When, if ever, do you think a significant number of (elected) Democrats will turn against the ACA? Between now and 2014? After the 2014 elections? After the 2016 elections?
Great question, glad its here, gonna ramble at length. Direct answer to - When will Dems being turning on Obamacare? Next week.
Longer explanation: go back to the beginning of the ACA, I'm talking Democratic congressional leaders and WH staffers with sleeves rolled up in 2009 in a WH war room having a blank whiteboard. As they face the formidable challenge of solving the American health care crisis (that all feel they must solve), they first start with the landscape, the first three bulletpoints on the whiteboard, US health care as they found it in early 2009. It was basically comprised of three groups.
A) Traditional, employer-based, large-group insurance. 70% of the population.
B) The individual market, to a large extent comprised of the relatively healthy, who tend to opt for substandard coverage on the expectation of not needing much care. 15% of the population.
C) The sick and poor who cannot afford any health care, much less the comprehensive coverage they need. 15% of the population.
Looking at that whiteboard, the Democratic royalty knew they had to bring comprehensive health care to group C. Being on the other side of memes, they also knew that they had to come up with some serious dough, because ideological arguments of rights to health care aside, it costs a lot more to provide comprehensive health care to the chronically ill than not to provide such care.
Facing this conundrum, and with smart people in the room, someone hit on the solution: the money to pay for the newly-expensive care of group C will come a little bit from tax increases, but mostly from forcing those in group B to buy 'real' insurance (and not the cheapy $10 K cap plans that so many of them had). This was an incredibly elegant plan, and in a tail-wagging-the-dog way, everyone in the room was elated. The left had dreamed of its universal health care for at least a half-a-century, and here was a way to make it happen.
Can you define "turn against?" I know that's a gap in JB's question more than a flaw in your own posts, but I think it's important. I mean, if folks just badmouth the ACA, without being willing to put votes behind that, the relevance of turning is partly diminished. If they do put votes behind it, how far? What kinds of things will they vote against? There are lots of little bits of Obamacare which even Republicans have a hard time opposing, and I'd imagine it'd be even harder for Democrats to oppose.
///
My only other quibble is that Club B, even if they eventually get in on the system, were unlikely to be the first ones through the door. To look at October only, with website flaws (or perception thereof), I bet a lot of folks just said "eh, I'll get around to it." That's what I've done. Maybe I'll take a look over the long weekend. IIRC, Massachusetts signups were low for a year, but eventually the system seems to be mostly running decently. Depending on what turning-Dems do on a policy front, it's conceivable that the laws are mostly unchanged by a year's time, and significantly more Club B folks will have signed up. A year from now it's a hazy magic eight ball, IMHO, even if you're probably mostly right about immediate reaction.
Until a querulous voice in the back of the room said "Wait a second. If the Group Bers wanted real health insurance wouldn't they buy it?" This question made the room nervous. Then a second, more querulous point: "If the Group Bers didn't want to pay that much for health insurance, and now they're forced to, won't they be pissed?"
Tail still firmly in control of the dog, this problem was 'solved' by memes like "If you like your health plan you can keep it". Not the Group Bers of course, but they don't really have a health plan, and they should know enough to read the damn fine print. If that seems like a bad idea when you are reading the recap 15 years hence, recall that the dog is not wagging the tail here.
And so the ACA was born, critically relying on the assumption that the significant additional cost of care for the Group Cers would be borne by forcing Group Bers to buy 'real' health insurance. With that in mind, consider that the October signups, which were a mere 20% of the overall goal, were also heavily skewed toward the old and sick. In the states that report, very very few of the signups were folks under 35. When one considers that a subset of the under-35s are also sick and unable to access insurance, its quite possible that the total signups in the critical Group B above, so far, is
ZERO.
Assuming this is all roughly true, self-interested Democratic congresscritters won't be able to hang in much longer. This assumes they mostly know first or second-hand what was discussed in the war room, and how the "Group B" signups have been virtually non-existent so far, and with the toothless penalty and the outrage over "you can keep your plan", it doesn't look good from here.
One other note: its funny to reflect on the left-wing triumph a month ago at the transparent stupidity of the Republicans for thinking it was worthwhile to shut down the government, and threaten the debt ceiling, for nothing more tangible than to argue that the delay of Obamacare was urgent enough to merit such actions.
