable Care Act (dubbed ‘Obamacare’ first by opponents and now by everyone) was passed by Congress in 2010. Its core provisions are being phased in from now until the end of this year.
There are three main planks: ‘guaranteed issue’ – ending discrimination in insurance markets so that insurers can’t deny cover to those who are already sick; the ‘individual mandate’ – obliging those not already covered by an employee programme, or state programme such as Medicare or Medicaid, to buy private health insurance; and finally subsidising that coverage for the poor, and expanding Medicaid to cover more poor people.
Who does this affect?
Far fewer people than you might guess from the political stink it’s causing. More than half of US healthcare is already funded directly by the federal government: Medicare for retirees, Medicaid for the poorest, and the Veterans Administration for anyone who has served in the military.
Together with workers who receive health insurance from their employers, these groups account for the vast majority of Americans who have health insurance – and they’ll scarcely be affected by the changes.
Obamacare is designed to help 32 million of the estimated 50 million Americans who don’t currently have any form of insurance – and are effectively shut out of the market.
Why are they shut out?
Cost. In some states, such as California, insurers were (until this month’s reforms) permitted to reject applicants with existing medical problems, or price them out of the market.
In others, such as New York, insurers instead had to offer similar coverage regardless of medical history, a system known as “community rating”. But this is vulnerable to what economists call the ‘adverse selection problem’.
If all applicants are treated the same, it’s the already sick who are more likely to sign up – driving premiums ever higher – while the currently healthy take the chance of going without.
As Cornell economist Robert Frank wrote recently in The New York Times, this problem “explains why almost no countries leave healthcare provision to unregulated private insurance markets”.
Compare the UK’s leading gold brokers
Compare the UK’s leading gold brokers
If you’re interested in buying gold, our up-to-date directory of the foremost gold brokers and ETF funds makes essential reading.
Compare the UK’s leading gold brokers
So what’s the solution?
Under Obamacare, the solution is the ‘individual mandate’, with subsidies for low-income purchasers. In other words, the price of having a system that doesn’t discriminate against the sick and poor is to force some people who don’t want to to buy insurance.
To facilitate this, states now have to set up online ‘health exchanges’ so that individuals and small businesses can band together and get better deals on insurance, the way big firms do already.
In New York, for example, this has led to premiums falling by an astonishing 70% (according to The New York Times). But it is the element of coercion (as well as a fear that premiums will ultimately rise) that has made Obamacare unpopular, according to polls.
“Yes, many Americans lack decent health coverage, but there are plenty of wealthier youngsters who just don’t want it,” says Justin Webb in The Times. “Do you remember being young? Did you think much about health? Exactly.”
Are businesses affected?
Yes. In America employment and health insurance are far more entangled than in similar countries due to the lack of a national tax-funded system. Some 57% of employers offer it, covering nearly 150 million people.
Obviously, employee insurance is popular with workers – but it makes labour markets less flexible because workers, especially unhealthy ones, are much less likely to move jobs.
To encourage more employers to offer insurance, Obamacare includes a so-called ’employer mandate’, which forces firms that employ more than 50 full-time workers but do not offer insurance to pay a contribution (or fine, depending on how you look at it) if the government has to subsidise a worker’s healthcare insurance. That, say critics, could destroy jobs, by raising costs for firms.
There is already lots of anecdotal evidence that small firms are cutting full-timers and taking on part-timers so as to fall under the threshold of 50 full-timers. Consultants Mercer found that 10% of firms will cut workers’ hours due to Obamacare – rising to 20% in retail and hospitality.
Will it hurt the economy?
It depends whose survey you believe and which aspect you focus on. Expanding Medicaid removes a disincentive to work, potentially boosting employment. And an analysis by Harvard’s David Cutler predicts that Obamacare will foster more efficient health care, drive down insurance costs for business and end up creating 400,000 jobs a year. But others are less sanguine.
What the critics say
Critics fear that government subsidies will encourage some to work less and older people to retire earlier (one survey from Northwestern predicts up to 940,000 people will leave the labour force).
Casey Mulligan of Chicago University predicts that such labour-market distortions will outweigh any growth from lower healthcare costs, and Americans will work 3% fewer hours in 2015 than they otherwise would have done.
The truth is no one really knows how Obamacare will affect the US economy. But “when the final diagnosis is done”, reckons The Economist, it may turn out to have “nasty side effects”.