Monday, July 09, 2012

Why Obamacare can't survive in its present form

Jay Cost has a very perceptive post about why he believes that Obamacare is doomed. He points out that its fiscal viability is based on extremely questionable assumptions that the Democrats put in the bill in order to get a good score from the CBO. It is extremely unlikely that all or even any of these assumptions will be borne out and when they fail, the assumptions about the anticipated costs of the program will rocket.
For instance, the Congressional Budget Office gave the authors of the bill a pretty good score on the efficacy of the individual mandate, declaring that only a small portion of the public would choose to go without health insurance. This is very important: If the mandate is too weak, too many people will forgo coverage until they get sick, insurance premiums will rise, more people will forgo coverage, and so on. It’s known as a “death spiral.”

....There are plenty of other questionable assumptions like this scattered all throughout the bill. Consider:

-Will employers drop their insurance coverage en masse, knowing that their employees can get insurance on the exchanges? Democrats assume not, but there are signs that may not be the case.

-Can Medicare be cut by $500 billion without undermining quality of care? Democrats assume so, but the Centers for Medicare and Medicaid Services is doubtful.

-Can Medicaid handle about 15 million new recipients? Democrats assume so, but doctors are already loath to accept Medicaid because it pays so poorly.

-Can you increase the number of people demanding medical services, without a corresponding increase in the supply of services, without a huge spike in prices? Democrats assume so, but common sense casts doubt on this proposition.
Remember that all these assumptions work together to make the costs even feasible. We're already seeing evidence that these assumptions are faulty as more employers are dropping insurance coverage even before the law goes fully into effect. State governors are already announcing that they won't accept the new Medicaid expansion which will put more of their citizens into the federal exchanges thus stretching their funds. And there will be a domino effect as one area fails to meet its projected costs and benefits that will ripple throughout the whole edifice.
This is a problem for the bill’s advocates, who promised that it would reduce the deficit; the insurance subsidies are more generous than Medicaid, meaning the price tag is going up. And there will be second-order effects. The law mandates a cap on exchange subsidies of 0.5 percent of GDP after 2018. If the Medicaid expansion collapses, and the exchanges pick up the slack, then we’re going to hit that cap much sooner than anybody anticipated.
Cost then puts his finger on the essential difference between other, popular entitlements like Social Security and Medicare.
The political genius of these programs was that they were designed to benefit everybody. Indeed, this is why FDR stuck with a social insurance model for Social Security, despite the fact that its design was clunky. He understood, correctly, that it would inoculate the program from future political blowback.

This is a big reason why these programs have withstood the test of time, even as other social programs like welfare have been substantially reformed. Because Social Security and Medicare do not discriminate between citizens, there has yet been no political coalition powerful enough to alter them. Everybody expects to benefit from them, so it has been impossible to implement even common-sense reforms.
But, as Cost writes, Obamacare isn't a one-size fits all program; instead it deliberately discriminates among recipients. And many people aren't aware of these differences.
Obamacare has no such insulation from reformers because it discriminates between classes of citizens. Indeed, Democrats played all kinds of favorites:

-People who make less money get a better deal on insurance than people who make more.

-People who acquire insurance from the exchanges get a better deal than people who get it through their employer

-Medicare recipients in Florida get a better deal than Medicare recipients elsewhere.

-People who receive an insurance subsidy get a better deal than people junked into the broken Medicaid program.

-People without insurance get a better deal than people who have it but are paying more than they can afford.

And on and on it goes. Worse, many of the winners in the Obamacare system are actually well heeled interest groups like the drug manufacturers. They spent hundreds of millions of dollars on lobbying, and they scored a substantial return on their investment.
Just the fact that Florida Medicare recipients do better than those in other states should make a dynamite ad to run in places like Ohio and Pennsylvania while pointing out how the bill was crafted to make special deals to get votes. This would be just a start for Republicans who want to create more support for repeal. The GOP should get beyond the whole tax issue and get into all the other problems with the way this was set up. It's a target-rich environment.