I do like much of what you wrote in this response, it is fairly well thought out. I will say though that Democrats are unlikely to abandon this policy en masse largely because such a move would be unprecedented. There is too much energy put into the law. Some form of extended public healthcare has been the Democrat dream since the New Deal, they may push for changes, but abandoning it? Not going to happen.
Hey Brian thanks for the compliment, you're no doubt correct that there are many ideological and practical tailwinds to keep pushing the ACA forward.
At the end of the day, though, for most of us "self-preservation" is an ideology that trumps all the others. We don't admit this; we all claim to be willing to go down with the ship. Were that unfortunate moment to arrive, however; most of us would jump on the life boat if the opportunity was there.
If its true that the viability of the ACA rests on an assumption that was catastrophically incorrect, and further if those congressfolks have inside knowledge that is so, it seems to me that all the ideological fervor in the world will pale in the face of what will be a difficult, but necessary, business decision on their part.
If there are a bunch of people relying on Obamacare, Obama's not going to be under much pressure to extend letting-people-keep-2013-plans past 2014. There's enough protections built into the law to prevent a death spiral in 2014. If Democrats hang together, the law can work.
And as far as self-interest goes, if they back down from ACA, they will get buried in the next election with 100% certainty. If they hang together, it might work and they'll be vindicated.
It's hard to imagine that the situation wouldn't be worse for Democrats if the GOP hadn't shutdown the government. For one thing, the crisis would have started a couple of weeks earlier, probably with greater intensity.
Most obviously, they could have kept voting on smaller bills to keep the government running and bills paid for a few weeks at a time. If one of those bills were expiring now, they would be in a damn good position, wouldn't they?
The thing is though, would fleeing from the law actually be in Democrats' self interest?
If Obamacare is still not working by the time of the midterms, I don't think that a Democrat will be safe just because they say that they're opposed to the ACA now.
It seems to me that Democrats are screwed in 2014 if Obamacare isn't working, because their party is so closely tied to it.
So I'm of the belief that Democrats' best bet is to do everything they can to get it working before the midterms, or at least working well enough that they won't suffer huge midterm losses.
I don't think enough dem Senators will agree to overturn ACA before 2017 to override a veto.
CSH:
People in your group B will only suffer if they earn too much to qualify for the subsidies. I have never seen any figures on how many people earn over 46k and purchase individual policies.
My Group B may have been a little misleading, as the unsubsidized holders of cheapy plans are only a subset of the individual market. However, the subsidies are graduated, which means a person earning $40 K (and currently holding a cheapy plan) may still experience sticker shock in Obamacare, even net of their (small) subsidy.
Of course, the larger the subsidy, the more likely we're actually talking about Group C.
I think having a "Group B" category is a mistake, when we're talking about two different situations that only sometimes intersect. Group B1 has healthy people paying less for health care because they're healthy. Group B2 has people buying crappy health insurance because they don't want to pay more.
Group B1 (a group I personally am in), morally speaking, should pay more. That's not "tail wagging the dog", that's the whole point of ACA--to stop discriminating against sick people. If the revenue required for ACA subsidies comes from taxes and Group B1, then there's no moral problem for the ACA.
Group B2 is more complicated. To the extent that people are in this group because they can't afford to buy better insurance, then subsidies solve the problem. But B2 probably includes a very small number of relatively affluent people who just don't think health insurance (or at least health insurance worthy of the name) is worth the money. Well, it's unfortunate that they're now required to buy broccoli, so to speak, but it's not that unfortunate.
If the website were working, and there were tons of people talking about how they can buy health insurance that wouldn't be possible otherwise, complaints from B1 and B2 wouldn't be such a problem. In particular, if there comes to exist a large group of people relying on Obamacare, then anyone who tries to repeal Obamacare will have to take insurance away from people--which, by bipartisan consensus, is now anathema.
@prefix-free: thanks for taking up my argument, a few thoughts:
First, I was happy to see you brought up the normative argument (the B's - or B1s - should pay more for their healthcare). FWIW, I pretty much agree with that. I also suspect that such a thought drove the drafters of the ACA.
The problem with that normative argument is that people don't typically behave in a normative way. You're a B1 in spite of the apparent moral hazard - why? Probably for the same reason you do everything else in your life: you think its in your interest. The rivalry between "acting on moral imperatives" and "acting in one's interest" is all too often the rivalry between a fly and a speeding windshield.
One other important point: subsidies are not a magic solution for those holding cheapy plans in the B group. My ignorance will show, but its not as if a person making $40 K will have their premia completely covered. They will get help, and they will get more help the less they make, but if they are currently holding a cheapy plan, that won't look like much help to them.
