Healthcare
Background
While the right to life, happiness and the pursuit of liberty are enshrined in the Declaration of Independence, the concept of a ‘right to health’ has proven evocative and also divisive in the national discourse over the past three centuries. A mix of pragmatism, opportunism and pressure from special action groups has dogged the issue.
A yellow fever epidemic in 1793 forced the American government to evacuate from Philadelphia. In response, George Washington came up with the first federal health law, proposing powers for the Executive to convene the government outside the capital in the event of an epidemic. In the meantime, Congress debated over a federal proposal to impose quarantine on people suffering from Yellow Fever. The States argued that they held precedence in deciding how to deal with health issues, defeating the government’s proposal (Chapman and Talmadge, 1970).
The British discovered the small pox vaccine in 1796. Congress passed a law in 1813 requiring the federal government to guarantee the access to the small pox vaccine to all and to distribute the vaccine free of charge to the entire population. This was the first instance of the central government taking on a large-scale responsibility for public health (Chapman and Talmadge, 1970).
Considerable strides were taken to ameliorate the condition of the working classes in the Progressive Era. Healthcare for all, however, was missing from the agenda, as there wasn’t enough widespread political support.
In 1906, the American Association of Labor Legislation (AALL) began a campaign for health insurance. The AALL drafted a model bill in 1915, proposing healthcare insurance for those who earned less than $1200 annually. AALL also proposed fifty dollars as a guarantee towards funeral expenses. AALL proposed that the cost of such a venture be shared between the workers, the employers and the state. The American Medical Association (AMA) lent its support to the proposal. However, the AMA met with resistance from state medical associations, which disagreed over the modalities of disbursements of payments to physicians. Over time, the AMA veered towards opposing compulsory healthcare. Opposition also manifested from the American Federation of Labor (AFL), which felt that its hold over labor would weaken if the state provided for the working classes. Private industry opposed the proposal amidst fears that the insurance companies would suffer if death allowances were guaranteed by the state (Palmer, 1999).
The use of hospital services for obtaining healthcare rose in the 1920s. American middle class families felt the brunt of healthcare costs as obtaining from hospital admissions. A Committee on the Cost of Medical Care (CCMC) came into being, concerned with the rising costs of medical care. The CMCC recommended voluntary health insurance as a measure to cover the costs of medical care. The AMA opposed the efforts of the CMCC, denouncing them as ‘incitements to revolution’ (Palmer, 1999).
In the aftermath of the Great Depression, Franklin Roosevelt had the first real chance to herald universal healthcare. While Roosevelt fashioned the New Deal, he did not venture into universal health assurance for fear of falling foul of the powerful AMA. Roosevelt, however, supported the Wagner National Health Act of 1939, which sought a national health program to be funded by the federal government and administered by the states. Progress was stymied as the Conservatives returned to power after the 1938 elections (Palmer, 1999).
Sustained pressure for universal healthcare took the shape of the Wagner Bill after the Second World War. The Bill called for compulsory health insurance and a payroll tax. The bill was opposed by anti-communists and defeated in every session of Congress over fourteen years.
Truman proposed a national insurance plan in 1945 that would cover all classes of society. The AMA opposed the plan as it felt that physicians would become enslaved in the process. In 1958, Congressman Aime Forand proposed a bill to cover hospital costs for the aged on social security. The bill received a groundswell of support from the elderly. A number of compromises were worked out for doctors, hospitals and for the conservatives. A three-part plan emerged, including the Democratic proposal for comprehensive health insurance (Part A), a republican plan for subsidized physician insurance (Part B), and Medicaid. Lyndon Johnson signed the plan into law in 1964, capping twenty years of congressional debate (Palmer, 1999).
Evolution of the Affordable Care Act
While Medicaid came into being in 1964, universal healthcare insurance remained a mirage. In 2009, Barrack Obama called for healthcare reform legislation. On 09 Sep 2009, Obama addressed a joint session of Congress on the specific issue of healthcare reform. The Patient Protection and Affordable Care Act became law on 23 March 2010. Obama signed the Health Care and Educational reconciliation Act into law on 30 March 2010 to patch issues in the PPACA regarding penalties and age limits. The Republicans won a majority in the House in 2010, mainly on the anti-insurance plank. Throughout 2011, the Republicans legislated to prevent funds from being made available for the Affordable Care Act. In June 2012, the Supreme Court upheld the major provisions of the Affordable Care Act. In Nov 2012, Obama was re-elected as President. He renewed the push to make the PPACA a reality. Obama sought bipartisan support for the ACA. Despite continued confrontation on the contours of the Act, the bulk of the Affordable Care Act went into effect on 01 Jan 2014 (American Action Forum, n.d.).
