What could have been…

How’s this for a public policy counterfactual: What would our healthcare costs look like today if the biggest government insurance program had spent the last 50 years regulating the costs of care?  Turns out we were one congressman’s pen stroke away from living in that world.

I recently stumbled upon this New Yorker piece from February by historian Julian Zelizer.  It’s an adaptation of his book “The Fierce Urgency of Now,” which tells the story of the arduous passage of Medicare.  Medicare’s legislative journey is reminiscent of the Affordable Care Act’s: a compromised effort at universal healthcare nonetheless attacked as socialized medicine by ideological and industry opponents.

As Zelizer explains, the key congressional leader in allowing Medicare to pass was House Ways and Means Chairman Wilbur Mills, a Democrat from Arkansas.  After the bill passed the House and Senate, Mills saw amendments from Senate liberals as the last remaining threat to the bill, and was determined to remove these threats in conference committee:

[I]n the conference committee, Mills systematically knocked down each amendment. He made only one major compromise, that hospitals and doctors would determine the “reasonable charges” for costs rather than the government doing so through regulated prices. He incorrectly assumed that this would not result in huge costs.

That’s how close we were to Medicare regulating health service fees.  The government-regulated pricing that Mills rejected is known as all-payer rate setting, which is how the state of Maryland pays for healthcare services.  Medicare would have determined what price to provide for each service, and doctors and hospitals would have to take it or leave it.

When compounded year over year, the cost of Medicare today could have been exponentially lower today if Mills hadn’t cut government rate setting out of the Medicare bill.  CMS estimates that Maryland’s rate-setting system alone saves Medicare $330 million over five years.  Imagine the savings if we paid for health services that way nationwide…

This wouldn’t just mean savings for Medicare, either.  Costs would likely be substantially lower across the whole health system, as the prices Medicare pays tend to spill over into the private insurance market.  Private insurers essentially piggyback off of Medicare pricing, negotiating fees with hospitals equal to the Medicare rate plus a percentage more.  For instance, one study found that a $1.00 decrease in Medicare reimbursement for a certain service leads to a $1.16 decrease in private insurance reimbursement for that service.  Medicare and private insurance fees thus appear to move in sync.

So Mills’s miscalculation about how best to control health costs had unappreciated drastic long-term consequences, fueling our ballooned health expenditures today, which account for 17 percent of our national GDP.  Maybe Mills worried about regulatory capture over the price-setting process.  More likely, he was sensitive to the AMA’s attacks of socialized medicine and overzealous government intervention in the healthcare system.

All-payer rate setting is coming back into the national conversation about how to bend our healthcare cost curve today.  Maryland Governor Martin O’Malley is trying to make it an issue in the presidential campaign, pointing to his state’s success in controlling health costs.  But in reading Zelizer’s account of Medicare’s enactment, it’s hard to fathom how close we were to having that kind of cost containment as our national norm for the last half century.

The conservative health idea that is dragging down Obamacare

After a remarkable run of success, Obamacare has hit some speed bumps lately. From premium hikes to unaffordable deductibles to backtracking insurers, cracks in the law’s foundational health exchanges have sprung into public view. These issues, however, all stem from a basic structural flaw in a key part of the law: it’s too conservative.

These problems are arising because a number of shoppers on Obamacare’s health exchanges aren’t finding much to like. The most affordable plans (called bronze and silver plans) often come with high deductibles that leave consumers on the hook for as much as the first $6,000 of their medical expenses.   For silver plans, the law’s cost-sharing reduction—essentially co-insurance kicked in by the government—eases these deductibles for most exchange consumers. No such subsidy is available for people who can only afford the monthly premiums for a bronze plan.

For many consumers trying to comply with the law’s insurance mandate, these deductibles leave them insured in name only. “The deductible, $3,000 a year, makes it impossible to actually go to the doctor,” one consumer told the New York Times. “We have insurance, but can’t afford to use it.” His family ultimately dropped their insurance plan.

While these kinds of plans cover certain preventive services, they otherwise provide little more than catastrophic coverage. These kinds of catastrophic care plans have long been staples in the conservative vision of health reform, providing insurance for serious and expensive medical episodes, but leave the consumer self-funding virtually everything else. They’ve been part of recent conservative repeal-and-replace proposals, typically coupled with tax credits and health savings accounts.

Catastrophic care insurance is part of what political scientist Jacob Hacker calls conservatives’ “personal responsibility crusade” in his 2006 book, The Great Risk Shift. Conservatives worry that insurance creates moral hazard in the insured, encouraging them to engage in irresponsible behavior when they don’t bear the full cost of that behavior. Force individuals to own more of their risk, conservatives believe, and they will become more judicious healthcare consumers.

Liberals reject this and aim to spread risk faced in the typical course of life across society. But under Obamacare, they also wanted to provide a low-cost option to consumers compelled into the health insurance market by the law’s mandate. They thus included inexpensive bronze plans on the exchanges, while providing cost-sharing incentives for consumers to spring for a more comprehensive silver plan instead.

By providing a menu of options, health reformers hoped to draw in a broad pool of insurance consumers, including the young and healthy. Because insurers can no longer charge more to people with pre-existing conditions, they’ve counted on premiums from relatively healthy people to subsidize the sick.

