Health Care, Not Health Insurance, Is What Matters

As Democrats used to be fond of saying, elections have consequences.  One consequence of the 2016 election is that the Affordable Care Act (Obamacare) is doomed, though most of its benefits are likely to survive.  There is, it seems, an unwritten rule that once government benefits are extended, they will never be curtailed.

So it is likely the 20 million people who acquired health insurance under Obamacare and those with pre-existing conditions will retain their benefits, and children up to the age of 26 will remain on their parents’ insurance policies.  After all, President Trump has declared that everybody should be guaranteed health insurance.  But it will not be easy for Republicans in Congress to preserve these new entitlements while enacting their promised reforms – particularly elimination of the individual mandate.

Health Care

While there is little reason to expect that Democrats and Republicans might work together on new legislation to replace Obamacare, it would help if both sides stopped confusing the debate by equating health insurance with health care.

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According to Democrats, Obamacare is a success because millions of people previously without health insurance are now insured.  But contrary to what Obamacare supporters would have you believe, that does not mean these newly insured people were previously without health care.  Nor does it mean that 43,000 people will die if Obamacare is repealed, as claimed by professors David Himmelstein and Steffie Woolhandler writing in the Washington Post.  Insurance is simply a mechanism, but not the only one, for paying for health care costs. People can pay out of pocket.  Family, friends and philanthropic organizations can pay.  Or government can pay.  Not having health insurance is not the same thing as not having health care.

As a way of paying for health care, insurance makes sense only if there is some correlation between the risk of incurring a future cost and the premium charged to guarantee payment if the cost is incurred.  By pooling the risks faced by many individuals insurers are able to guarantee, for a reasonable premium, to pay those future costs.  By paying the premium, individuals avoid the need to self-insure, which few can afford, or the possibility of future financial catastrophe.

When they are required to cover people without regard for their individual risks, insurance companies are no longer in the insurance business.  They are in the wealth transfer business.  A promise to pay for all future health care costs for all people without regard to the risks each person faces is not insurance.  It is universal health care, which is what Obamacare advocates wanted in the first place.

It also makes no sense to pay for reasonably certain future costs with insurance.  There is a reason there is no market for breakfast cereal or movie ticket insurance.  Insuring against such predictable future purchases only increases their cost since insurers cannot provide this service for free.  Similarly, by requiring insurers to cover routine future health costs like annual check-ups and contraception, we increase those costs by the amount insurers need to administer payment and make a profit.

For those who cannot afford to pay for routine health care, the solution is public subsidy, not insurance.  Our concern should be that everyone has health care, not that everyone has insurance.  The success or failure of Obamacare, or whatever replacement Republicans may come up with, should be measured not by the fact that 20 million people are newly insured but rather by the quality and cost of the health care those people and everyone else receive.

Where Obamacare has succeeded in growing the numbers of people with insurance, it has failed to encourage the competitive markets essential to improved quality and lowered costs.  And by equating health insurance with health care, its defenders have greatly exaggerated the extent to which the law has benefited people previously without health care.

The central challenge Republicans face in replacing Obamacare, if they intend to maintain the subsidies provided by that law, is paying for it.  If the individual mandate is repealed, the largest part of the Obamacare subsidies will no longer be covered by the rapidly rising premiums paid by the young, healthy and wealthy.  Repeal of the mandate and continuation of the subsidies will require Congress, meaning taxpayers, to cover the full cost of subsidized health care.

By embedding the cost of subsidies in health insurance premiums, Obamacare effectively commandeered insurance companies as tax collectors and wealth redistributors.  This may appeal to politicians wishing to avoid responsibility for raising taxes, but it distracts from the challenge of assuring that everyone has quality health care at the lowest cost possible.

Article by James Huffman – Inside Sources