Defending the Affordable Care Act

What will they do? The Supreme Court (more or less) that gave us Bush v Gore in 2000 will later this month hear arguments by states challenging the Affordable Care Act, a.k.a. health care reform. The heart of the legal challenge raised by conservative state attorneys general is whether the individual mandate is constitutional. What happens if the Supremes say no? Does the entire law fall, or just the mandate?

The issue for lawyers is called “severability.” Did Congress when passing the law believe the mandate was necessary to the smooth functioning of the rest of the law? Clearly there are large swaths of the law for which the mandate is largely irrelevant: the physician payments sunshine act (disclosure of drug company payments to doctors); the creation of the Patient Centered Outcomes Research Institute to conduct comparative effectiveness research; the numerous payment pilot projects; and more.

But on the core question of the law’s desire to expand coverage for the uninsured and set minimum insurance standards like forcing insurance companies to guarantee policies to all comers at non-discriminatory rates, the issue of the mandate’s necessity becomes murkier. The Obama administration is simultaneously arguing that it is crucial to the law’s smooth functioning, yet isn’t necessary. How can both be true? Here’s how two physicians, Samuel Y. Sessions and Allan S. Detsky, writing in the New England Journal of Medicine explain the seeming contradiction:

Arguing that the mandate is constitutional under the Commerce Clause requires taking the position that it is “essential” to the statutory scheme, whereas arguing that it is severable dictates the seemingly opposite position that the ACA is “capable of functioning without it.” Politically, making both arguments may be awkward, which may be one reason why the administration endorses partial severability. Legally, however, the positions are consistent: the mandate may be an important part of the statutory scheme, and thus constitutional, but not absolutely vital, and hence completely severable.

Important, but not vital. If the Supreme Court strikes down the mandate but leaves the rest of the law intact, the insurance industry will have to jack up rates to pay for the free riders who fail to purchase coverage. That would be sad. But let’s not forget that it would be no different than what we have now with regard to the free-riding problem, while we would still have millions more with coverage.

Merrill Goozner has been writing about economics and health care for many years. The former chief economics correspondent for the Chicago Tribune, Merrill has written for a long list of publications including the New York Times, The American Prospect, The Washington Post and The Fiscal Times. You can read more pieces by him at GoozNews, where this post first appeared.

19 replies »

  1. My 10 doctor group has 28 million dollars in collections since 1997. That does not include the theft built into fees paid at rediculouly low levels. That is unpaid after contractual deductions and all the other adjustments, including the uninsured.

  2. agree EMTALA needs repealed, the whole notion of forcing people to give service away for free needs to end. Just accounting gimicks that hide the true problem.

    Imagine if the government was required to pay for uncompensated care and we could see exactly how much it was costing.

  3. Right on!

    We must allow employer plans to pay something like 110% or 120% of the Medicare fee schedule to hospitals and drug companies.

    That payment must be accepted by the provider, and balance billing to the patient must be restricted.

    As a minor concession to hospitals, Medicare part A would pay directly for uninsured EMTALA care if the patient cannot pay. (this should have happened 15 years ago)

    In Canada, there was a doctor’s strike when the government imposed limits on balance billing. The left wing Canadians took on the strike and won.
    As you suggest, something like that could happen here. Bring it on!

  4. Times like this I wish I had a Think Tank so I could delegate the math to some unpaid interns begging for a job. Medicare lasted 7 years, I believe, before they needed to start fixing the faulty projections.


    The whole article should be read but this is pertinant;

    “This plan ran into trouble by the insurance suggests early 1970s, again because the cost of medical care rose faster than income. Elderly enrollees, many of whom lived on fixed incomes, were paying an increasing share of their income for supplemental-insurance premiums. In the 1972 amendments, Congress stipulated that these premiums could rise no faster than Social Security benefits, regardless of program costs. Since 1972, the supplemental program has required ever larger subsidies from the general fund. The result: The Treasury now coughs up $3 for every $1 paid in premiums. In typical Orwellian doublespeak, Congress continues to describe the program as “self-supporting.”