Finally, to why the politicians will flee: even if the ACA "works" (because of the fail-safes), the budget impact could be horrendous, depending on how sparse is the B-type participation. Should that unfortunate circumstance arise, dreams of universal coverage will be the furthest thing from many folks' minds as they think about the toxic impact of the ACA.
Any smart politician would run from that sort of dynamic.
I'm in group B1 because I'm healthy, period. I'm not sure what you mean by moral hazard, either in the economics sense, or in the sense that I'm somehow acting contrary to any moral imperative.
But that's kind of besides the point because I'm nowhere assuming that anyone is going to do anything contrary to their interests. I'm just saying that if B1's situation getting somewhat worse were the only ACA problem, ACA would be perfectly safe, politically speaking.
I think if you only look at people in group B who aren't also in group B1, you won't find many people who won't be either paying the same or less, or receiving better coverage. When we're looking at group B, almost all of them will be either 1) benefiting from the market discriminating against others or 2) not worse off.
The budget could be a problem. It won't be a long-term problem, though. In later years the mandate penalty gets bigger, and grandfathered/extended plans will be less of an issue. Moreover, the budget effects won't be clear until the plans start running, and by that point it's too late--people are already covered, the GOP is already on record as saying that people shouldn't have insurance taken away from them. ("Do no harm", in their words--this is a longer term problem for them as their proposed changes would disrupt existing insurance arrangements, especially employer markets, at least as much as ACA does.)
If the end result is that lots of poor, sick people have coverage but the government is spending more money, I'm not sure Democrats are going to have a huge problem with that, either ideologically or politically. Spending money on sick people isn't exactly the most unpopular government expenditure.
Some more Democrats will turn against it, but unless those defectors are fools they have to hope the law itself holds steady. Politically, if ACA fails, it is too late for Democrats to redeem themselves. Their fate is linked to ACA, no matter where they position themselves going forward.
I am going to go with April 15, 1015. For a reason I hadn’t considered before and haven’t seen talked about anywhere.
Consider someone who goes through the healthcare.gov process today and ends up having it being presented to them that they are going to get a $300 subsidy per month, which they can use on any of the plans as they see fit. They might decide to select a plan that costs a total of $500 per month (probably the gold level) since after the subsidy, they will be only out of pocket $200 per month. Or they might go with a lower cost plan because it will be essentially free to them. But 17 months down the road, by April 15, 2015 when they complete their 2014 taxes, if their income had gone up more than expected, they might end up being on the hook for much more than that $200 per month – all the way up to the full $500 per month for the gold plan or for the whole cost of the “free” silver plan.
At least 17 million people are going to be eligible for a full or partial tax credit for the cost of buying insurance. Many of them are young people just getting started and not yet making enough to put them over the subsidy threshold of 400 percent of the poverty line. They will get an estimate of the subsidy credit when they sign up, but here is the blind spot: that estimate being created won’t be made final until the person files their 2014 taxes, meaning by April 15, 2015 – meaning almost a full 17 months from today. But today is when they need to sign up and be locked into a total cost.
And sure, we might say that since they are making so more that they can afford it, and that might even be true if they planned for it. Losing out on the planned credit after the fact for someone making $25 or $30 thousand dollars, however, is going to put them in a very tough spot. Had they known they were going to be on the hook for more out of pocket costs, people might have chosen a lower cost plan or maybe they’d choose to skip the insurance since they are young and healthy and simply pay the small penalty. But by April of 2015, not only will they have racked up all the cost of 2014’s coverage, but they would have had coverage for a quarter of 2015, too. Those costs will have already been ‘consumed’ and changing the plan at that point won’t undo the past bill.
I’d expect all these people who had the bait and switch pulled on them to turn on those who put them in this position. And I expect those Democrats to finally turn on the ACA. Sure, they could have read it before they passed it, but that’s water under the bridge by then.
As Joe Biden might say, this is a big fucking deal.
Hopefully, throughout 2014, there will be reminders that changes in income should be reported. Not just to lessen the impact of repaying subsidies, but to avoid the "bait and switch" aspect--if people are told in advance that subsidies will need to be repaid if income increases, then there's nothing wrong with the policy.
Even if we only look at people acting in good faith and not someone who is just waiting to scream they didn't know, do we honestly think this isn't going end up horribly?
