With Worried Uncertainty, Americans Tip Toe Toward Obamacare

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With the implementation of the Patient Protection and Affordable Care Act just days away, it may be prudent to revisit the original premises for this radical restructuring of health care delivery in the United States. Assessing the original problem may provide insights into the effectiveness of the new law. Given its scope and breadth, individuals, employers, insurers, and health care providers are all waiting to see how the new law unfolds. Based on the number of delays and exemptions that have already been made, apprehension and uncertainty may best describe the nation's mood.

The origins of President Obama's $1.4 trillion experiment in health care reform go back to two fundamental problems with America's health care system. First, there were concerns about the large pool of uninsured Americans. At the time that President Obama began his push for health care legislation, the Census Bureau was reporting that there were roughly 46 million uninsured Americans. Today, that figure is 48 million, according to the Census Bureau. Although a significant portion of this group was uninsured by choice, the incoming Obama administration highlighted the need to ensure low income families had access to health care.

On this count, the new legislation offers only partial success. Despite the massive changes pushed by the administration, roughly 30 million will remain uninsured, according to the Congressional Budget Office. Not only does this fall short of the program's stated goals, but the majority of the remaining uninsured would be non-elderly adults. Key to the president's health care reform is the creation of new exchanges that require the participation of young adults, who would be required to pay higher rates for insurance in order to subsidize older and less healthy participants. This is why the law includes an individual mandate with a penalty for those who do not participate. Perhaps more targeted and less sweeping reforms could address this problem more effectively.

The second major impetus for health care reform was to arrest the constant increases in health care costs, which outpaced inflation elsewhere in the economy. While some have attributed the recent slowing in health care costs to the ongoing restructuring of health care markets, it is too early to suggest that the Patient Protection and Affordable Care Act is responsible. In fact, the deceleration in costs may date back to 2003, and economists are still assessing the reasons. But a recent study by the Brookings Institution suggests that despite the drop, health care costs will continue growing at 1.2 percent annually for the next few decades, "still on track to cause serious fiscal pain." The president's plan does include programs to control costs but it is too early to determine their consequences-both intended and unintended.

In addition to concerns about costs and coverage, inequities in the health care market fueled efforts for reform. The third party payer system is perhaps the most egregious example of unfair treatment, whereby individuals who receive health insurance through their employers enjoy significant tax advantages over those who purchase health insurance on their own. Yet rather than fixing this quirk in the tax code by simply allowing the benefit to extend to all or none, the Patient Protection and Affordable Care Act includes a stupefying list of subsidies and cross subsidies that attempt to level the playing field. More troubling, the Internal Revenue Service is tasked with enforcing the new law and collecting the new taxes it requires. In addition, the IRS will share individual tax information with states and other officials in order to determine whether individuals are eligible for subsidies or tax credits. Individuals will also be required to provide insurance information to the IRS in order to demonstrate that they purchased a qualified insurance plan under the individual mandate.

As a new era in health care begins, many questions remain in the minds of consumers about the viability of the Patient Protection and Affordable Care Act. President Obama has promised "cheap, high quality health care" for all Americans, but it is far from clear whether that goal will be achieved. Yet, at its core, the Patient Protection and Affordable Care Act is a law to reform insurance markets, not health care per se. While coverage may be extended to a larger population, there are no guarantees on the quality of care that will be delivered. Expanding access while imposing new price controls may squeeze markets in ways that do not particularly help those in need of health care.

 

Wayne Brough, Ph.D is Chief Economist and Vice President of Research at FreedomWorks.  

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