Repealing the Right to Redistribute ‘Other Peoples’ Money’

Republicans are having a hard time agreeing on how and when to repeal Obamacare. The Patient Protection and Affordable Care Act (ACA) is difficult to unravel because it was designed to alleviate a problem too costly for the government alone to fix. The health care law was passed to make medical care more accessible for low-income Americans and those with pre-existing conditions. This was to be done largely by socializing the costs and spreading the burden among a much broader segment of the healthy population. This is not unlike a pyramid scheme, where a broad base of people at the bottom get ripped so a few at the top can benefit.

Republicans have it within their power to use a process known as budget reconciliation to repeal Obamacare provisions that involve the budget, with a simple majority vote. For example, Republicans can repeal the taxes, fees and appropriations that fund the ACA. The individual and employer mandates, with associated penalties, can also be repealed. What Republicans cannot do is repeal the costly insurance regulations that drive up premiums for most people. That would require the help of perhaps a dozen skeptical Democrats.

Dismantling the ACA using budget reconciliation alone would get messy. Repealing both the sliding-scale exchange subsidies and the cost-sharing reductions for low-income enrollees would likely cause more than three-quarters of Obamacare enrollees to drop their plans. If Republicans scaled back the enhanced Medicaid matching rates to that of non-expansion beneficiaries, many states would withdraw from Medicaid expansion. Within a couple years following repeal (without replace) the individual market would implode under the weight of adverse selection, since only the sick would benefit despite paying sky high premiums.

President Trump issued an executive order on January 20 directing his administration to “waive, defer, grant exemptions from, or delay…” whenever possible to the “maximum extent of the law.” It is hard to know what this will really achieve. Many believe this move was intended to destabilize the ACA and hasten its demise without Republicans getting blamed, while others believe it was symbolic gesture with no other purpose.

The best known provisions of the ACA include an individual mandate, an employer mandate, subsidies to help moderate-income people afford coverage and Medicaid eligibility expanded to include working-poor single adults. Young adults could also stay on their parents’ employer plans until age 26. Other prominent provisions include changes in insurance regulations for coverage purchased in the individual market. For instance, medical underwriting was replaced with the regulations known as guaranteed issue and community rating. This meant individuals could not be charged more or turned away due to pre-existing conditions; premiums could only vary by geographic location and age. In addition, maternity coverage was mandated in the individual market and women’s premiums could not differ from men’s. The ACA also did away with limited benefit plans and plans that do not include an essential benefit package. In the process the ACA banned plans with annual and lifetime caps on benefits.

These provisions have a sinister purpose. They were designed to socialize medical care using backhanded regulations. Obamacare intentionally makes most people much worse off to benefit a few selected individuals. At its core the Affordable Care Act is an income redistribution scheme based on health status and wealth. The goal of the ACA is to force healthy (non-poor) individuals to shoulder most of the care for the least healthy 20 percent of the population (who consume 80 percent of medical care). The ACA is also designed to make taxpayers subsidize much of the care for those with modest incomes. Granted, actuaries will tell you all forms of insurance are designed to pool risk but the re-distributive intent of the ACA seems more deliberate. The provisions collectively have the effect of maximizing the transfer of wealth from younger, healthier enrollees to mostly older, sicker individuals.

Who are the biggest losers? Healthy people and women age 55 to 64. According to analysis by Mark Pauly at the University of Pennsylvania, women in this age group can expect to pay about 50 percent more for health insurance and care out-of-pocket than prior to Obamacare. These women get stuck with cross-subsidizing younger women of childbearing age and subsidizing late middle-age men who didn’t take care of themselves.

Of course, nobody really wins the health insurance lottery by getting sick. Unfortunately, premiums are too high because ACA proponents specifically wanted society to be especially generous with other peoples’ money. The process of repealing & replacing Obamacare is difficult because it involves deciding how much of your money should go towards your own medical needs; and how much should subsidize others whose health is more precarious than yours.

