Wednesday, November 11, 2020

A world without ACA is nothing to fear

The U.S. Supreme Court heard oral arguments this week in California v. Texas. This is the second major case over the 2010 Affordable Care Act. The first case was in 2012, NFIB v. Sebelius. (Repeated words in the oral argument transcript are removed in quotes here for readability.)

Chief Justice Roberts began his second questioning of counsel, “Mr. Verrilli, eight years ago, those defending the mandate emphasized that it was the key to the whole Act. Everything turned on getting money from people forced to buy insurance to cover all the other shortfalls in the expansion of healthcare. And the briefs here on the other side go over all that. But now the representation is that, oh, no, everything's fine without it. Why the bait and switch? Was Congress wrong when it said that the mandate was the key to the whole thing, that we spent all that time talking about broccoli for nothing?”

After first noting how eight years ago Congress was only making “a predictive judgment about what would be needed to create an effective market,” Verrilli responded, “the carrots work without the stick.” That is, Congress thought the mandate (the stick) would be needed, but then in 2017 they saw that it's not.

He's implying that the carrots have been effective in doing the heavy lifting of ensuring “the market will remain stable.”

What he didn't say, and what was never distinguished all that much during the whole two hours of argument, was that there are two basic types of ways by which people can get health care coverage under the Affordable Care Act. There's • private insurance and • public funding of health care. It's not a choice for the citizen, only a matter of one's income level. The federal government Web site for signing up for health care coverage seamlessly divides people into their respective category. If they're poor enough, they automatically get Medicaid. If they make more than 100% or 133% of poverty (depending on which states expanded Medicaid), they get subsidies for private insurance, inversely proportional to their income level. It's a complicated set of directives aimed at evening out the cost of health care by shifting income to the bottom three fourths of Americans from the top fourth. 

The vast majority of people signing up on the Web site qualified for Medicaid. What's more, many of those were already qualified for Medicaid, even before ACA raised the income threshold of people who qualified. The vast majority of the “success” of the Affordable Care Act is that it expanded health care for poorer people. Perhaps they never signed up before because they either didn't know they were officially poor or didn't want to consider themselves poor.

Under ACA, becoming insured because of purchasing private insurance has not been the primary method people are using. The stick was ineffective, and the carrots are too. (For those who do think the carrots work, they also work in reverse. If someone's income rises significantly, according to ACA's clawback provision they get to pay back the full amount of phantom income they never saw if it was received in their name in the form of subsidies paid on their high-cost ACA-compliant health insurance premiums for people with lower income.)

Verrilli's argument is the market Congress intended to create exists and works without the individual mandate, so zeroing out the mandate in 2017 renders it inoperable. No harm, no foul.

This case, however, is not primarily about individuals. This is California v. Texas. The parties here are the states. This is significant because it speaks to the fact that they are the ones who are largely footing the bill for all the additional Medicaid enrollees.

At one point Justice Sotomayor asked why a small number of people who would voluntarily comply with a no-penalty individual mandate “would include people who didn't enroll for Medicaid and didn't enroll for CHIPs when it was a legal requirement as a tax, but they would do so now after they're told there's no penalty for it, there's no tax for it.” Why would they enroll now when there's no tax after “they didn't enroll when they thought there was a tax”? Justice Kagan was a bit more succinct: by reducing the penalty to zero, “Congress has made the law less coercive. So how does it make sense to say that what was not an unconstitutional command before has become an unconstitutional command now, given the far lesser degree of coercive force? … If you make a law less coercive, how does it become more of a command?”

This reasoning blurs who is affected and when.

Many individuals signed up for Medicaid, perhaps inadvertently, before 2017 when there was a penalty, and now they stay on Medicaid. For others who signed up for private insurance before 2017, now that there's no individual mandate for purchasing private insurance, and private insurance costs are increasing, that pushes more people to shop around. Some people may want government-approved health insurance, or may at least inquire about the government-run health insurance exchange/marketplace. They are likely to go through the one government portal for health insurance that is likely to pick up more people eligible for Medicaid. If people apply and the state thinks they're poor, now the state is on the hook to provide coverage.

With the law becoming less coercive for individuals, it becomes more of a command for states.

The questions of Justices Sotomayor and Kagan miss the distinction between the state and the individual. They treat the whole question as if it's about individuals.

During the argument, the Affordable Care Act defenders often pointed to Congress' action in the Tax Cuts and Jobs Act of 2017 as only removing the penalty while leaving the rest of the Act intact. What they didn't say was that's how Congress ideally operates. Congress prefers to enact statutes, taxes and spending legislation separately. For once, in the 2017 tax law, Congress was abiding by its own constraints. It did not find it appropriate to change the rest of the ACA law because it was not passing the kind of bill that would do that. It specifically left in place ACA findings that speak to the centrality of the individual mandate to the whole complicated set of directives ACA puts in place to create a different kind of market not primarily influenced by the basic natural laws of supply and demand.

It's important to understand the nature of insurance and the comprehensive view ACA took in setting up its directives. 

Insurance turns the laws of supply and demand upside-down. Normally when demand for goods or services goes down, prices go down, too. Insurance is a purchase against risk. When demand for that intangible product goes down, risk increases when shared among fewer buyers, so their price goes up. Decreased demand for insurance either increases its price or pushes it to insolvency.

ACA basically takes the entire United States of America and turns it into one big health insurance association. The individual mandate was intended to share the risk of health care cost responsibility by requiring people to participate in wealth redistribution from the top fourth of American earners to the bottom three fourths.

Removing the individual mandate allows individuals to exit the coercive wealth redistribution taxation and lets the natural consequences of reduced demand for insurance increase costs. Leaving in place all the insurance commands of ACA also keeps costs high.

ACA is built to assume that everyone's health care can be paid for by someone. If it doesn't take money from higher-income people and pass it down through the tax code, it does the same through Medicaid in the states instead. What isn't coercive for individuals becomes more of a command for states.

The federal government sold many states on expanding Medicaid by offering to fund most of the expansion, but that didn't take into account increased demand for Medicaid from the federal government directly adding people to state Medicaid rolls, especially after they were released from the individual mandate.

It's no wonder Texas has been willing to foot the bill for taking their challenge to the highest court in the land. The irony is California would also financially benefit from a Texas win in this case.

There has been much fearmongering from all corners about the possible consequences of eliminating the law. This is very overblown. If ACA goes away this Supreme Court term (October 2020—June 2021), the number of people who would no longer be insured has been vastly overstated. Most coverage provided under ACA is Medicaid coverage. If the Court were to strike down all of the Affordable Care Act, most individuals either would remain on Medicaid anyway, or could be kept on with Medicaid eligibility adjustment.

What would change is the excessive mandates of ACA that keep costs high for states and insurers would disappear. The sky would not fall. The prices would.

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