Millions of people who see even minor income changes are going to be affected. And even if they report a change dutifully the moment it happens, they are still going to be on the hook for premium changes going back to the start of that year.
So someone making 22k today when they pick their coverage who then gets a raise to 25k in June of next year, is still going to have a large bill due even if they report the raise as soon as it happens. And because of the forward looking nature of the premium setting, they may have to 'make up' the part of the January to June premium that they would have been responsible for had they been making 25k all along.
Plus, will they be allowed to change their plan because of this? It won't be open season any longer, so I don't think they will, which means they might be locked into a plan they would not have picked until the end of the year. The same thing is going to happen over and over again for these people until they are no longer eligible for any subsidy.
Good lord, since I hadn't seen this mentioned anywhere, I didn't know about the potential scope.
From prefix-free's link above: "38 percent of subsidy recipients would be in families owing repayments at the time they file taxes, with a median repayment of $857."
So that's 6.5 million people who are going to end up in this situation. With the median trap of almost $900.
And even if the consumer does everything right and notifies the government right away of a change in income, it is going to be bad: "if all changes are reported and subsidies are adjusted in a timely manner, the share of recipients owing repayments would fall to 23 percent."
So almost a quarter of the people WILL still be sucked in by the bait in switch.
Just how much would someone have to repay going from 23K to 25K halfway through the year (since its halfway through they'd only make 24K by the end of the year)? The study I linked seemed to say it was mostly, though not entirely, about how soon subsidies are adjusted: "If all changes are reported and subsidies are adjusted in a timely manner, the share of recipients owing repayments would fall to 23 percent with a median repayment of only $343".
Are subsidies so generous (and phased out so quickly) that people making a higher income would mean having less money left over post-health insurance than they would if they made less? If not, then its a matter of people making more money who would rather spend that extra money on something other than health insurance. By mid 2014 (to say nothing of April 2015), the system will have been in place so long, with so many stakeholders, that I don't think this will be enough to unravel the whole system. That is, unless the administration completely ignores the problem throughout 2014, which given how things have gone so far they very well might, in which case you would be vindicated.
@prefix - I doubt that the loss of a subsidy occurs at a rate of dollar for dollar. Even considering the marginal increase in state and federal taxes, I would suspect that they wouldn't end up with fewer dollars net. But I would think that the increase in their responsible portion plus that taxation will shock some. And it is clearly going to exacerbate the "cost" of moving up and out of the lower income tiers.
I don't' understand why it wasn't based on current year income. For coverage in 2014, basing it on 2013 income makes much more sense. Even if you don't have your taxes filed until April 15, you at least have a good idea of your income by the end of the year. Certainly better than you do 17 months before hand.
I recognize that this might trap someone in higher premiums if they are facing the flip side problem - that of falling income - but I think this can be better managed than the front side issue. Especially since the population most likely to have the front problem are the people the system most needs to join and join soon.
And, the bigger problem is that they may then be locked into the plan. Like I said, after this year, open season runs 10/15 - 12/4. There is a "qualifying event" condition for "If you are determined newly eligible or newly ineligible for subsidies", but we don't yet know if that only means for when your subsidy goes to zero, or if it will cover it dropping only a few bucks.
Certainly being trapped with too low subsidies and a falling income is worse than too high and rising. Maybe falling income would be easier to detect and adjust to (so people don't face a big bill at the end), then you would essentially be doing what we're doing now--setting the subsidies initially at 2013 income and adjusting them accordingly as income changes.
It's a bit of a problem that people making more money might end up keeping less of that additional money than they'd like, but relative to the problems people tend to have with the individual market today it doesn't sound very big. The much bigger danger is, as you astutely warned, people getting shocked by a huge tax bill in April 2015 because their subsidies weren't adjusted.
I suppose in the falling income case, they would at least have Medicaid as a backstop. That program uses current data and not the prior year's 1040 for eligibility. I don't know this for sure, but I suspect even the expanded program does the same. So at least those who this switch would hurt the most have some protection.
And again, I'll say that the profile of the rising income person is more likely to be younger with their career on the assent, which is exactly who the ACA needs to sign up ASAP.
But I understand your point and we don't disagree. I appreciate the link since I hadn't seen this mentioned at all, as I said. It only occurred to me when I talked with some people going through it.
Great question, glad its here, gonna ramble at length. Direct answer to - When will Dems being turning on Obamacare? Next week.