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17 replies »

  1. Mr. Herrick conveniently ignores the fact that NOT insuring poor people would NOT stop money from be redistributed. I assume he is smart enough to know better so this must have been a purposeful omission to make his argument stronger. Those who don’t have insurance still end up in hospitals. In fact, those who don’t have insurance are more likely to postpone medical care until they need emergency care. By delaying care, their disease has often progressed and now the treatment becomes much more expensive. Those costs end up being passed on to everyone who does have insurance. In other words, the same people who subsidize medical insurance for the poor under the ACA would continue to pay for that care, only without insurance the care would cost more. The only way to stop this is to allow hospitals to refuse entry to anyone who can’t pay. We could leave these sick people to die on the street. If this is what Mr. Herrick wants, let him say so. Otherwise is argument is bogus.

  2. The broad social insurance model as applied to healthcare works for every other industrialized country. The US is the only nation that does not base all its health insurance on that model. We do so, of course, in Medicare…and to lesser extent in Medicaid. This is not the only reason, but it’s one of the main reasons that the healthcare system in the US is, according to numerous analyses over the years, the most dysfunctional and least efficient.

  3. Traditional insurance is risk based and voluntary so despite the pooling I don’t think that it should be called redistribution.

    “If only we could get the sick (and therefore expensive) people out of the risk pool”

    There are two types of sick people, the known and the unknown. The unknown are far more populous and while the knowns might be getting an advantage today it is at the disadvantage of the unknowns.

    “ control the cost of health care, i.e., what the insurance companies must pay to providers ”

    By providers you certainly must not mean primarily physicians if you are looking to reduce costs. Their fees account for less than 20% of cost and their overhead is somewhere around 50% and are taxed on the remaining less than 10% so you don’t have much leeway there. Dr. Reinhardt wrote an excellent article on this subject in the NYTimes awhile back. Remember, care of patients is what the physician spends his time on unlike the other cost factors we see.

    Medicare is unsustainable in its present form.

  4. Let’s say that the cost of a decent high risk pool is $50 billion a year.

    It does matter how this is funded.

    In the ACA, this cost has been funded primarily by charging higher premiums to those who are in the ACA. A young person pays $300 a month instead of $75 a month. A 55 year old pays $700 a month instead of $400 a month, etc etc.

    Now let’s say that the high risk persons are put in a separate pool and must be funded by higher income taxes. :Let’s say that this requires a 1% increase in income taxes across the board.

    If a hedge fund manager makes $10 million a year, he pays $100,000 toward the pool.
    If the young person described above makes $30,000 a year, he pays $300 a year, or maybe nothing if he is below the threshold for income taxes.

    In my opinion, the Grover Norquist poison prevents this kind of discussion from taking place.

  5. I’m always a little baffled by the apparent moral outrage at any funding mechanism that relies upon a redistribution of resources. That is, of course, the whole point of insurance, which redistributes money from those who are lucky to those who are not. Of course, misfortune undoubtedly befalls those who take greater risks at a higher rate than those who are cautious, but when it comes to human health, there is certainly a component of luck (or at least inevitability). Even the healthiest of people eventually get old and die, during which process they incur large medical expenses. Finally, it seems to be a truism that the many will pay for the few when costs are funded by insurance, whether that insurance is administered by a private company, a nonprofit entity, or the government. Is insurance administered by a private company morally acceptable, while insurance administered by the government is not, merely because the latter is susceptible to being labeled “socialist?” I think not, but perhaps others disagree.

    It also strikes me that any discussion of health insurance costs seems to inevitably find its way to the idea of high risk pools. If only we could get the sick (and therefore expensive) people out of the risk pool, then premiums would surely become more manageable. This only works, of course, if the cost of insuring the sick (and expensive) people is not shifted back to everyone else via taxes to pay for an alternative form of coverage, i.e., the government funded/subsidized risk pool.

