[Editor’s note: In the first article in this series, Josh Brown maps out why Ohio insurance premiums will rise 80-88% in the coming years. He discussed the disastrous results in states that required insurance companies to cover pre-existing conditions (a policy called “guaranteed issue”). Brown’s second article showed how Massachusetts tried to solve those problems with an individual mandate. The costs of health care rose to be the highest in the nation and consumed the state’s budget. Progressives have ceded that the ACA is likely to have the same result—they just say that the value is worth it.]
When talking about the ACA, proponents are quick to talk about all the newly covered people. This is where economics comes into play. If we had unlimited resources, the government could just provide everything for everybody. ACA proponents often try not to talk about the costs involved—however, to be fair, some have admitted the costs will increase, but they argue the increase is worth the value—a proposition they make on behalf of taxpayers for our own good (this is discussed in more detail in part 2).
The following discussion is based on the premise that good policy analysis looks at both the cost and benefit sides of the equation.
As I wrote in “Cherrypicking Obamacare,” the Medicaid expansion is a necessary part of the ACA picture—yet it exacerbates the enormous increase in health insurance premiums. I am not going to duplicate the Buckeye Institute’s efforts in showing why the Medicaid expansion is a bad idea, but one of the big reasons is that Medicaid notoriously underpays for service.
By expanding Medicaid, more hospitals and doctors will have more patients underpaying them through Medicaid. This leaves hospitals and doctors with little choice—they have to deal with Medicaid’s underpayments by charging their non-Medicaid patients more. Don’t forget, someone has to pay for Medicaid itself as well. No matter what, somebody, somewhere, is paying to cover the medical costs of these new Medicaid patients and their underpayments.
So who pays the tab?
Historically, the government justified paying the bill by only including poor people. The expansion eats away at this argument by broadening the definition of “poor” to increase Medicaid eligibility to 135% of the poverty level, and in many cases, taxpayers would begin covering able-bodied, childless adults.
Hospitals and doctors bear some of the burden themselves (this is why most do not accept Medicaid patients). Insurance customers pay more in premiums. Taxpayers see more of their money go to health spending.
Among the insurance-covered group of Americans, the ACA pools together two groups and removes a third group:
- The first (pooled) group is people who are usually healthy and newly mandated to buy health insurance.
- The second (pooled) group is people with poor health or preexisting conditions.
- Lastly, the Medicaid expansion takes a third group out of the pool: people newly eligible for Medicaid.
The last group will be covered by taxpayers—and I’ll get to that later in this essay. So let’s look at the second group and ask: how will insurance companies cover these people who have claims now, and have not contributed much to their accounts (i.e., those with preexisting conditions)?
Insurance companies will have no choice but to raise rates on the other group in that pool that is actually contributing to the pool—the first group, newly enlarged by the individual mandate. (These premium increases are what this series of essays is all about.)
The ACA uses insurance companies to accomplish such income redistribution using two mechanisms: 1) forcing insurance companies to cover any person who wants coverage (i.e., guaranteed issue) and 2) forcing individuals to purchase government approved insurance (i.e., the individual mandate).
However, the ACA is gambling (or desperately hoping) that the individual mandate will bring enough new healthy premium payers into the insurance system pool to cover those with preexisting conditions—without breaking the bank. Hence, the administration’s sign-up blitz campaign.
Who are these new premium payers? Mainly, young, healthy people in-between jobs. Hence, the Republican’s accusations of a “war on the youth.” The vast majority of people who don’t have any kind of coverage, and would be newly mandated to purchase it, are people who can afford it, but who think their money is better spent elsewhere.
Florida House members have introduced a free-market alternative bill that narrowly targets coverage for this group without federal funds (which its Republican-controlled Senate inexplicably rejected on false claims). Ohio would be well-served to examine it. By contrast, the ACA removes all choice from the matter. Proponents argue that you should not be allowed to make the decision not to purchase, because another federal law requires hospitals to provide emergency care. This is part of the whack-a-mole game I referred to in my second article in this series.
ACA proponents did not want to raise taxes (more than they already would be) to pay for the ACA framework. So they used insurance companies to transfer wealth and imposed a problematic penalty on non-cooperation called Individual Shared Responsibility Payment (i.e., the individual mandate penalty—don’t ask me if it is a tax). Here, premium payers pay to implement the ACA scheme.
So the costs are spread out throughout the system without a single big tax, but ultimately the same people are footing the bill. This is death by a thousand pin-pricks. The majority of people burdened by these premium increases are lower middle-class, hard-working people who are often jobless or just getting their careers started. These people are already strapped by joblessness, high taxes, over-regulation, and bad economic policies.
To make things worse, the young of this nation are already on the hook for a host of income redistribution schemes totaling over $90 trillion. To put that in perspective, the total U.S. debt is about $16 trillion, and each current taxpayer’s share of that totals about $150,000—and that’s before you subtract older taxpayers.
The Delinquency of a Nation
The only question is this: how much can you take from tax-paying Americans till they can’t pay any more? In calculating national liabilities, pro-ACA pundits will never count mandated insurance premiums, any more than they will count other costs the government mandates. For example, for me to become an attorney and begin producing value for our society, the regulatory structure treated me like I had money growing out of my ears. I had to leverage years’ worth of income before I was even able to start earning it, and had to take the enormous gamble that someday I would be able to start earning it. These kinds of regulatory burdens add to the load our generation must bear, but we don’t realize the full burden because it is spread out among so many different sources. The ACA adds significantly to this enormous burden.
In the next part in this series, I will elaborate on the brief discussion in this article about the philosophical differences between conservatives and liberals in health policy that have led to these premium increases and serious conservative solutions. In it, I will go into more detail about the ACA’s “value” proposition.
Josh Brown, Esq. is a lawyer who works in Columbus, Ohio and concentrates on Ohio municipal issues, law and economics, constitutional law, and healthcare issues.
Michael Hamilton contributed to this article.
All opinions expressed belong solely to their authors and may not be construed as the opinions of other writers or of OCR staff.
Related on OCR: “Obamacare Sticker Shock, Part 2: The Individual Mandate”
Related on OCR: “Arguments for Medicaid Expansion Full of Holes”
Related on OCR: “Labor Gives Obamacare Grim Prognosis”
Related on OCR: “Cherry-Picking Obamacare”
Related on OCR: “Is Medicaid Expansion a Legal Trap for Ohioans?”