ReplyDeleteLonger explanation: go back to the beginning of the ACA, I'm talking Democratic congressional leaders and WH staffers with sleeves rolled up in 2009 in a WH war room having a blank whiteboard. As they face the formidable challenge of solving the American health care crisis (that all feel they must solve), they first start with the landscape, the first three bulletpoints on the whiteboard, US health care as they found it in early 2009. It was basically comprised of three groups.
A) Traditional, employer-based, large-group insurance. 70% of the population.
B) The individual market, to a large extent comprised of the relatively healthy, who tend to opt for substandard coverage on the expectation of not needing much care. 15% of the population.
C) The sick and poor who cannot afford any health care, much less the comprehensive coverage they need. 15% of the population.
Looking at that whiteboard, the Democratic royalty knew they had to bring comprehensive health care to group C. Being on the other side of memes, they also knew that they had to come up with some serious dough, because ideological arguments of rights to health care aside, it costs a lot more to provide comprehensive health care to the chronically ill than not to provide such care.
Facing this conundrum, and with smart people in the room, someone hit on the solution: the money to pay for the newly-expensive care of group C will come a little bit from tax increases, but mostly from forcing those in group B to buy 'real' insurance (and not the cheapy $10 K cap plans that so many of them had). This was an incredibly elegant plan, and in a tail-wagging-the-dog way, everyone in the room was elated. The left had dreamed of its universal health care for at least a half-a-century, and here was a way to make it happen.
Can you define "turn against?" I know that's a gap in JB's question more than a flaw in your own posts, but I think it's important. I mean, if folks just badmouth the ACA, without being willing to put votes behind that, the relevance of turning is partly diminished. If they do put votes behind it, how far? What kinds of things will they vote against? There are lots of little bits of Obamacare which even Republicans have a hard time opposing, and I'd imagine it'd be even harder for Democrats to oppose.
Delete///
My only other quibble is that Club B, even if they eventually get in on the system, were unlikely to be the first ones through the door. To look at October only, with website flaws (or perception thereof), I bet a lot of folks just said "eh, I'll get around to it." That's what I've done. Maybe I'll take a look over the long weekend. IIRC, Massachusetts signups were low for a year, but eventually the system seems to be mostly running decently. Depending on what turning-Dems do on a policy front, it's conceivable that the laws are mostly unchanged by a year's time, and significantly more Club B folks will have signed up. A year from now it's a hazy magic eight ball, IMHO, even if you're probably mostly right about immediate reaction.
(part II):
ReplyDeleteUntil a querulous voice in the back of the room said "Wait a second. If the Group Bers wanted real health insurance wouldn't they buy it?" This question made the room nervous. Then a second, more querulous point: "If the Group Bers didn't want to pay that much for health insurance, and now they're forced to, won't they be pissed?"
Tail still firmly in control of the dog, this problem was 'solved' by memes like "If you like your health plan you can keep it". Not the Group Bers of course, but they don't really have a health plan, and they should know enough to read the damn fine print. If that seems like a bad idea when you are reading the recap 15 years hence, recall that the dog is not wagging the tail here.
And so the ACA was born, critically relying on the assumption that the significant additional cost of care for the Group Cers would be borne by forcing Group Bers to buy 'real' health insurance. With that in mind, consider that the October signups, which were a mere 20% of the overall goal, were also heavily skewed toward the old and sick. In the states that report, very very few of the signups were folks under 35. When one considers that a subset of the under-35s are also sick and unable to access insurance, its quite possible that the total signups in the critical Group B above, so far, is
ZERO.
Assuming this is all roughly true, self-interested Democratic congresscritters won't be able to hang in much longer. This assumes they mostly know first or second-hand what was discussed in the war room, and how the "Group B" signups have been virtually non-existent so far, and with the toothless penalty and the outrage over "you can keep your plan", it doesn't look good from here.
One other note: its funny to reflect on the left-wing triumph a month ago at the transparent stupidity of the Republicans for thinking it was worthwhile to shut down the government, and threaten the debt ceiling, for nothing more tangible than to argue that the delay of Obamacare was urgent enough to merit such actions.
Crazy, huh. Like a fox.
I do like much of what you wrote in this response, it is fairly well thought out. I will say though that Democrats are unlikely to abandon this policy en masse largely because such a move would be unprecedented. There is too much energy put into the law. Some form of extended public healthcare has been the Democrat dream since the New Deal, they may push for changes, but abandoning it? Not going to happen.