But many people just aren’t biting. So far only 35 percent of eligible individuals have signed up for plans through the health exchanges. The nudge toward silver plans leaves some shoppers in limbo: they could buy a low-premium bronze plan that provides little actual insurance, or a silver plan that, while providing more coverage and more subsidies, may still be out of reach for their budget.

These unappealing options drive some people who are on the fence about purchasing insurance out of the market. One twenty-nine-year-old told the Times, “The deductibles are ridiculously high. I will never be able to go over the deductible unless something catastrophic happened to me. I’m better off not purchasing that insurance and saving the money in case something bad happens.”

For many, the perceived benefits of buying this kind of insurance are minimal, and the costs of defying the law’s insurance mandate are surprisingly bearable. The penalty for forgoing insurance was the greater of $325 or 1 percent of income last year, which could be far less than the cost of premiums. (This increases to $650 or 2.5 percent of income in 2016.)

The upshot is that many people are still electing not to purchase insurance. This creates a lopsided risk pool among those who are signing up, leaving companies insuring more sick people than they anticipated. Some companies have responded by raising premiums and others are threatening to leave the market altogether. They simply aren’t receiving the right mix of customers to sustain their exchange business.

Policymakers need to be proactive to shore up the health exchanges. Healthcare expert Andrew Sprung proposes simply extending cost-sharing subsidies to bronze plans. This would strengthen the insurance coverage of these plans, making them more appealing to more consumers. We could also redouble outreach efforts to sign up the uninsured and consider tightening the individual mandate further.

Obamacare has been tremendously successful at getting people insured. But its insurance exchanges need to be self-sustaining. Improving the quality and affordability of the insurance options on its exchanges would help this cause immensely. It would encourage more people to sign up, cutting the ranks of the uninsured even more. And it would discard a misguided conservative approach to health reform and embrace true social insurance instead.

Republicans’ desperate labor force lie

The United States is in the midst of one of the longest economic expansions in its history, but you would never know that from listening to the Republican candidates for president.

In the face of steady monthly jobs gains, Republicans have latched on to a different metric to claim that the tumbling unemployment rate is a mirage: the labor force participation rate. This figure — a measure of what percentage of the population is either employed or actively seeking work — has fallen from a high of nearly 70 percent in 2000 to 62.4 percent today.

To the Republican candidates, this is proof that Obamanomics really has been the catastrophe they always believed it to be. But falling labor force participation has little to do with the Great Recession or Obama’s policies. It’s really about preexisting long-term trends, but that hasn’t stopped conservatives from arguing otherwise.

The most patently egregious rhetorical misuse of the LFPR is the notion that 40 percent of Americans aren’t working. This figure has been an outraged staple of Donald Trump’s stump speech for months, and was repeated by Maria Bartiromo at the Fox Business Network debate. But the bulk of this 40 percent are retirees, students, and stay-at-home parents — not the shiftless deadbeats or displaced victims of the Obama economy that conservatives would have you believe.

Certainly, the LFPR has been on a steady decline for many years now. But business cycle factors, such as the lingering effects of the Great Recession, account for very little of this decline. Goldman Sachs attributes only 0.3 percentage points of the decline to cyclical forces. The White House’s Council of Economic Advisers says it’s at most 1 percent, likely made up of the Great Recession’s long-term unemployed giving up and dropping out of the labor force.

So what accounts for the big decline in the LFPR? Most of the decline is simply the natural result of Baby Boomers reaching retirement age and exiting the workforce. The CEA estimates that the aging population accounts for half of the decline in the labor force participation. Another large chunk are greater numbers of young people attending college and graduate school rather than entering the workforce.

It also includes an increasing number of women leaving the workforce to stay home with children. This is a decision that traditionalist conservatives generally applaud, but there should be some cause for concern. After rising for decades, women’s labor force participation rate has started to tick back down, and there’s evidence that escalating childcare costs are squeezing mothers out of the workforce. Providing government assistance for childcare costs and advanced early education would help reverse this trend.

Some of the LFPR decline may also be a result of increases in federal disability rolls. Since the 1980s, the number of individuals receiving Social Security Disability Insurance has grown substantially and in close correlation to the shuttering of the blue-collar economy. As disability standards have loosened, the program has increasingly become a safety net for jobless middle-aged blue-collar workers. And once workers go on disability, they are unlikely to leave the program to rejoin the workforce.

Because most of the decline in LFPR comes from seniors aging out of the labor force, this actually makes the recent jobs numbers look even better. While the old rule of thumb was that the economy needed to add about 150,000 jobs per month just to keep up with population growth, the exodus of retirees out of the job market has changed that. According to White House economic adviser Jason Furman, we now need only about 77,000 new jobs each month to break even. This makes this month’s 271,000 jobs number look even better

Granted, the economic recovery has been steady has fallen short for many Americans, and the wage effects of the recovery have been far too muted for the majority of workers. But we’ve been in an extended period of economic growth for over six years now.

Still, Republicans want to pretend that we are in the midst of an economic downturn, as Sen. Marco Rubio asserted in Tuesday’s debate. But that’s just not the case. Their brazen statistical malpractice only proves it.