Let me ask you a question. Is it a good idea to take away health insurance from nearly 20 million people during a pandemic? Especially when that pandemic has already cost 5.4 million people their health insurance through the loss of employment? I would think that most of us would say “no.” Well, a group of 20 states led by Texas are trying to repeal the Affordable Care Act (ACA) and do just that. Bless their hearts.
The ACA, also known as “Obamacare,” has been under legal threat pretty much it’s entire existence. In this post, I want to first give some background on the ACA and then talk about it’s legal troubles. Then I want to talk about whether or not any of the major fears about the ACA came true. In particular, was it a job killer that raised insurance premiums and thus perhaps worthy of repeal?
Why Did we Need the ACA?
Health insurance markets suffer from two problems that make it hard for individuals to buy insurance for themselves. This fact is why most people get insurance from their employers, and most of the rest get it from the government.
The first problem is that individuals who would buy health insurance for themselves are probably the kind of people who really need it. As my grandma used to say, “you don’t buy a lawnmower if you ain’t got grass.” Ok, she never said that. But, the point stands — if you buy health insurance you must have some reason to need it — and that make you more expensive to insure than someone who doesn’t need it. This notion is known as “adverse selection.”
The second problem is that once you have insurance, you’re more likely to use it. If I didn’t have health insurance, I would never go to the doctor. But, because I do, I go every once in a while. Copays and deductibles are designed to limit this kind of “moral hazard.” But, it’s a problem, and one that means insurers are hesitant to insure individual people.
You may be thinking — “isn’t the same thing true of auto insurance?” Well, remember — people have to buy auto insurance. This rids the market of adverse selection. And, moral hazard is less of a problem, because to use auto insurance you have to wreck your car. No one wants to do that. Although, I know that when I rent a car and buy the insurance, I do enjoy ramming some stuff. Memories!
Anyway, in 2013, these two barriers led to about 17 percent of the U.S. population — 44 million people — lacking insurance. So, we got the ACA.
What Does the ACA Do?
The ACA was passed in 2010, but the main components came online several years later. The law sought to expand insurance coverage by sharing responsibility between individuals, employers, and the government. In the initial law (it has changed due to litigation), the main components were:
- An Individual Mandate — Individuals are required to have health insurance. The requirement was enforced with a penalty of $695 per person and a max of $2,085 for a household. The penalty was phased in starting in 2014. This mandate is designed to get around adverse selection.
- An Employer Mandate — Employers with 50 or more full-time equivalent employees were required to offer insurance starting in 2016. A quick editorial. One thing that the ACA was accused of is being a small business killer. The ACA doesn’t affect small businesses. Under 10 percent of all businesses in the U.S have 50 or more employees. And, the vast majority of them already offered health insurance..and so weren’t really affected at all. Ok, I’m done.
- The Creation of Marketplaces — For workers without employer coverage, the ACA created health insurance exchanges. For low- to middle-income households — those at 133 percent to 400 percent of the Federal Poverty Line — subsidies were provided to buy this insurance.
- The Expansion of Medicaid – Medicaid was expanded to cover all individuals under age 65 with incomes up to 133 percent of the poverty line. Prior to the ACA, many states did not cover childless adults and had much lower income thresholds.
By 2018, the ACA had caused the uninsurance rate to drop to 10 percent, a drop of 40 percent from it’s 2013 level. And, it probably would have dropped more, but for some major legal hurdles.
The ACA in Court
The ACA has had a wild legal history. Let’s hit on some of the past litigation that really changed the law, then talk about the current lawsuit.
The lawsuit National Federation of Independent Business v. Sebelius challenged several aspects of the ACA. The first was the individual mandate to buy insurance. Remember, the mandate was there to get around adverse selection, and repealing it could have made it hard for insurers to participate in marketplaces. After all, if the individual mandate were gone, only people who really needed insurance would buy it…and insurers might pull out. The Supreme Court decided that the individual mandate could stay. Basically, they said that Congress could create such a mandate under it’s taxing power.
The other thing at issue was the requirement that states expand Medicaid to cover more people. Here, the Supreme Court ruled that Congress could not force states to participate in the expansion. However, states could still choose to do so. Many states have expanded it, but many have not. The map below comes from the Kaiser Family Foundation, and shows where states stand on the expansion. Not surprisingly, states that didn’t expand Medicaid have higher insurance rates than those that did.
So, past litigation clearly affected the ACA. So, what’s under fire now?
The New Threat
The new threat to the ACA is a bit complicated, but let me summarize. Remember when the Supreme Court upheld the individual mandate in the lawsuit above? The court claimed that the mandate was legal because the penalty relied on Congress’s taxation power. Well, one aspect of the “Tax Cuts and Jobs Act” passed in 2017 was that it set the mandate penalty to $0. That’s right. We have an individual “mandate” with no penalty at all. Did you hear about the town that set all it’s speeding ticket values to $0? I’m sure you didn’t…because that wouldn’t ever happen.