DeleteHey Brian thanks for the compliment, you're no doubt correct that there are many ideological and practical tailwinds to keep pushing the ACA forward.
DeleteAt the end of the day, though, for most of us "self-preservation" is an ideology that trumps all the others. We don't admit this; we all claim to be willing to go down with the ship. Were that unfortunate moment to arrive, however; most of us would jump on the life boat if the opportunity was there.
If its true that the viability of the ACA rests on an assumption that was catastrophically incorrect, and further if those congressfolks have inside knowledge that is so, it seems to me that all the ideological fervor in the world will pale in the face of what will be a difficult, but necessary, business decision on their part.
If there are a bunch of people relying on Obamacare, Obama's not going to be under much pressure to extend letting-people-keep-2013-plans past 2014. There's enough protections built into the law to prevent a death spiral in 2014. If Democrats hang together, the law can work.
DeleteAnd as far as self-interest goes, if they back down from ACA, they will get buried in the next election with 100% certainty. If they hang together, it might work and they'll be vindicated.
It's hard to imagine that the situation wouldn't be worse for Democrats if the GOP hadn't shutdown the government. For one thing, the crisis would have started a couple of weeks earlier, probably with greater intensity.
Most obviously, they could have kept voting on smaller bills to keep the government running and bills paid for a few weeks at a time. If one of those bills were expiring now, they would be in a damn good position, wouldn't they?
"they would be in a damn good position"
Delete"they" being the GOP.
The thing is though, would fleeing from the law actually be in Democrats' self interest?
DeleteIf Obamacare is still not working by the time of the midterms, I don't think that a Democrat will be safe just because they say that they're opposed to the ACA now.
It seems to me that Democrats are screwed in 2014 if Obamacare isn't working, because their party is so closely tied to it.
So I'm of the belief that Democrats' best bet is to do everything they can to get it working before the midterms, or at least working well enough that they won't suffer huge midterm losses.
I don't think enough dem Senators will agree to overturn ACA before 2017 to override a veto.
ReplyDeleteCSH:
People in your group B will only suffer if they earn too much to qualify for the subsidies. I have never seen any figures on how many people earn over 46k and purchase individual policies.
My Group B may have been a little misleading, as the unsubsidized holders of cheapy plans are only a subset of the individual market. However, the subsidies are graduated, which means a person earning $40 K (and currently holding a cheapy plan) may still experience sticker shock in Obamacare, even net of their (small) subsidy.
DeleteOf course, the larger the subsidy, the more likely we're actually talking about Group C.
I think having a "Group B" category is a mistake, when we're talking about two different situations that only sometimes intersect. Group B1 has healthy people paying less for health care because they're healthy. Group B2 has people buying crappy health insurance because they don't want to pay more.
DeleteGroup B1 (a group I personally am in), morally speaking, should pay more. That's not "tail wagging the dog", that's the whole point of ACA--to stop discriminating against sick people. If the revenue required for ACA subsidies comes from taxes and Group B1, then there's no moral problem for the ACA.
Group B2 is more complicated. To the extent that people are in this group because they can't afford to buy better insurance, then subsidies solve the problem. But B2 probably includes a very small number of relatively affluent people who just don't think health insurance (or at least health insurance worthy of the name) is worth the money. Well, it's unfortunate that they're now required to buy broccoli, so to speak, but it's not that unfortunate.
If the website were working, and there were tons of people talking about how they can buy health insurance that wouldn't be possible otherwise, complaints from B1 and B2 wouldn't be such a problem. In particular, if there comes to exist a large group of people relying on Obamacare, then anyone who tries to repeal Obamacare will have to take insurance away from people--which, by bipartisan consensus, is now anathema.
@prefix-free: thanks for taking up my argument, a few thoughts:
DeleteFirst, I was happy to see you brought up the normative argument (the B's - or B1s - should pay more for their healthcare). FWIW, I pretty much agree with that. I also suspect that such a thought drove the drafters of the ACA.
The problem with that normative argument is that people don't typically behave in a normative way. You're a B1 in spite of the apparent moral hazard - why? Probably for the same reason you do everything else in your life: you think its in your interest. The rivalry between "acting on moral imperatives" and "acting in one's interest" is all too often the rivalry between a fly and a speeding windshield.
One other important point: subsidies are not a magic solution for those holding cheapy plans in the B group. My ignorance will show, but its not as if a person making $40 K will have their premia completely covered. They will get help, and they will get more help the less they make, but if they are currently holding a cheapy plan, that won't look like much help to them.