Parameters of the Affordable Care Act
The core of the Affordable Care Act is a ‘three legged stool’ that has been fashioned to nullify the problems arising from non-insurance from employers in the US industry. The first leg of the stool includes reform of the non-group insurance market. This includes provisions that outlaw exclusions for pre-existing conditions and other discriminatory practices, guaranteed access to non-group insurance and limitations on the ability of insurers to charge differential rates on the basis of health status. Insurance in the non-group and small group markets is bound by explicitly delineated minimum standards (Gruber, 2011).
The fact that the Affordable Care Act guarantees individuals the right to obtain health insurance access at prices independent of health status has the pitfall of people delaying buying insurance till the last minute, and then buying insurance at low rates despite developing diseases. Such situations would result in insurers having to charge higher premiums from everybody. To obviate this loophole, the second leg of the Affordable Care Act enjoins all individuals to buy insurance coverage or an individual mandate. Otherwise, individuals would have to pay a penalty that by 2016 would amount to 2.5% of income or $695 - whichever would be larger (Gruber, 2011).
The provision of individual mandate lies in the fact that it may be difficult to enforce. This motivates the third leg of the Affordable Care Act stool: Government subsidies to make insurance affordable to lower income families. Such subsidy would come in two forms. The first form would be the expansion of Medicaid to cover all individuals with incomes below 133 percent of the poverty line, which translates to $10,830 for individuals and $22,050 for a family of four. The second form would be tax credits to offset the cost of private non-group insurance. Such tax credits would cap the share of income people would have to spend to get healthcare insurance. The cap would be at the level of 3 percent of income at 133 percent of the poverty line, and would rise to a cap of 9.5 percent of income at 300 percent of the poverty line. Further, if individuals were to have incomes below the threshold income for income tax filing, or if the cheapest insurance option cost them more than 8 percent of their income, they would be exempt from the mandate penalty (Gruber, 2011).
The Affordable Care Act plans to finance the subsidies through six sources. First, it plans to reduce reimbursements to private ‘Medicare Advantage’ programs that provide an alternative to the government Medicare program for seniors. Second, it plans to reduce Medicare reimbursement through a reduction of inflation adjustment provided to hospitals. Third, it envisages an increase in the Medicare payroll tax by 0.9 percent, and to extend the tax to capital income for singles with annual income of more than $200,000 and for families with annual income of more than $250,000. Fourth, it plans to introduce new excise taxes on sectors likely to benefit from expanded medical insurance – insurers, pharmaceutical companies and medical device manufacturers. Fifth, the Act envisages the ‘Cadillac Tax’, a non-deductible 40 percent excise tax on insurance products that cost more than $10,200 for an individual or $27,500 for a family in 2018. The ‘Cadillac Tax’ would be indexed each year to the Consumer Price Index. Finally, the Act plans to take in other revenue sources such as penalty payments by individuals and companies, and taxes on higher wages that would accrue because of reduced employer spending on insurance (Gruber, 2011).
The Impact of the Affordable Healthcare Act
The effects of the Affordable Healthcare Act would depend upon a large number of behavioral responses by firm, individuals and state governments. Understanding of the impact may benefit from the lessons gained from the Massachusetts Experiment; in 2006, Massachusetts passed a similar three – legged healthcare reform bill. The results had been encouraging. There was a dramatic expansion of health insurance coverage in the state. This did not cause a blockage on the supply side – average wait times in hospitals did not alter by a discernible degree. The expansion in insurance coverage was observed to be associated with a rise in access to health care. With the rise in employer-insured individuals, there was adequate scope for private insurers to co-exist with government insurance. The mandate implementation was smooth, with most people filing health insurance information. The costs of administering the health reform remained low at around the 3 percent level. Premiums fell dramatically in the non-group market. Finally, the costs of reform matched closely to projections (Gruber, 2011).
The takeaways from the Massachusetts Experiment would provide a suitable framework for prognosis of the Affordable Care Act. Projections for the Affordable Care Act show modest erosion in employer-sponsored insurance, with large increases in public and non-group insurance, resulting in an overall reduction in the number of uninsured by 32 million people. Projections also predict $940 billion in new spending, together with $1,080 billion in spending reductions and revenue increases (Gruber, 2011).
