In his State of the Union address of February 12, President Obama was largely silent on his first term’s hallmark legislative achievement—the Affordable Care Act, or Obamacare—perhaps because he sees it as a battle won. But political and practical debates about the law rage on. Is the Medicaid expansion a good deal for the states? Will the health-insurance exchanges work as intended? How many Americans will get insured? Will Obamacare really help contain health-care costs? These questions will linger for years, and few serious observers believe that the law solved the nation’s most serious health-care challenges: uneven access, runaway costs, and wildly varying quality. How did we find ourselves with a law that spends so much, regulates so much, and yet fails to address the main problems?

For one thing, Obamacare’s proponents never asked what it really means to be insured. They saw health insurance as a positive good in and of itself. Medicaid, the joint federal-state program that provides health insurance for the poor, is a good example. Under Obamacare, states get increased funding to extend Medicaid to everyone making less than 138 percent of the federal poverty line. The 12 million people projected to get Medicaid coverage under the law will be considered “insured” come 2014.

Because of Medicaid’s low reimbursement rates, though, the program’s beneficiaries have trouble finding doctors and specialists willing to treat them. Most research suggests that this difficulty leads Medicaid enrollees to wait until a medical problem becomes so severe that an emergency room visit becomes necessary. In 2008, Medicaid patients used ERs at nearly double the rate of the privately insured—45.8 visits per 100 enrollees, compared with 24 visits per 100 for those with private insurance. (For some provider categories, mainly in primary care, Obamacare will increase Medicaid reimbursements to Medicare rates, but only for two years. Medicare rates are much lower than private reimbursements, in any case.) What’s the point of insurance if it leaves you without good access to care?

Most people who will (at least hypothetically) buy the subsidized private insurance that Obamacare makes available are young and healthy, with low expected health-care costs. But Obamacare mandates comprehensive coverage for this population—including free preventive services, like cancer screenings and birth control pills, which only cost $4 a month at Walmart. Forcing such “Cadillac” plans on people who only need catastrophic coverage produces real problems not just in health-care provision, but also across the entire economy. Millions of newly insured, healthy people will flock to doctors’ offices for annual exams they don’t need. Doctors will find themselves with lots of tests to run and minor problems to solve, taking time away from treating seriously or chronically ill patients. Increased demand for additional services will also lead to longer waits for doctors’ appointments, because Obamacare does nothing to expand the supply of physicians in the foreseeable future.

In every other market—home, life, auto—insurance protects against rare, costly, high-impact events. But in health-insurance markets, we’ve required insurers to offer everything from high-cost, catastrophic-care policies to coverage for cheap, routine care that most people could afford to pay out of pocket (just as they pay for home furnishings, gas, and groceries) or out of their savings (as with a health savings account). We’ve defined health care as a unique product—demanding that government subsidize and regulate more health-care coverage and consumption—and then decried the cost in the next breath. This reflects a deep cognitive dissonance in our health-care thinking and policies: richer plans and subsidies drive prices ever higher.

In a recent policy brief, the Kaiser Family Foundation argued that while the cost of private insurance will be higher for those buying it on the exchanges, federal subsidies will ultimately make it cheaper. But the subsidies will come from increased taxes or constrained spending on other government services (like the planned cuts to Medicare). Higher taxes will effectively transfer spending from non-health-related industries into health care. That means lower wages, less innovation, and fewer jobs in every other economic sector.

Americans tend to think that the problem with our health-care system is that we don’t have enough insurance. In reality, we’re over-insured: the U.S. has the fifth-lowest percentage of health-care spending out of pocket—about 11 percent to 12 percent of total health-care spending—among OECD economies. (In Switzerland, which has universal insurance coverage, the out-of-pocket ratio is 25 percent.) Increasing out-of-pocket spending for routine care would undoubtedly help lower health-care cost inflation. Consumers would ask themselves if the benefits of non-urgent treatments were worth the expense. With more cost-conscious patients, prices wouldn’t rise so easily.

Washington could help foster such savvy consumerism by creating a standard tax credit for catastrophic insurance, paired with a health savings account for the vast majority of healthy, able-bodied Americans. If consumers want to pay for more routine health-care services, they could do so out of pocket or from these savings accounts. Low-income Americans, or patients with high-cost pre-existing conditions, could “top off” their savings accounts with additional subsidies. Former Indiana governor Mitch Daniels created a program along these lines, Healthy Indiana, for residents who earned too much to qualify for the state’s traditional Medicaid program. With a 98 percent satisfaction rating, the program has served 61,000 previously uninsured adults, giving them access to preventive services. Unfortunately, Obamacare will kill Healthy Indiana in 2014.

A Daniels-like approach would provide universal insurance (what the Left wants), increase consumer control over health-care decisions (what the Right wants), and slow the rate of growth on health-care spending (what the country needs). The president may want to declare victory on health care. In reality, all the key problems remain unsolved.


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