Why I was (probably) wrong about the coming collapse of Obamacare

I’ve been teaching the conventional wisdom which says that a Bismarck-style universal health insurance program like Romneycare and Obamacare is like a three-legged stool. The three legs that hold up universal healthcare Bismarck systems like Obamacare are supposed to be:

  1. A mandate to buy insurance with penalties.
  2. Regulations that prevent insurers from charging extra for people with pre-existing conditions (nor any other exclusion).
  3. Subsidies for poor people who cannot pay.

The conventional wisdom has held that if one of those legs were cut off, the whole system would collapse. Now Trump has announced that he will cut off the first leg next year: the mandate that everyone must buy health insurance. I had been thinking that that would destroy the health insurance market, but Dylan Scott had an insightful analysis that convinced me I’m probably wrong. That won’t kill Obamacare next year because the mandate hasn’t actually been working anyway.  It is just too small and too easy to avoid to have been a significant leg of Obamacare.  Dylan says that,”In 2016, 6.5 million Americans paid an average fine of $70 for not being covered the year before” and Obama created numerous exemptions to help people avoid the mandate because it was so unpopular.  It was just too small to do much lifting in the system.  That also explains why Obamacare never achieved anything close to universal health insurance. Obamacare was going to get closer by ratcheting up the penalty over time and that would have made the mandate a more important part of our healthcare system, but now the mandate is already going away before it really had much effect.  Eliminating it at this point will not have as much effect as I had thought because it was just so trivial to begin with. I had thought that the mandate must have been a big deal because it generated a large amount of controversy and negative press and it was the only part of Obamacare that was unpopular with a majority of Americans.  

I’m surprised that it is so unpopular given how trivially small it is.  In comparison, the penalty is large in European universal systems and it is accepted there.  They achieve universal health insurance in those systems (unlike with Obamacare) because they have huge penalties and few exemptions and that works to get people to buy insurance. Uwe Reinhardt in Vox explains:

When you do this as the Swiss or Germans do, you brutally enforce the mandate. You make young people sign up and pay. But we are too chicken to do that, so we allow people to stay out by doing two things: We give them a mandate penalty that is lower than the premium. And we tell them, If you’re really sick, we’ll take care of you anyhow.

When they run these exchanges, they accompany them with a very harsh mandate. If you don’t obey the mandate, the Swiss find out, and they go after you and garnish your wages. If you’re not insured, they’ll look at your wages and recoup the premiums you owe. They’re very tough. And we’ve never been tough.

So the main work of Obamacare to increase health insurance coverage has been the subsidies that have encouraged a lot more people to get insurance and the regulation that enables sick people with pre-existing conditions to buy affordable healthcare.  Both of those two ‘legs of the stool’ are tremendously popular and a lot harder to cut (as the Republican Party discovered after many attempts last year) than the mandate which was the only part of Obamacare that was ever unpopular with the masses.

Now that the mandate is gone, Obamacare will become more popular because the other parts were always popular and now it is much harder to campaign against.  Plus we will achieve slightly lower rates of health insurance coverage which will make healthcare a slightly more prominent issue on the public’s list of domestic political priorities.

On the other hand, even though Obamacare only had a trivial penalty averaging only $70/year, perhaps it created a much greater perceived impetus for people to buy health insurance and Obamacare really will collapse.  Many people (including Trump) have the misconception that Obamacare has been repealed and so perhaps signups will collapse next year.  Trump is certainly also making other changes to help Obamacare collapse so even though the end of the individual mandate shouldn’t have much effect by itself, is there still the possibility that Obamacare will enter a crisis next year?  The smart money says no.  The healthcare industry should have the best analysis because their money depends upon getting the answer right and their lobbyists are not freaking out.  If they really thought that the Obamacare markets were going to collapse, they would be working overtime and they are not.  Now I finally think I understand why they are so nonchalant about the end of the individual mandate to buy health insurance.

Posted in Health

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