[The Soup Nazi]

From the NYT (1/2)

Why does Obamacare work as well as it does?

By Paul Krugman
Opinion Columnist

We’ve just passed the 14th anniversary of the enactment of the Patient Protection and Affordable Care Act, a.k.a. the Affordable Care Act, a.k.a. Obamacare — although many of the law’s provisions didn’t take effect until 2014.

In its early years, Obamacare was the subject of fierce criticism from both the left and the right. Actually, as I pointed out in my most recent column, politicians on the right are still saying the same things they said a decade ago, pretending that their predictions of doom haven’t been falsified by events. But Obamacare has survived, greatly expanding health insurance coverage without busting the budget. Critics on the left complain that it hasn’t produced truly universal health care, which indeed it hasn’t. But it has done a lot and has become quite popular:

 

So why has Obamacare worked as well as it has?

The thing is, critiques of Obamacare from the left have a point. If your goal is to give people access to health care, why not just give them access, by instituting a single-payer system in which the government pays the bills? This was, in fact, what we did for seniors when Medicare was created in the 1960s.

The A.C.A., however, created a complicated system in which people have to buy their own insurance, although in many cases the government picks up much of the tab. And the complexity of the system, combined with the fact that important parts of it are run by state governments, some of which are controlled by conservatives who want Obamacare to fail, means that a lot of people fall through the cracks: 8 percent of the U.S. population is still uninsured, although that’s a lot better than the pre-A.C.A. situation:

 

Why, then, didn’t we go for single-payer? Politics. It wasn’t just a matter of buying off the insurance industry by keeping it at the center of American health care, although that was part of it. More important, I believe, was the perceived need to avoid disturbing Americans happy with their existing health coverage, mostly those getting insurance via their employers. Rather than reforming our whole health insurance system, Obamacare sought to fill the holes in our system by adding new stuff. In particular, it tried to create a working marketplace in which individuals not covered by their employers could find affordable health insurance.

Many people, especially but not only on the right, expected this effort to fail. I don’t want to get too deep into the weeds here, but the A.C.A. prohibited insurers from denying coverage or charging higher premiums to people with preexisting medical conditions. This kind of regulation can cause a “death spiral”: Too few healthy people buy insurance, so the risk pool gets worse, which drives up premiums, which drives out still more relatively healthy people, and so on.

Initially, the A.C.A. included a “mandate” — a penalty on Americans who didn’t have insurance — but it’s not clear how effective the insurance mandate ever was, and Republicans eliminated the penalty in 2017.

Yet Obamacare didn’t collapse. Why not?

Here’s how I’d put it: In practice, Obamacare has ended up functioning a lot like a single-payer system after all — and such systems aren’t subject to death spirals.

First, a large part of the rise in health coverage came from an expansion of Medicaid, the government health insurance for lower-income Americans — single-payer, although less generous than Medicare:

 

Second, individual purchase of insurance on the A.C.A.-created marketplaces is subsidized. In fact, last year 91 percent of marketplace enrollees were receiving so-called premium tax credits. In many cases these credits cover a large part of an individual’s premium. Also, crucially, the subsidies don’t take the form of lump-sum credits. Instead, the law specifies a maximum percentage of income that enrollees can pay for insurance (that percentage itself depends on your income) and makes up the difference if premiums exceed that maximum.

This isn’t single-payer, exactly, but it does mean that the government is the marginal payer, in the sense that even if premiums rise, most people don’t pay more — the government picks up the extra bills. This in turn means that a death spiral basically can’t happen, because even if healthy people drop their insurance, costs for most enrollees don’t rise.

This is smart policy design; among other things it protects the A.C.A. from hostile politicians. Soon after taking office in 2017, Donald Trump declared that “the best thing politically is to let Obamacare explode.” And while his attempt to repeal the law failed, his administration engaged in acts of sabotage, in effect trying to induce a death spiral. But the subsidies frustrated this plan. In 2019 I asked Nancy Pelosi about how politicians like her had interacted with the clever policy wonks who devised such a robust system. “I am a wonk,” she replied.

Obamacare, then, has defied the doomsayers. But what about warnings that it would prove unsustainably costly? As I noted in the column, federal spending on health care is currently considerably lower than the Congressional Budget Office projected before the A.C.A. went into effect, despite the expansion of coverage. How was this possible?