    Where the math gets tough, and they might just have been smart enough to do this on purpose, is initially it will look good. The government contributes to the cost of the insurance. Millions will pay the penalty so government subsidies will initially be low. When sick people buy policies under the guarantee issue provisions they will incur claims far greater then premium they contribute. This will drive loss ratios up but it wont be until year 3 or 4, that will give the administration those few years to trumpet how successful it is and ingrain it in the public culture. Medicare has been a budget failure from the beginning but the public never saw that. In year three or four when the loss ratios start to skyrocket then premiums follow the cost to the government will take off just like Medicare did. At this point in time they can blame insurance or just start rationing more, either way they will never admit the failure was in design just like Medicare. They still argue Medicare is sustainable and self supporting.

    Our debt is already an issue, there is no way we as tax payors will be able to afford the subsidies. Medicare has been failing and breaking us financially for 40 years yet the vast majority of the public has no idea. I don’t see the media being any more honest in regards to exchanges. The public will have no idea of the true cost and effects it has.

    I don’t think it will take even 7 years for the $2000 employer penalty to increase, the $700 tax payor, and the subsidies to decrease.

    We need to make insurance as cheap as possible so employers can afford to cover as many people as possible. That is going to mean some people will die 2-3 months earlier. Some people wont get every treatment possible, but the health of everyone as a whole will be better.

    First we eliminate all the mandates and allow employers to offer true insurance with reasonable annual and lifetime limits.

    Stop demonizing employers and penalizing them. COBRA Notices, HIPAA notices, CMS reporting, 1099 reporting, Women’s Health Notices, on and on, all these pointless letters and notices they are required to send or get fined $100 per day per person.

    The big thing is allowing employers to take on and beat the providers. If we are going to solve our cost issue we need to pay providers less, considerably less. Mainly Pharma and Hospitals. There will be sob stories in the press, and some people will clamor for government to do “something”. Pharma and Hospitals need to be broken. There is no bloodless coup that is going to fix this. No brokered agreement that every side is going to be happy with.

    This has been a problem since Medicare was passed;

    The most serious error the planners made was the assumption that hospital costs wouldn’t rise faster than wages. Hospital costs had been rising 2.7 percentage points a year faster than wages over the previous decade. But the House Ways and Means Committee said it was a “reasonable” and “conservative” assumption that the difference between the rates of increase for wages and hospital costs would disappear by 1975, after which wages and hospital costs would rise at the same rate. Obviously, if hospital costs rose faster than wages, there would have to be a sharp increase in either the payroll-tax rate or the wage base against which it was levied.

    A 1965 House Ways and Means Committee report on the actuarial basis for the hospital-insurance program proudly declared that “Congress has very carefully considered the cost aspects of the proposed hospital insurance system” and that “Congress very strongly believes that the financing basis of the new hospital insurance program should be developed on a conservative basis.” The report acknowledged that hospital costs were rising faster than wages. But it dismissed the alternative scenarios that have turned out to be closer to what has in fact happened.

    “It is inconceivable,” the committee report says, “that hospital prices would rise indefinitely at a rate faster than earnings because eventually individuals–even currently employed workers, let alone older persons–could not afford to go to a hospital under such cost circumstances….Quite obviously, it is an untenable assumption that there can be a sizable differential between the increase in hospitalization costs and the increase in earnings levels that will continue for a long period into the future.” This airtight logic didn’t consider the effect of the increased demand that Medicare set off.

    Anticipating a 3.5-percent annual inflation rate, government actuaries predicted that the cost of a day’s hospital stay by 1985 would be $155 and that the hospital insurance portion of Medicare would cost $9 billion by 1990. The actual average cost of a hospital day by 1985 was over $600; instead of $9 billion, the hospital-insurance program cost $63 billion in 1990.

    The government failed or initially predict the cost or design a plan to protect from it. In 47 years they have failed to come up with a solution. Government created this problem and can not fix it. Its time we allow employers a shot at it.

  5. I have seen the same resistance to spending anything on health insurance.

    In the case of the home health company, though, if they are paying wages of $10 an hour then a lot of employees do not in fact have $80 a month to spare on insurance. Just a caution there.

