David R. Henderson  

Will ObamaCare Reduce the Number of Uninsured People?

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In two words, not necessarily. In four words: "We simply don't know."

Greg Scandlen walks us through the reasoning here. The whole thing is worth reading.

An excerpt:

The Congressional Budget Office is more constrained, but even they have upped their estimate of the number of workers losing coverage from a mere 3 million a few years ago to 7 million just last month.

The CBO number is almost certainly a gross under-estimate. CBO's ability to predict the future has long been constrained by two things:

It is required to assume that current law will be in effect in the future. So, for example, its budget predictions always assume that the SGR cuts in physician payments will actually occur. But that never happens, so the predictions are never accurate.
It tends to use "static scoring," which means it assumes that current behavior will be unchanged by new incentives. In this case it issued a 30-page justification for its estimate. As an example, part of that report said −
The fact that many firms currently offer health insurance coverage to their workers despite the high cost of premiums and rapid growth in those premiums for many years shows that many firms continue to find health insurance coverage to be a worthwhile element of their compensation packages. If firms could have attracted employees more cheaply by dropping health benefits and adding wages or other benefits that cost less, then they would have done so.

Good grief! This is about as shallow as you can get. Firms have been offering coverage despite the high cost because there has been no viable alternative, and they feel an obligation to ensure their workers can get coverage. The whole point of ObamaCare is to provide an alternative! Companies will now feel free to drop coverage in the belief that workers will now be able to get good coverage through the exchanges.


It's this last statement that leads me to "We simply don't know." On the one hand, Scandlen is probably right that many employers will drop coverage because they think that their workers can get good--and heavily subsidized--coverage through the exchanges. On the other hand, my gut feel is that it won't be good coverage. So will some employers who dropped coverage start it again? We don't know. The equilibrium result is hard to know.

Nancy Pelosi famously said "we have to pass the bill so that you can find out what is in it." Well, we're finding out and we're still not sure.

Here's my pretty confident prediction, though: it will be a mess.


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COMMENTS (16 to date)
Ted Levy writes:

David,

Economists have long argued that employees really pay for their benefits themselves, in the form of wages or salaries foregone. Do you anticipate that, as Obamacare leads many employers to drop the health care benefit, that we'll see a rise in salaries and wages?

David R. Henderson writes:

@Ted Levy,
Yes.

Andrew writes:

A response expressed by most insurance companies and echoed by my own employer when asked if they will participate in the exchanges...

"We will have to wait and see..."

Ted Levy writes:

The irony! If your answer is correct, David (as I have no reason to doubt), we may well see Obama and his party taking credit for a significant rise in wages and salaries post 2014...

Charley Hooper writes:

I am in the early stages of a project to help a client determine exactly what effect health care changes will have on its business. Just yesterday I realized that probably no one really fully understands.

We are witnessing a complicated change to a complicated and evolving part of the economy. Just keeping all the new acronyms straight is tough. How can anyone understand how each actor will behave with so much complexity and so many interdependencies in the system?

Thomas Sewell writes:

As insurance prices rise, as people figure out the loopholes around no-preexisting conditions and start using them more and more, less people will be insured at any given time.

Just higher rates alone would predict less participation, but knowledge will eventually spread about the loopholes to get covered anyway. Already, people sign up for CHIP-style "insurance" after they're in the ER for a problem. It's not hard to imagine people being on the hook for initial costs, but getting "insurance" for long term costs afterwards.

Why pay for a really expensive policy when you can self-insure for minor stuff and still get "insurance" to cover any major long term health costs?

That's not an equilibrium, they're self-reinforcing. Insurance costs get more expensive leads to more currently healthy people opting out, leads to more expensive insurance and so on...

Sure, Congress could make the penalties for opting out expensive enough to act as a disincentive, but they didn't and it's likely politically impossible to get Republicans in the House to go along with an increase in the mandate penalty.

Will the insurance companies ultimately go out of business as a result? Will there be some other sort of reform? Who knows.

But I agree, the current system is a slow motion train wreck leading to higher rates and less participation.

Methinks writes:

Sure, Congress could make the penalties for opting out expensive enough to act as a disincentive

Anything that high might meet with a legal challenge that leads to scrapping the mandate altogehter. SCOTUS only allowed the mandate so long as it's not too high and the punishment too harsh.

From the SCOTUS's tortured decision:

"Such an analysis suggests that the shared responsibility payment may for constitutional purposes be considered a tax. The payment is not so high that there is really no choice but to buy health insurance; the payment is not limited to willful violations, as penalties for unlawful acts often are; and the payment is collected solely by the IRS through the normal means of taxation."

The whole of Obamacare is a mess wrapped in a catastrophe entombed in a disaster. On the bright side, it may very well be the the catalyst for a parallel medical market where providers don't take insurance and where competition can work its magic on price and quality. We just don't know.

egd writes:

I'm surprised you didn't take more issue with the closing quoted paragraph:

Good grief! This is about as shallow as you can get. Firms have been offering coverage despite the high cost because there has been no viable alternative, and they feel an obligation to ensure their workers can get coverage.
Firms don't offer insurance because "there is no viable alternative." Private insurance is certainly available.

