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ObamaCare Arrives
Higher costs and fewer choices mean Republicans will have a chance to replace it.
The Affordable Care Act opens for business on Tuesday, a testament to liberal perseverance if not wisdom. The plan was dragged across the finish line in 2010 with only Democratic votes but no democratic consensus, and then survived a wave election, an historic constitutional challenge, the 2012 campaign and durable popular opposition.
This half-decade political debate has also been a period of convulsive change for the one-sixth of the economy that the law is supposed to "reform." So ObamaCare's start is a moment to step back from the day-to-day Washington scrum and take stock of American health care as this liberal vision unfolds.
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October 1 is when enrollment will nominally begin for the exchanges, which are ObamaCare's distribution channels for subsidized insurance. We say nominal because there will be many more delays and technical failures, and the media will measure the relative success of the rollout with the soft bigotry of low expectations. These problems and any other confusion can probably be massaged over time.
Some Republicans think ObamaCare will collapse by itself. This is unlikely, and the Health and Human Services Department will use any regulatory means necessary to prop it up. The larger question is whether premiums will be affordable as Mr. Obama promised, or if they'll soar. Given ObamaCare's ambition and complexity, the answer is both, varying by state and person.
The standard benefit mandates are much richer than what individuals and small businesses buy today, and the law's regulations and price controls ensure that coverage will be more expensive. Coverage will cost about 20% to 30% more on average, and often much more for the younger and healthier who are forced to cross-subsidize more expensive patients. This is far from Mr. Obama's promise of a $2,500 per-family discount on premiums. Yet pinning down exact figures is impossible because HHS has disclosed premium details from mere slivers of the population for the 34 exchanges that it will run.
The real measure of ObamaCare will be how many individuals think they're better off. Some of the cost spikes will be offset by subsidies, which will limit premiums for the lower- and middle-income beneficiaries who qualify to about 8% to 10% of after-tax pay. People over 40 and others with chronic conditions may conclude that's a good deal.
But many others won't, especially because ObamaCare coverage will be closer to what insurers call "Medicaid Plus" than normal private insurance. The exchanges are really a marketplace for political competition, and insurers know their real customer is government. HHS and state insurance commissioners demanded the cheapest price points that the mandates and regulations would economically allow.
The result is networks of physicians and hospitals that are very narrow and restrict patient choices in return for discounts. Forget about seeing that specialist, and queue up at the community hospital. The government franchises that contract to run Medicaid and other health programs for the poor are simply expanding to a new group of beneficiaries. There's nothing wrong with tight networks per se for people who prefer that trade-off, though the lack of an alternative on the exchanges does demolish Mr. Obama's frequent pledge that if you like your doctor you can keep your doctor.
Most national insurers except for the Blue Crosses and Blue Shields have sat out this exercise and are planning trial runs in only a few states, waiting to see how the exchanges mature in practice. Many of them pulled out of states amid regulatory abuse, and some are marketing their own policies as better than the exchange, despite the lack of subsidies. What an irony it is that the industry that first lobbied for ObamaCare to increase its market share is now unhappy with the result.
The larger story is that ObamaCare is gradually splitting U.S. health care into a two-tier system. One tier will be insurance that depends on direct government subsidies and controls—Medicaid, Medicare and the Medicaid Plus of ObamaCare's exchanges. This care will be constrained over time by how much the public is willing to be taxed.
The other tier will be the 156 million Americans who now have private coverage through their jobs, though ObamaCare is changing that too. One consequence has been a boom in part-time employment to avoid the law's penalties, especially in low-wage and seasonal industries, and larger and more stable employers are also re-evaluating traditional worker benefits.
High and rising health costs long predate ObamaCare, and while they've slowed in recent years—though still not enough to keep pace with wage growth—the Affordable Care Act will accelerate them. One reason will be the new taxes on insurers, drug companies and device makers that will be passed on to consumers.
Another is the wave of medical industry consolidation as a defense against political and regulatory risk. Hospitals are merging into huge regional health systems and also buying up physician practices with doctors as salaried employees. These quasi-monopolies gain the power to mark up prices, which will increase as government reimbursements fall.
In response, many businesses are turning to the growing trend of private exchanges among insurers and third-party benefits administrators. They'll pay a defined amount for employees, who will be able to choose the plans that work best for them, much like the 1980s-era shift to 401(k)s from pensions.
Companies like IBM IBM +0.75% and GE have done this with their retirees, and Walgreens has moved its active workforce. This is a healthy development to the extent it encourages competition and allows workers to get bigger wage increases. The management consultants at Accenture estimate that 18% of workers will be on a private exchange within four years—more than will be enrolled in ObamaCare.
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As they always do, liberals will try to fix the problems created by ObamaCare regulation with more regulation, and they'll try to prevent two-tier medicine by requiring, say, all doctors and hospitals to accept government-backed insurance as a condition of licensure. They'll also try to crush private exchanges by stuffing many more people into ObamaCare, such as state and local government workers.
The good news is that the Affordable Care Act's choppy implementation—and the rise of a real private alternative—means there is still a chance to substantially change or replace it. The unflagging intensity of public opposition has surprised Democrats and Republicans alike. All of that was supposed to vanish with "free" health care. That hasn't happened, and the debate doesn't end when the exchanges open. By making medicine a subsidiary of Washington, Democrats ensured that the debate is only beginning.
A version of this article appeared September 30, 2013, on page A16 in the U.S. edition of The Wall Street Journal, with the headline: ObamaCare Arrives. |
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