ACA Not as Egalitarian as It Appears

The Affordable Care Act has generated an enormous amount of partisan rancor, but with more access to data, it is worth taking stock of how it has actually been working.

We can safely say that the policy is costing less than anticipated, perhaps 20 percent less, according to a Congressional Budget Office estimate, and that it has reduced the number of Americans without insurance. But the numbers also suggest that by some measures, the Affordable Care Act has had only a limited impact on economic inequality. In fact, I view the policy as an object lesson in the complexity of reducing the harmful consequences of inequality in the United States.The act has many parts, but let’s focus on the mandate, a core feature that requires those without insurance to buy it. It was intended to help millions of Americans who did not have health care coverage. Under the program, government subsidies are available for the needy, and there is clear evidence that the poorest people, who receive the largest subsidies, are better off under the health reform law.

In that sense, the program has been a success. But whether other individuals subject to the insurance mandate — those who qualify for lower subsidies or for none at all — are also better off is much harder to say, some recent research has found.

Of course, this question may seem simple if you consider health care coverage to be an essential component of a good human life, and perhaps of social justice as well. If you begin with those assumptions, you might conclude that when you require people to buy insurance coverage you are improving their lives — even if they are not willing to pay for the insurance without prompting from the government.

But there is another way of looking at it, one used in traditional economics, which focuses on how much people are willing to pay as an indication of their real preferences. Using this measure, if everyone covered by the insurance mandate were to buy health insurance as the law dictated, more than half of them would be worse off.

This may seem startling. But in an economic study, researchers measured such preferences by looking at data known as market demand curves. Practically speaking, these demand curves implied that individuals would rather take some risk with their health — and spend their money on other things — partly because they knew that even without insurance they still would receive some health care. These were the findings of a provocative National Bureau of Economic Research working paper, “The Price of Responsibility: The Impact of Health Reform on Non-Poor Uninsureds” by Mark Pauly, Adam Leive, and Scott Harrington; the authors are at the Wharton School at the University of Pennsylvania.

One implication is that the preferences of many people subject to the insurance mandate are likely to become more negative in the months ahead. For those without subsidies, federal officials estimate, the cost of insurance policies is likely to increase by an average of another 7.5 percent;even more in states like Oklahoma and Mississippi. The individuals who are likely losers from the mandate have incomes 250 percent or more above the federal poverty level, the paper said. (That figure is $29,425; the federal poverty level is $11,770 for a single person, more for larger families). They are by no means the poorest Americans, but many of them are not wealthy, either. So the Affordable Care Act may not be as egalitarian as it might look initially, once we take this perspective into account.

It is a matter of philosophy whether we should help people even if they may not want to bear the costs, or instead should honor their individual preferences, but either way there is a sustainability problem. Consider that the health law was enacted to replace an unsustainable system in which uninsured people relied on last-ditch emergency room care. Yet enrollment projections suggest that the Affordable Care Act’s insurance mandate may face sustainability issues of its own. Recently the Obama administration announced that it expected 2016 enrollments through insurance exchanges of about 10 million people, whereas a 2013 Congressional Budget Office estimate projected enrollments of about 22 million; that is partly why the expected costs of the program have fallen. Nine million Americans gained insurance coverage last year, in large part because of the Affordable Care Act, but the smaller-than-expected figures for exchange enrollment mean there may not be enough healthy people to subsidize the overall risk pool without insurance prices rising even more.

Then there is the separate problem of resistance to the expansion of Medicaid, which provides assistance to many of the neediest people but is voluntary for individual states as a result of the Supreme Court’s Affordable Care Act ruling of 2012. As a political matter, expanding coverage for the uninsured through Medicaid remains contentious, with many states still refusing to go along.

In short, while numerous government programs redistributed income toward the poor successfully in the past, successive improvements, as exemplified by the Affordable Care Act, have become harder to accomplish, as many of the easiest and most efficient opportunities have already been exploited. We have ended up at margins where political divisions and interest group capture make further progress harder to carry out, no matter how good the proposed policies may seem on the drawing board. While politicians wrangle over the health care law, many of the monetary gains from the changes in the system are benefiting the health care establishment rather than the patients.

The Affordable Care Act does not seem to be wildly popular, but it is also striking that it has been receiving relatively few direct attacks during the Republican presidential debates. If nothing else, this all may be a sign that the age of America’s grand ambitions is over.