Finally, to why the politicians will flee: even if the ACA "works" (because of the fail-safes), the budget impact could be horrendous, depending on how sparse is the B-type participation. Should that unfortunate circumstance arise, dreams of universal coverage will be the furthest thing from many folks' minds as they think about the toxic impact of the ACA.
Any smart politician would run from that sort of dynamic.
I'm in group B1 because I'm healthy, period. I'm not sure what you mean by moral hazard, either in the economics sense, or in the sense that I'm somehow acting contrary to any moral imperative.
DeleteBut that's kind of besides the point because I'm nowhere assuming that anyone is going to do anything contrary to their interests. I'm just saying that if B1's situation getting somewhat worse were the only ACA problem, ACA would be perfectly safe, politically speaking.
I think if you only look at people in group B who aren't also in group B1, you won't find many people who won't be either paying the same or less, or receiving better coverage. When we're looking at group B, almost all of them will be either 1) benefiting from the market discriminating against others or 2) not worse off.
The budget could be a problem. It won't be a long-term problem, though. In later years the mandate penalty gets bigger, and grandfathered/extended plans will be less of an issue. Moreover, the budget effects won't be clear until the plans start running, and by that point it's too late--people are already covered, the GOP is already on record as saying that people shouldn't have insurance taken away from them. ("Do no harm", in their words--this is a longer term problem for them as their proposed changes would disrupt existing insurance arrangements, especially employer markets, at least as much as ACA does.)
If the end result is that lots of poor, sick people have coverage but the government is spending more money, I'm not sure Democrats are going to have a huge problem with that, either ideologically or politically. Spending money on sick people isn't exactly the most unpopular government expenditure.
Some more Democrats will turn against it, but unless those defectors are fools they have to hope the law itself holds steady. Politically, if ACA fails, it is too late for Democrats to redeem themselves. Their fate is linked to ACA, no matter where they position themselves going forward.
I am going to go with April 15, 1015. For a reason I hadn’t considered before and haven’t seen talked about anywhere.
ReplyDeleteConsider someone who goes through the healthcare.gov process today and ends up having it being presented to them that they are going to get a $300 subsidy per month, which they can use on any of the plans as they see fit. They might decide to select a plan that costs a total of $500 per month (probably the gold level) since after the subsidy, they will be only out of pocket $200 per month. Or they might go with a lower cost plan because it will be essentially free to them. But 17 months down the road, by April 15, 2015 when they complete their 2014 taxes, if their income had gone up more than expected, they might end up being on the hook for much more than that $200 per month – all the way up to the full $500 per month for the gold plan or for the whole cost of the “free” silver plan.
At least 17 million people are going to be eligible for a full or partial tax credit for the cost of buying insurance. Many of them are young people just getting started and not yet making enough to put them over the subsidy threshold of 400 percent of the poverty line. They will get an estimate of the subsidy credit when they sign up, but here is the blind spot: that estimate being created won’t be made final until the person files their 2014 taxes, meaning by April 15, 2015 – meaning almost a full 17 months from today. But today is when they need to sign up and be locked into a total cost.
And sure, we might say that since they are making so more that they can afford it, and that might even be true if they planned for it. Losing out on the planned credit after the fact for someone making $25 or $30 thousand dollars, however, is going to put them in a very tough spot. Had they known they were going to be on the hook for more out of pocket costs, people might have chosen a lower cost plan or maybe they’d choose to skip the insurance since they are young and healthy and simply pay the small penalty. But by April of 2015, not only will they have racked up all the cost of 2014’s coverage, but they would have had coverage for a quarter of 2015, too. Those costs will have already been ‘consumed’ and changing the plan at that point won’t undo the past bill.
I’d expect all these people who had the bait and switch pulled on them to turn on those who put them in this position. And I expect those Democrats to finally turn on the ACA. Sure, they could have read it before they passed it, but that’s water under the bridge by then.
As Joe Biden might say, this is a big fucking deal.
It's true, this could be a BFD.
Deletehttp://healthaffairs.org/blog/2013/09/13/aca-implementation-advice-encourage-timely-reports-of-income-changes/
Hopefully, throughout 2014, there will be reminders that changes in income should be reported. Not just to lessen the impact of repaying subsidies, but to avoid the "bait and switch" aspect--if people are told in advance that subsidies will need to be repaid if income increases, then there's nothing wrong with the policy.