    I also remember several small groups where 50% of the employees had decent health insurance through a spouse, and therefore had no interest in the employer’s plan. I don’t know how to unravel that particular corner of health policy.

    Finally, before I move on, I have read that Massachusetts got pretty decent participation from workers who had been uninsured. However, that is an outlier state in terms of wages, demographics, and culture so I do not see it as the national pattern,

    Anyways —

    You iimply that the health care exchanges will have a preponderance of sick people (like nearly every other exchange I have ever read about.)

    As the law stands, and if it stands, the policiies offered on the exchange will have high premiums but the participant’s share will be fixed as a share of income.

    So if the carriers come in charging $8000 a year for individual coverage, the person making $40,000 a year still pays only $2000 or whatever as his share, and the government subsidy balloons to $6000.

    In the design of the law, the government enables the individual to kind of slug through the actuarial death spiral. Which I guess is OK as long as the funding holds out.

    Meanwhile, you are correct that huge numbers of people will pay the fines (actually they will try not to pay the fines also.) The Democrats will lose huge numbers of voters who will remember the fines and hate the gubmint because of that. (In Minnesota, we had a wrestler-governnor who made major political capital on $100 fees for boat trailers.)

    Medical providers like hospitals will still have to deal with large numbers of patients who have no insurance and no savings.

    Not a pretty ending for this legislative episode!

    I would ask what you think should be done for the groups with older sicker employees ( and in some cases, early retirees.) Any type of experience-rated insurance just kills these people.

  6. 150 million? people have employer insurance and maybe 20-30 million do not. To me that seems like screwing over a lot of people that are doing the right thing to get at a handful who are not. I would further argue things are not as cut and dry as you might think.

    Participation is a big issue right now, group policies require you have 50-75% of employees covered in order to avoid adverse selection. Every week I work with employers that want to offer insurance but can not due to participation. Or employers that are in a death spiral they can’t get out of, no other carrier will take them because their participation is so low and their current carrier is raising rates, justified by the loss ratio, driving even more employees off.

    The details of this are very important and should be a lesson to all if PPACA stays in place. 99% of the time I come across this problem it is due to a lack of commitment/contribution from the employees. Young workers are not willing to pay anything to have insurance. Middle age and healthy rather save a few dollars and buy an individual policy. Sick people expect everything to be covered and them not to have to make any sacrifices.

    Last week it was a home health company that asked employees to pay $20 per month and they couldn’t get enough. I had a print company this week that asked them to pay $50 a month and they couldn’t get enough. Every week i have 2-3 cases that have this exact problem.

    When these same employees are presented with paying a $700 fine anyone that thinks we are going to even make a dent in the uninsured is clueless.

    Employees have no moral hazard or fear of going uninsured. They rather have the cash in their pocket to live on then be insured no matter how much the out of pocket cost to them. That home health we couldn’t even get 30% of the group to complete an application.

    Before we go blaming the employers, who have no obligation to provide insurance, we need to hold the uninsured responsible who pass up the opportunity to have insurance because they know they can still get what they need.

  7. Nate, I could sense your response as I wrote my own post.

    And in part you are not wrong.

    I admit that I have in mind the millions of people whose employers pay nothing and do nothing, whether out of greed or indifference or the employer themselves being next to broke.

    In food, retail, agriculture, and commission sales, the employers by and large never did pay a role. The employees in these sectors have led the way in health care bankruptcies for years. The millions of employees in these sectors defer health care until they reach age 65 and Medicare, where they are the most expensive to treat.

    There probably is a middle way of letting good employers stay involved while still helping out the millions that I am most concerned about. The Clinton plan in its clumsy way did try and solve my problem, but the small business lobby shot the thing down and in fact slammed it down hard.

  8. who controls cost, negiotates premiums, fights with the doctors, and educates the employees when you remove employers from the equation?

    People really need to give more thought to what an employerless healthcare system would actually look like.

    I have a full staff that works with employers everyday assisting their employees with their insurance. Who is going to help all these people when the employer is gone? The Insaurance company? A government 800 number?

    What do you hope to achieve by eliminating employers from the process and what do you think your giving up? Have you ever actually worked it out?