Some firms may offer it as "they feel an obligation to ensure their workers can get coverage," but I don't see that this must be universally true. I suspect a number of firms offer health insurance to stay competitive with other firms.

The whole point of ObamaCare is to provide an alternative! Companies will now feel free to drop coverage in the belief that workers will now be able to get good coverage through the exchanges.
And I think this portion is incorrect as well. The point of ObamaCare isn't to provide an alternative, the point is to lower the cost of insurance to incentivize more people to purchase private health insurance.

The problem with lowering prices for private health insurance is you can't lower prices in a vacuum. If the price for private insurance goes down, then the price for employer-provided insurance goes up.

It should be obvious that raising the price of employer-provided coverage to subsidize private insurance will lead to more private insurance consumers.

Hazel Meade writes:

It tends to use "static scoring," which means it assumes that current behavior will be unchanged by new incentives.

The nut of insanity at the root of all sorts of horrible policies.


@egd : The point of ObamaCare isn't to provide an alternative, the point is to lower the cost of insurance to incentivize more people to purchase private health insurance.

Where do you get that from? ObamaCare is about expanding coverage, it is not about lowering prices for insurance. In fact there are numberous aspects of the bill that will raise prices, directly or indirectly, especially for people who are currently uninsured.

In particular, younger people comprise a large percentage of the uninsured, yet (1) community rating will shift costs from older people onto younger people, and (2) the law's "mandatory minimum" excludes bare-bomes high-deductible plans, which means people are going to be forced to buy higher levels of coverage than they otherwise would have. So not only are younger people going to be buying more coveraget han they need, the prices will be skewed to subsidize rates for older people.

And I'm not even going to go into myriad ways in which the law incentivizes cost inflation.

Hazel Meade writes:

Anything that high might meet with a legal challenge that leads to scrapping the mandate altogehter. SCOTUS only allowed the mandate so long as it's not too high and the punishment too harsh.

I don't think we can count on Roberts not hemming and hawing and deciding it's still a voluntary tax again.

Sure he might have SAID that at some point a tax penalty could become coercive, but we have no idea what point that is.

One thing that useful article didn't mention is related to his point that "The biggest cluster (47.8% of all the uninsured) are 'healthy and young.' They are not much motivated to enroll and they take their health for granted."

It is cheaper for them to pay the penalty than to buy insurance. Yet Obamacare explicitly will lead rates on the young to rise to make it more likely they will chose that tradeoff:

https:/www.politicsdebunked.com/article-list/healthcare
“Insurers usually charged 6-7 times as much for older people but starting in 2014 they can only charge 3 times as much which is estimated to increase the cost to the young by 17%, or 45% according another source. ”

The page has hyperlinks to the sources for those figures (and explains other ways Obamacare drives up prices, and of tackling the uninsured in a more free market friendly approach))

Methinks writes:

@Hazel Meade,

I wish I could disagree. The only hope I hold out is that the court was sharply and bitterly divided on this ruling and Roberts was against it before was unenthusiastically for it. It's possible, a test of his mercy may not bode well for the mandate for that reason, though the probability is beyond me to calculate.

bobroberts17e1 writes:

The fact there's argument about what the purpose of Obamacare is shows how completely flawed it is. That alone should be reason to repeal it.

egd writes:

Hazel Meade writes:

Where do you get that from? ObamaCare is about expanding coverage, it is not about lowering prices for insurance.

The intent of Obamacare wasn't to provide an alternative to employer-sponsored health plans (as the quoted section asserts). The authors of the legislation want employers to maintain coverage. They wanted to make it more affordable for people not covered by employer plans.

You're correct that it doesn't work (and can't work), but that was the intent.

Arthur_500 writes:

Firms offer insurance because it is tax deductible and costs less than a higher wage rate. AS that balance changes, assuming it does, any employer will have to look at the new numbers.

One dollar of wages costs at least $1.08 which for an office worker year could amount to $2,246. One year of family insurance in a Union Plan with which I am familiar is roughly $11,000. I checked on Obamacare qualified insurance for an individual in my State and the rate was over $500 per month or $6,000 per year.

As an employer I might decide to give my employees a $2.00 raise and scrap the insurance. I'm still saving money!

We know that once a law goes into effect it will never go away. We can assume that this program will be a failure and then our Legislators will require everyone to pay a higher Medicare tax - say 15% - and put everyone on a single payer system. this will hurt many insurance companies but will lead to premium policies for higher-income individuals who want better quality health care.

Jerome Bigge writes:

Obamacare will cost jobs because the money that is spent on health insurance cannot be spent on anything else. Thus there will be a reduction in "consumer demand". That means less sales of consumer goods and services. Less sales of consumer goods and services means less jobs. Less jobs in turn reduces consumer demand. The result will be economic recession. Those without jobs will end up on Medicaid which is paid for by taxes. So we will have less jobs and higher taxes as a result. This does not seem to me to be a good thing.

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