So, now a bunch of states are claiming that because the penalty is $0, the individual mandate is no longer a tax issue. Basically, because of the “Tax Cuts and Jobs Act,” the lawsuit claims that the individual mandate is unconstitutional. The lawsuit then claims that if the individual mandate is unconstitutional, so is the whole of the ACA. So, they are using a tax law that disproportionately benefited the rich to try and take health insurance from the poor. My mom always said, “if you can’t say anything nice, then say nothing at all.” Nothing at all.
So, why is the ACA so hated? I am not exactly sure, but early concerns centered around jobs and costs.
Jobs, Costs, and the ACA
When the ACA was passed into law, two very reasonable concerns existed. The first was that the law would result in fewer people working. The second was that the law would increase medical costs since more people would be using care. Let’s have a look and see if these occurred.
The ACA and Jobs
Opponents of the ACA worried it would reduce employment for two reasons. First, the ACA has some built in “work disincentives.” For example, expanding Medicaid reduces the need for people to work to get health insurance. Additionally, once on Medicaid, earning more could push you over the eligibility line. So, if you are looking to work in a low-wage job that might not have insurance, not working and staying on Medicaid could look attractive. And, as people earn more, the subsidies to buy insurance in the individual market get lower. So, these sorts of design features could discourage work altogether, or encourage people to work part time. Indeed, the CBO predicted hours worked would decline by about 1.5 to 2.0 percent due to these sorts of “labor supply” effects.
Another concern was that the ACA would discourage employers from hiring. One reason would be that hiring workers is more expensive when you need to give them insurance. But, remember, the ACA only applied to firms with 50 or more full-time equivalent workers, and most of these firms already offered health insurance. Another reason is that employers with 49 employees might be pretty darn reluctant to hire that 50th worker and need to satisfy ACA mandate. So, the ACA could have suppressed hiring along this margin as well. Finally, there was some concern that the ACA could encourage employers to hire more part-time workers, as they attempted to avoid the 50 full-time equivalent threshold.
I’ll let you be the judge of whether these things happened. On the figure below, I’ve traced the number of workers in the U.S. (red line) and the share of those workers who were part-time (grey line) from 2008 to today. I’ve also flagged three events. The first is when the individual mandate and the Medicaid expansion took effect. The second is when the employer mandate took effect. And the third is something that was supposed to create jobs — the tax change implemented in 2018. See if you can detect any changes in the lines after these two “job destroying” and the one “job creating events.”
Figure. Number of Non-farm Employees and Share Part Time, 2008-2020
If you squint at this graph like it’s an old Magic Eye poster, then you might notice that the part time work line goes down a little more slowly after 2016 than it did before. Indeed, evidence exists that the ACA increased part-time work by about 0.4 to 0.5 percent of the workforce. This shift occurred because employers had an increased desire to use part time employees. But, the authors of that study note that the fears of a “part-time nation” were overblown.
The ACA and Costs
The other major fear around the time of the ACA was that it would blow up insurance costs for people that already had insurance. Basically, you are bringing people into the healthcare system, pushing up demand, and driving up healthcare prices. Except, that hasn’t really happened.
According to the Kaiser Family Foundation, in the five years prior to the ACA going into effect, healthcare premiums grew 26 percent. In the five years after the ACA went into effect, healthcare premiums grew 22 percent. So, while healthcare premiums definitely increased post-ACA, they increased at a slower rate than before the ACA. Again, the biggest fears of opponents of the ACA have not seemed to be realized.
The Future of the ACA
We find ourselves at a crossroads. Our employer-sponsored system of health insurance is under strain. Many people have lost their jobs and their health insurance. And, many more stand to lose health insurance if these states go through with their lawsuit and win.
I try not to get too political in these posts, but it might be a good time to say something if you care about people having health insurance. Heck, it’s not even like you have to love the ACA. It hasn’t met all it’s promises — it certainly did not succeed in reducing costs — and the individual marketplaces struggle to attract competition. The result is that insurance under the ACA can be expensive in some places.
The problem with throwing out the ACA is that, even though it’s not perfect, it has expanded coverage without causing doomsday. And, the people trying to repeal it have no other plan. So, if they succeed, they will leave 20 million people out in the cold. Do we really want 20 million of our fellow citizens to lose health insurance when it could be the difference between life and death? When going to the doctor is important, not just to keep themselves safe, but to make sure they know if they have the Coronavirus? Getting rid of the ACA with no backup plan is just plain irresponsible. Then again, maybe I shouldn’t be surprised. Irresponsibility seems to be the name of the game these days.