  9. MD as Hell is correct as far as the impact of the current law –

    – i.e., if you get free health insurance, fully paid from your employer or union, you may as well accept it……

    but if you have to buy your own insurance, in any way, wait for the generous federal subsidies and buy it after you are sick.

    The national economic result is rather ironic. Check it out:………………….

    A corporation has been paying $12,000 a year for family coverage, and the employee has been paying $3000.

    Under the new law, the corporation can pay a $2000 fine and tell the employee to go to the Exchange (where his $3000 payment will be just about enough for a familiy policy, assuming he earns $45000 a year.)

    The corporation is ahead by $12000 – $2,000 = $10,000. The corp can even give the employee a $5000 raise and still be ahead by $5000.

    So now you have an employee making $5000 more a year less income taxes. The employee can spend more and so help the economy.

    The corporation can give the boss a higher salary, some of which he will spend, and it can also spend its windfall on new plant and equipment.

    So the health care law would boost the economy at first!

    No Democrat was quite this clever because they did not read the bill before they passed it, and no Republican would admit that government can stimulate growth.

    The “catch” is that the federal deficit will balloon. Say that 20 million extra families join the Exchanges and get a subsidy of $12,000 each. That comes to $240 billion extra cost per year to the Feds. The whole darn ACA bill was supposed to cost $90 billion year and that was to include the Medicaid expansion.

    Granted, the government will collect some extra income taxes on the employees who get a raise, and the government does collect extra taxes as the economy expands.

    But that is prime voodoo economics to think that the deficit will be covered.

    In theory it was and is a good idea to get employers divorced from the funding of health care. The trick is how to do this without a tsunami of federal debt.

    Bob Hertz, The Health Care Crusade

  10. If PPACA is ruled unconstitutional by the Supremes many GOP platforms will implode.

    The real death panel is not IPAB but the US Supreme Court, another group of non-elected federal employees who rely on amicus crib notes to become experts on every matter on which they decide.

  11. according to the uneducated that don’t know what pooled risk or socialist means. If a person is free to join a risk pool how is that socialist?

    Social Security and Medicare with forced participation are socialist, the underlying risk pool is not in of its self.

  12. “The Supreme Court (more or less) that gave us Bush v Gore in 2000”

    Funny I could have sworn it was a poorly ran State election, hanging chads, and opaque election laws that gave us Bush v Gore. The SCOTUS gave us a solution to B v G, they didn’t give us the problem.

    “Clearly the mandate would nearly eliminate the free rider and moral hazard problem.”

    Actually no it will not, it will make the problem much worse. Now if someone forgoes insurance they are entitled to emergency care. After PPACA they are entitled to buy insurance at any time. PPACA lays out the rules for gaming the system and how to not get in trouble. PPACA reduces the risk of being uninsured considerably making it much more attractive for free riders.

  13. Insurance is pooled risk. If everyone is not paying, they should not be covered. You gotta pay to play.

  14. “healthy and paying for peace of mind.”

    Well, that IS in fact the entire “Socialist” notion of “insurance.”

  15. Keep smokin’ whatever it is that lets you ramble. Everyone who pays his or her own premium is going to drop coverage. And why not. There is no need to maintain coverage when you can get it when you want it. I will save $20,000 pr year between my wife’s Blue Advantage and my Blue Cross through my corporation.

    I myself have never made a claim. People like me are the suckers in the room, healthy and paying for peace of mind.

  16. It’s hard to start of an unbiased article by mentioning Bush v. Gore. There is good evidence that the court had a good 70 years of history prior to the 1990s where there were no federal laws struck down no matter what their reach was. Fortunately, the court has done a better job of balancing interests with the language of the constitution

    Clearly the mandate would nearly eliminate the free rider and moral hazard problem. However, there may be more legal ways or incentives to achieve that goal.

    I think the one thing that can truly not stand without the mandate is the preexisting condition requirement and the coverage mandates. The state high risk pools and other organizational changes can do without it. You say we would have more with coverage. Is this due to the other options that government will offer. Certainly the higher premiums caused by the preexisting condition mandate and coverage mandates will discourage healthy people from buying in.