    Unless I’m missing something obvious, there are only two solutions to the problem of risking health insurance premiums. One, control the cost of health care, i.e., what the insurance companies must pay to providers – this is what Medicare does. Or two, don’t provide government-funded health insurance/care to really sick people who can’t afford to pay for it themselves – this is what the most radical conservatives might espouse, but seemingly not the majority of Americans.

    One final point for thought – isn’t the Medicare program really just a high risk pool funded by the federal government through payroll taxes? The sickest of Americans, i.e., those over 65 years old and those with ESRD, were taken out of the private health insurance market and funded by a government program that forces the young to pay for the old. If a new high risk pool is needed in order to control the rising cost of health insurance premiums in the private market, then why not just expand the scope of Medicare coverage to include those with certain chronic illnesses? I know, some will scream that this smacks of socialism, but if true, then perhaps we should just scrap Medicare while we’re at it. If the ACA is some form of socialism, then so is Medicare, and so is public education for that matter. All of these programs redistribute wealth from one category of Americans to another.

  6. We seem to be stuck with two unappetizing choices:

    a. allow medical underwriting, which results in low premiums for 60-70 per cent of applicants….but the rest face higher premiums, exclusions, or total decline. The declines then depend on the generosity of the voters in their state. In MN, NY, CA, IL, this is OK; but in some states the uninsured frankly become medical beggars.


    b. mandate guarantee issue and community rating….but. if this is not accompanied by mandates and substantial subsidies, the entire market may implode and everyone pays high premiums, or even cannot find a carrier in their area.

    (as happened in several states throughout the 1990’s, and is threatening to happen again

    All the people who get low premiums in Option A do not normally feel like paying taxes to fund the high risk pools. (although financially they are usually getting a good deal. People want lower taxes AND lower premiums if they are healthy.

    I favor expanding Medicare to cover the out and out insurance declines. We did this with dialysis.
    This adds to the cost of Medicare, but I can handle that.

  7. “You want to take care of the unhealthy away from the marketplace. What the heck does that mean. I say it means high risk pools.”

    You think wrong. I haven’t chosen a method of subsidy, but I have chosen that the subsidy should have the least effect on the free market that is possible. You have many different criteria that conflict with one another, but you rectify that situation by having big government socialism take over care. Medicaid is an option as well and as I told you more than once Medicaid was not what I considered the best choice.

    I want to help those that are already sick and are in the vast majority. If possible I would like to subsidize as many as possible so they remain in the pool with the general population. How many, I don’t know, but I do believe they should be adding a lot extra discretionary income to pay for their care.

    Unlike you, I don’t believe the vast majority of the population should be held hostage to that small group. If we play our cards right that group will be better off when the majority are taken care of appropriately and will dwindle thereafter.

  8. “Granted, actuaries will tell you all forms of insurance are designed to pool risk”

    OK I guess if it’s not government.

    The whole economic system is designed to “redistribute” someone else’s money.

    We are all one event away from being the receiver of an “unfair redistribution” of other peoples money. You can argue that the young take more life threatening risks which put them at greater risk of needing long term health care.

    Those who ride motorcycles should pay more in premiums, those who play football should pay more, those who use skateboards should pay more, those who drive sports cars should pay more, those who ride bicycles should pay more, and so on.

    Maybe we should DNA all premiums payers to figure out who’s family history makes them more likely to use more of other’s peoples money.

  9. When it comes to health care, we are already all paying for everybody and that is likely to continue. Over 60% of our total health care “budget” is already provided by taxpayer. Dividing the country into sundry risk pools with sundry payers adds about 20% to our total health care bill. Get over for delusion that the “free market” works in health care financing. It doesn’t. It just adds to total cost. Put everybody in the same risk pool, finance it publicly, and use the power of the monopsony to find ways to cut better deals for the taxpayer. It’s really not that complicated.

  10. Barry, if you live in a house that costs $400,000 to build and it is insured the day after it burns down the actuarial rate will be $400,000+.

    That means the person will have to rely upon his own funds, plus some form of charity governmental or otherwise. Mandate such coverage into all homeowners that buy insurance after the fact and the market will be destroyed.