Even if we only look at people acting in good faith and not someone who is just waiting to scream they didn't know, do we honestly think this isn't going end up horribly?
DeleteMillions of people who see even minor income changes are going to be affected. And even if they report a change dutifully the moment it happens, they are still going to be on the hook for premium changes going back to the start of that year.
So someone making 22k today when they pick their coverage who then gets a raise to 25k in June of next year, is still going to have a large bill due even if they report the raise as soon as it happens. And because of the forward looking nature of the premium setting, they may have to 'make up' the part of the January to June premium that they would have been responsible for had they been making 25k all along.
Plus, will they be allowed to change their plan because of this? It won't be open season any longer, so I don't think they will, which means they might be locked into a plan they would not have picked until the end of the year. The same thing is going to happen over and over again for these people until they are no longer eligible for any subsidy.
Good lord, since I hadn't seen this mentioned anywhere, I didn't know about the potential scope.
DeleteFrom prefix-free's link above: "38 percent of subsidy recipients would be in families owing repayments at the time they file taxes, with a median repayment of $857."
So that's 6.5 million people who are going to end up in this situation. With the median trap of almost $900.
And even if the consumer does everything right and notifies the government right away of a change in income, it is going to be bad: "if all changes are reported and subsidies are adjusted in a timely manner, the share of recipients owing repayments would fall to 23 percent."
So almost a quarter of the people WILL still be sucked in by the bait in switch.
Just how much would someone have to repay going from 23K to 25K halfway through the year (since its halfway through they'd only make 24K by the end of the year)? The study I linked seemed to say it was mostly, though not entirely, about how soon subsidies are adjusted: "If all changes are reported and subsidies are adjusted in a timely manner, the share of recipients owing repayments would fall to 23 percent with a median repayment of only $343".
DeleteAre subsidies so generous (and phased out so quickly) that people making a higher income would mean having less money left over post-health insurance than they would if they made less? If not, then its a matter of people making more money who would rather spend that extra money on something other than health insurance. By mid 2014 (to say nothing of April 2015), the system will have been in place so long, with so many stakeholders, that I don't think this will be enough to unravel the whole system. That is, unless the administration completely ignores the problem throughout 2014, which given how things have gone so far they very well might, in which case you would be vindicated.
@prefix - I doubt that the loss of a subsidy occurs at a rate of dollar for dollar. Even considering the marginal increase in state and federal taxes, I would suspect that they wouldn't end up with fewer dollars net. But I would think that the increase in their responsible portion plus that taxation will shock some. And it is clearly going to exacerbate the "cost" of moving up and out of the lower income tiers.
ReplyDeleteI don't' understand why it wasn't based on current year income. For coverage in 2014, basing it on 2013 income makes much more sense. Even if you don't have your taxes filed until April 15, you at least have a good idea of your income by the end of the year. Certainly better than you do 17 months before hand.
I recognize that this might trap someone in higher premiums if they are facing the flip side problem - that of falling income - but I think this can be better managed than the front side issue. Especially since the population most likely to have the front problem are the people the system most needs to join and join soon.
And, the bigger problem is that they may then be locked into the plan. Like I said, after this year, open season runs 10/15 - 12/4. There is a "qualifying event" condition for "If you are determined newly eligible or newly ineligible for subsidies", but we don't yet know if that only means for when your subsidy goes to zero, or if it will cover it dropping only a few bucks.
Certainly being trapped with too low subsidies and a falling income is worse than too high and rising. Maybe falling income would be easier to detect and adjust to (so people don't face a big bill at the end), then you would essentially be doing what we're doing now--setting the subsidies initially at 2013 income and adjusting them accordingly as income changes.
DeleteIt's a bit of a problem that people making more money might end up keeping less of that additional money than they'd like, but relative to the problems people tend to have with the individual market today it doesn't sound very big. The much bigger danger is, as you astutely warned, people getting shocked by a huge tax bill in April 2015 because their subsidies weren't adjusted.
I suppose in the falling income case, they would at least have Medicaid as a backstop. That program uses current data and not the prior year's 1040 for eligibility. I don't know this for sure, but I suspect even the expanded program does the same. So at least those who this switch would hurt the most have some protection.
DeleteAnd again, I'll say that the profile of the rising income person is more likely to be younger with their career on the assent, which is exactly who the ACA needs to sign up ASAP.
But I understand your point and we don't disagree. I appreciate the link since I hadn't seen this mentioned at all, as I said. It only occurred to me when I talked with some people going through it.