Ace Forum: Healthcare II

This is the second in a four-part series on the Patient Protection and Affordable Care Act. Much has been said about the current debate over the Patient Protection and Affordable Care Act (PPACA), especially with respect to its fiscal responsibility and constitutionality. However, both of these topics skim over a fairly fundamental aspect of the new law: What, in fact, would it do? And is it a normative “good” overall?

If we assume that the underlying goal of the law is to “promote the general welfare,” specifically by making healthcare more readily available, then it becomes somewhat simpler to analyze. Clauses eliminating lifetime and annual coverage limits, extending dependents’ insurance to 26 years of age, and stipulating that emergency services and obstetrics/gynecology procedures no longer require pre-authorization, among many others, all fall well within that category, regardless of what the insurance companies may say. When this is added to the CBO’s assessment that the PPACA would actually save the federal government approximately $100 billion over the next ten years, the primary arguments against the law appear to be mostly dependent upon the Supreme Court’s interpretation of its impact on individual freedoms. And, as Hussein pointed out, there is precedent for individual liberty to be superseded by other factors in Court deliberations.

However, there is a factor in this analysis that is not immediately obvious. Insurance is a cost-effective way to handle expenses such as healthcare because it distributes risk efficiently. The more people that purchase a particular plan, the less risk that each of them assumes, unless all of them are highly prone to medical disorders. On the surface, this would seem to indicate that requiring all American citizens to purchase health insurance would drive costs down. However, this would only be true in a few cases, including, but not limited to: 1) the insurance market was perfectly competitive; 2) everybody actually bought the new insurance; or 3) the people purchasing new health insurance were predominantly healthy.

The third condition is somewhat misleading, as it is secondary to the first two (a few, mostly healthy, people purchasing in a non-competitive market is an everyday occurrence). It is also almost directly countermanded by the PPACA’s requirement that insurance not be denied to minors with pre-existing conditions. This represents a fairly sizeable population of decidedly unhealthy new players in the market, which even under perfectly competitive conditions would drive healthcare costs up, not down. Admittedly, the option of a fine ($695 or 2.5% of income by 2016) means that many of these individuals will simply opt out of insurance anyway, but this violates the second of our sample of conditions, which will be addressed further later on.

Insurance is not only a relatively un-regulated and very much for-profit enterprise (conditions which are notably not altered in any way by the PPACA), but it is also one of the least competitive industries in the nation, a situation which realistically is fairly impossible to rectify. Because insurance operates most efficiently when it has a large consumer base, any new company would require either immediate access to a large slice of the population or a truly massive amount of venture capital to be competitive. As a result, the healthcare insurance sector is dominated by a few major players, such as Blue Cross Blue Shield, UnitedHealth Group, and Aetna, a situation which is only worse in local settings. And even where smaller companies exist, it is generally more cost-effective to own a plan with a larger insurer. As a result, the lack of a level playing field or significant competition indicates that there is very little pressure to lower premiums, even without assuming collusion.

Adding to this problem is the imperfect distribution of information. Even if the majority of individuals with pre-existing conditions were to opt out of purchasing insurance, the rest of the market would have no way of knowing this. As a result, it is entirely possible that premiums could increase across the board even without a legitimate market-based rationale driving it. This would make the fee seem increasingly cost-effective, especially to people with annual incomes high enough. This would in turn put a great deal more strain on emergency services and publicly available insurance (when available), which are already overtaxed as is.

So now the question remains: Was there any way, given the general-welfare requirements for the legislation, that the PPACA could have avoided these pitfalls? This was to be one of the primary functions of the public option; had it passed the House of Representatives, it would have offered a viable competitor to the already-existing power structure of the insurance industry. However, it was branded as a step toward socialist healthcare, which if the rhetoric is believed would be typified by the UK’s National Health Services. In reality, there are significant differences between the two systems. The NHS effectively makes healthcare a “hidden cost” to citizens of the UK, bypassing the problem of insurance altogether by guaranteeing care to all UK citizens. On the other hand, a public option would simply offer a (perhaps unfairly) competitive alternate choice for purchasing insurance. Healthcare would not be a “hidden cost,” as per the system in the UK; rather, it would simply be controlled.

As to claims that a public option involves an unwelcome government intrusion into the efficient workings of the free market, recall that the insurance market is anything but efficient, by nature. So in many ways, the public option would have been exchanging one inefficiency (i.e., limited competition and possibly oligopoly) for another. Then the debate shifts to the perfectly legitimate question of which departure from “pure” capitalism is more acceptable.

On the whole, the PPACA may mean well, but it will in all likelihood only truly end up aiding a few groups, such as recent college graduates, children with pre-existing conditions, and pregnant women. It may be a first step, but it is by no means the sweeping reform law its sponsors discussed.