  11. There is no known market solution to health care. No one has made it work. Please note that Devon and co have long been advocates of CDH plans. In short, plans with large deductibles. Of course one of the major complaints about Obamacare is…. the high deductibles.

    When Mark Pauly made his case on high risk pools I think he was mostly right on the economics. However, in practice they totally fail, as noted by Barry. Finally, as Bob notes, if you have insurance, then by definition you have most people paying and not benefitting, with a few benefitting from what those others paid. Given the demographics of health care spending, I have yet to see anyone propose a way around that, other than just not providing care for those who cannot afford it. Bob grasps that and everyone else should too.


  12. Bob, your “correct” actuarial premium might be $30-$40K per month if you have cystic fibrosis or Gaucher’s disease or some other rare and expensive to treat disease or condition. Your actuarial premium would be $10-!2K per month if you need long term custodial care including help with all or most of the normal activities of daily living. Even if you didn’t get sick until your 60’s, it would take one heck of a Health Savings Account balance to cover those bills or pay a correct actuarial insurance premium.

  13. Not so, Allan. You want to take care of the unhealthy away from the marketplace. What the heck does that mean. I say it means high risk pools. You’ve suggested in the past giving them Medicaid. Either one would cost a lot of money that has to come from somewhere. We could be honest and raise the taxes necessary to cover that cost or we could just try to put it on the credit card to ultimately be paid by our children and grandchildren.

    I’m willing to give you your marketplace for the majority of the 320 million but I want to pay for the unhealthy and already sick another way. My preference is high risk pools but their history is terrible because politicians never want to step up and fund them adequately. That’s because there weren’t enough votes in it for them to do so. You’re Medicaid idea wouldn’t be very popular with most of the states and if the feds paid for it all, you would complain about one size, or as you say, one shoe fits all.

    Then there is the issue of subsidies for people who can’t afford insurance even if they’re reasonably healthy and can pass underwriting. That has to be paid for as well and that money has to come from somewhere too.

  14. Barry, you continuously want to design a healthcare program for over 320 million people to benefit a very small percentage causing great harm to many that will need healthcare in the future and to the population as a whole. You blame it on free market folks while mischaracterizing what they say. Your ideas are a smoke screen for socialized medicine. In other words you believe certain free market ideas are good as long as they agree and support government care.

  15. Bob you seem to assume that actuarial rating means there cannot be pooling or subsidies. That is not true.

  16. Devon, I think that you under-estimate the number of persons who change from healthy to unhealthy right in the course of their own lives.
    I never entered a hospital from age 3 to age 60. Since then I have had heart trouble and a curable form of cancer. I changed from one of those healthy persons overpaying for my insurance, to one of the beneficiaries of subsidies and ‘redistribution.’

    If we had a system where everyone paid only their own correct actuarial cost, which is what you seem to recommend here, we would have a vast number of 60 year olds who were uninsured. People like me would have rolled along for years getting cheap health insuarnce, and then we might be faced with a correct actuarial premium of $3,000 a month after a major change of health. So we would drop insurance, just when we needed it most.

    So there has to be some sharing. Whether the ACA overdoes it or klutzes it up is very possible, but I have not thought this through yet.

  17. I didn’t hear anything about a viable alternative to the ACA that will take care of the unhealthy and already sick. The free market folks want them taken care of outside of and separate from the health insurance marketplace. The most talked about alternative is high risk pools which would be expensive if they are to actually work for the people who need them. That money has to come from all of those “other people” who would be compelled to pay taxes in addition to a lower health insurance premium that more adequately reflects (only) their own personal health risk.

    Then there is the matter of providing subsidies for lower income folks who can’t afford health insurance even if they are healthy enough to pass medical underwriting and earn too much to qualify for Medicaid. That would be expensive too. Again, we will need still more money from all of those “other people” who have the means and the health status to take care of their own health insurance needs through the underwritten insurance marketplace.