The Future of U.S. Health Care: With the Affordable Care Act here to stay, what are the prospects for Medicaid, employer-based insurance, and single-payer?
August 14, 2012
The Affordable Care Act is a monumental accomplishment. Thanks to its expansion of health care coverage and new regulations, tens of millions of Americans will feel more secure, knowing that they can seek medical attention when they need it and that they will be protected from the insurance industry’s most egregious practices.
But the reform was very much limited by the American terms of the debate, particularly the enduring belief that markets are always more efficient than government (even though our current private insurance system demonstrates otherwise) and the conviction that any changes to the arrangements of the insured cannot fly. The result is a sprawling, confusing, Gorgon-headed workaround, whose beneficial features are difficult for the typical consumer to discern.
Now that the Act has run the Supreme Court gauntlet, how will it affect the structure and politics of health care going forward? Assuming the ACA survives Republican repeal attempts, does it represent a large step toward a single-payer system? What will happen to the employer-provided sector of health insurance? Will health insurance in the United States settle into a pattern of competing private plans? And will some states really opt out of the ACA’s Medicaid expansion and forgo billions of federal dollars?
Prognostication is always a dangerous business—witness the many observers who thought the Supreme Court would uphold the Medicaid expansion but strike down the individual mandate, the opposite of the Court’s ruling. Policy changes of this magnitude are especially difficult to assess, since they take years to unfold, with all the legislative tweaks and developments that are sure to follow. As political scientist Eric Patashnik has pointed out, Social Security was reshaped by decades of amendments and changes before it took the form we know today. A recent Congressional Budget Office report on the ACA admits that the legislation contains so many moving parts, and the changes are so consequential, that prediction is difficult. With this caveat, I offer the following thoughts with modesty.
A review of past trends and policy experiences provides some guidance. It suggests that the prospects for a single-payer system are no brighter than they were before the Act was passed. The employer-provided system will likely survive for the foreseeable future, although the forces that have fed its deterioration over time remain in place. What appears most likely is a competing system of private insurers, attractive in that the health exchanges in which they will operate steer subsidies toward lower- and middle-income consumers, less attractive in that private insurers retain many of the administrative inefficiencies of the present system. And we can expect that conservative governors will not be able to refuse the Medicaid expansion indefinitely, as there will be considerable pressure from providers and voters (who will otherwise see their tax dollars flowing out of state) to join.
The Unraveling of Employer-Provided Insurance
Just over half of all Americans get health insurance through an employer (another 30 percent are covered through public insurance programs such as Medicare and Medicaid, and 16 percent have no health insurance). The employer-based system has been deteriorating for a long time, as rising costs have led to fewer and fewer employers offering health insurance, and more and more employees joining the uninsured population. This trend was a key motivation behind health reform in the first place. The ACA, and the similar 2006 Massachusetts reform that preceded it, both contain a mandate requiring employers of a certain size to offer health insurance to employees or pay a fine ($295 per employee in Massachusetts, $2,000 per employee nationally under the ACA).
At first glance, we might expect employers to drop health insurance: the cost of the fine is well below the cost of offering insurance, and employees will still be able to get insurance, with subsidies in many cases, on the exchanges established by the ACA. However, the Massachusetts experience, along with projections for the ACA, suggests this outcome is unlikely. In Massachusetts, employer-based coverage increased slightly after health care reform was implemented. Projected declines under the ACA are modest. A March 2012 Congressional Budget Office study of the ACA estimates that in 2019 to 2022, three to five million fewer non-elderly persons will have employer-provided insurance compared to a pre-ACA baseline. Similarly, the Urban Institute estimated that employer-provided insurance coverage would have declined by 500,000 if the ACA had been fully implemented in 2010 while the Lewin Group predicted a decline of 3 million if the law had been in place in 2011. A Rand analysis predicted that employer-based coverage would actually increase by 4 million in 2016 thanks to the ACA.
Why would employer-based coverage endure, when the employer fine is so low? As the CBO points out, the ACA and the market for employees present a complex web of incentives; there is more for employers to think about than the fine. Chiefly, businesses have to compete for employees, and health insurance has proven one of the most desirable benefits over the decades. Businesses that do not offer health insurance have to increase their compensation to compete, and the compensation has to be greater than a comparable amount of health insurance, since wages and salaries are taxed, while health insurance benefits are not.
Americans’ deep suspicion of government make the prospects of a single-payer system very poor.
That said, employers’ incentives to drop health insurance might grow over time, particularly because of the so-called “Cadillac tax” on high-value health plans. The tax break for employer-provided health insurance, in which neither employers nor employees pay taxes on health insurance premiums, currently has no cap. This encourages the adoption of elaborate insurance plans, which, in turn, create incentives for overindulging health care. Beginning in 2018, a 40 percent excise tax will be imposed on the value of employer-provided plans above a threshold of $10,200 for individual coverage and $27,500 for family coverage. This provision was included in the ACA to cut costs and to discourage both employers and employees from choosing such plans. Many current plans will reach the thresholds between now and 2018, and after that date, more and more plans will be subject to the tax since the thresholds will be adjusted to the Consumer Price Index, which rises at a lower pace than medical inflation. In essence, the Cadillac tax is a gradual repeal of government’s enormous subsidization of employer-provided health care…