J.D. Kleinke Is Wrong, Obamacare Isn't Conservative

WASHINGTON-- Not a single Republican member of the House or Senate voted for the Affordable Care Act, which President Obama had sponsored and signed into law in March 2010. Yet, a new, revisionist history has just emerged from American Enterprise Institute resident fellow J.D. Kleinke, published in The New York Times on Sunday.

Kleinke claims that the ACA is based on "market principles formulated by conservative economists," that "an exchange is as pro-market a mechanism as they come," and the act is "ratification of market ideas."

According to Kleinke, "Obamacare has only lukewarm support from liberals." It's too conservative, too market-oriented. Instead, liberals want a real government takeover of health care. He may be right about what some liberals want, but he is wrong that ACA is authentically conservative.

Kleinke is wrong when he asserts that ACA is essentially conservative.

Take his findings about health care exchanges. It's important to acknowledge at the outset that, as Kleinke writes, some conservative economists favored a requirement that everyone buy health insurance, and that health insurance be sold through exchanges, essentially online marketplaces.

The problem is that the ACA has limited the insurance coverage that may be offered on the exchanges and be eligible for government subsidy for income-qualifying households. The prescription of minimum coverage throttles competition and denies some consumers the opportunity to buy more modest coverage, if they prefer it, than the government permits.

A health-care exchange is an internet portal to purchase insurance, where different plans are listed and available for purchase. Consumers look at the menu and pick one. An exchange could also be operated by the federal government, as it does for government employees enrolled in the Federal Employee Health Benefits Program, or by a private firm. Under the Act, states are required to set up exchanges.

The devil is in the details, and the amount of competition generated by an exchange depends on what plans may be posted. One of the many problems with the Act is that it prescribes plans that offer more coverage, and come with higher premiums, than some consumers would want. All plans must contain mental health and drug abuse coverage, free contraceptives, no copayments for routine care, and no lifetime maximum, or they cannot be sold on the exchanges.

Such far-reaching requirements, plainly irrelevant for some consumers, drive up insurance costs, limit consumer choice, and prevent shopping around for lower-priced care. What if people don't need mental health or drug abuse coverage, or birth control pills and maternity care? Too bad, they have to buy a plan that includes them.

Those younger than 30 may buy lower-cost "catastrophic" health plans, with lower premiums. Under them, people pay routine costs out of pocket or through health savings accounts. Coverage kicks in for outlays above some specified annual deductible.

If ACA's authors had been truly interested in promoting competition and lowering costs, they would have let people of every age choose to buy catastrophic health insurance.

The Act's approach differs from the way insurance is offered for other products. For auto and home insurance, people can reduce their premiums by choosing larger deductibles. Not so with health insurance.

To buy unqualified plans outside an exchange, people would have to forego the government subsidies for health care premiums, which will be available to those making under 400 percent of the poverty line ($90,000 annual income for a family of four). That's well over half the population (median income was $50,000 in 2011). As a result, the market for plans outside the exchange will necessarily be limited to those who do not need a subsidy, a smaller pool of people, sacrificing the economies of scale of insuring larger groups of individuals.

Kleinke writes that "businesses and individuals can decide for themselves which insurers [and providers] deserve their dollars," an idea he compares to association health plans. Association health plans, where different groups band together and make arrangements with insurance companies, preferably across state lines, are an idea championed by conservatives (including this writer).

However, the new law differs substantially from association health plans because of the requirements of the qualified benefit plan. Only qualified benefit plans can be listed on the exchange, so association plans have little freedom to lower costs.

Kleinke states that "millions have simply opted out" of health insurance now, and the Act "forcibly repatriates these gamblers." But the Act would still leave millions without affordable coverage.

Under the Act those who do not want to purchase health insurance can legally opt out by paying a tax of $95 per year in 2014, $325 per year in 2015, and $695 per year in 2016 and indexed for inflation thereafter. This is far below the cost of over $5,000 for a single policy and $12,000 for a family policy.

This price difference, combined with the requirement that health insurance companies have to take all applicants, no matter their health history, will prove to be the death knell for the Act, because the insured pool will become sicker and sicker as more decide to opt out. Premiums will rise, causing more people to switch to paying the penalty. The system is simply unsustainable due to the combination of the low penalty and the requirement that insurance companies take all comers.

In addition, some spouses and children of low-income families will be left uncovered because "a glitch" in the way the Act is structured, as the New York Times described it on August 25.

Spouses and children of low-income workers with single-family affordable coverage from employers will have to pay full price for family coverage. About 4 million, according to the Kaiser Family Foundation, will not be able to afford to do so and will remain without coverage.

Nothing is conservative about the employer tax, which may already be reducing hiring. If, beginning in 2014, an employer does not offer the right kind of health insurance, and has more than 49 workers, he has to pay a penalty of $2,000 per worker. Moving from 49 to 50 workers would cost an employer $40,000 per year (the first 30 are exempt). If they already employ 50 or more and they are paying the penalty, the tax will discourage hiring of low-skill, low-wage workers.

Kleinke writes that the Act, which should be "a darling of the right for these principles" was abandoned by conservatives "not for its content, but for politics." He asserts that Republicans reject it because it was sponsored by Democrats. No, they reject it because it is not conservative.

One conservative plan is Georgia Republican Rep. Tom Price's Empowering Patients First Act. It would allow everyone to purchase health insurance of their choice with pre-tax dollars. Low-income individuals would be given a refundable tax credit. People could either sign up to their employer plan or choose their own, and they could keep their plan if they changed jobs.

In contrast, under current law, employees receive a tax break when they get health insurance at work because they are not taxed on the premium paid by the employer. Those buying insurance on their own don't enjoy that break.

Transferring the tax exemption for premiums paid from the employer to the individual would allow health insurance to be sold in the same way as other coverage, such as auto and home insurance. Congress could do that by making premiums paid by individuals tax deductible, with a limit in relation to income.

Kleinke writes that "the real problem with the health care plan-for Romney and the Republicans in general-is that political credit for it goes to Mr. Obama."

No, the real problem with the health care plan is that contrary to Obama's promises, people cannot keep their present plans if they do not comply with coverage criteria that take effect in 2014. And the new law is already raising rather than lowering health care costs. That's why Obama and other Democrats are not bragging about ACA in the electoral campaign.