Employer Sponsored Insurance
The modest erosion in employer –sponsored insurance is likely to occur due to a number of reasons. First, more than half the employees covered by health insurance firms belong to companies having more than 100 employees. Such companies are generally not price sensitive in their decision to offer insurance, and would therefore be unlikely to reduce insurance coverage for their employees. Second, the subsidies under the Affordable Care Act are not very generous above 250 percent of the poverty line. Therefore, people in this category would tend to continue with employer-provided insurance. Third, the projected modest erosion of employer-provided insurance is also likely to be offset by the possibility of a surge in insurance provided by firms as evidenced from the Massachusetts Experiment. Fourth, the mandate would be likely to result in an offsetting increase in insurance by the uninsured. Fifth, there would be pressure on firms to offer insurance due to the ‘free rider’ clause in the Affordable Care Act. This clause seeks to charge firms with more than 50 employees a large $2,000-$3,000 charge if their employees sought subsidies on the health insurance exchange (Gruber, 2011).
Premium Impacts
There are estimates that health exchange premiums would be 10-13 percent higher post reform than in the non-group market without reform. For families below 400 percent of the poverty line, such increased premiums would be offset by tax credits. There would be three factors affecting the health premiums. First, an improved health mix in the market due to the mandate that everyone should possess health insurance would drive insurance premiums down by 7-10 percent. Enhanced competition would cause another drop of 7-10 percent in premiums. Third, premiums would rise by 27-30 percent due to individuals buying more generous policies the health exchanges. Thus, premiums would actually fall, but net revenue would rise due to more people buying generous health insurance packages (Gruber, 2011).
Budgetary Implications
The Affordable Healthcare Act subsidies and public insurance expansion would cost the state $940 billion by 2019. The government would spend $214 billion to cover 32 million people. This is higher than the costs incurred in Massachusetts because there are more poor people nationally than in Massachusetts. However, revenue increases and spending cuts would exceed the new level of spending, reducing the deficit by more than $100 billion in the first decade and by more than $1 trillion in the second decade. Such projections of reductions in deficit would critically depend upon future Congresses holding onto the suggested reimbursement reductions and tax increases as envisaged by the Affordable Healthcare Act.
Health Care Costs
There is concern that the US health care costs would increase from the current levels of 17 percent of GDP. The Affordable Healthcare Act is likely to increase national healthcare expenditures – at the peak of its effect on spending in 2016, healthcare expenditures would rise by 2 percent, or 0.2 percent of the GDP. These increases would need to be viewed against the gains in coverage. The Affordable Care Act would cover 34 million more people by 2019. Without reform the healthcare costs would have risen by 6.6% per year. Seen in this perspective, the rise in expenditure would seem justified. While Affordable Care Act would boost medical spending, its incremental impact on spending would decrease over time, primarily offset by provisions such as the Cadillac Tax.
Conclusion
The Affordable Care Act is a transformative piece of legislation that has been brought into the political landscape of USA after three centuries of fits and starts. The provisions of the Act need to be debated holistically. Piecemeal observations on the costs of the Act would be likely to generate contrary conclusions. Ultimately, the success of the Affordable Care Act would flow out of effective implementation of all its provisions, including those that prescribe reimbursement reductions and tax increases.
Annotated Bibliography
American Action Forum. (n.d.). ACA timeline. Retrieved 05 Nov 2014, from http://acadictionary.com/timeline/legislation#0
The American Action Forum is a center-right policy institute providing commentary on important policy issues. The Forum provides an explicit timeline of events that led to the formulation of the Affordable Care Act from the time Medicare came into being.
Chapman, C.B., & Talmadge, J.B. (1970). Historical and political background of federal healthcare legislation. Law and Contemporary Problems 35/2, 334-347. Retrieved 04 Nov 2014, from http://www.jstor.org/stable/1190890
Carleton B. Chapman was the Dean of Dartmouth Medical College and J.B. Talmadge was the Zieglar Foundation Fellow at Dartmouth College. They provide a historical and political background of federal healthcare legislation upto the sixties. Their account provides the necessary legislative and political background to help understand the current day tensions between Congress and the states on all legislative matters.
Gruber, J. (2011). The impact of the Affordable Care Act: How reasonable are the projections? National Bureau of Economic Research Working Paper 17168. Retrieved 07 Dec 2014, from http://economics.mit.edu/files/6829
J. Gruber served as an adviser to the Romney administration and to the Massachusetts Legislature during the development of healthcare reform in Massachusetts. He leverages his experiences in Massachusetts to give a prognosis of the likely developments that the Affordable Care Act would lead to. His recommendations are relevant as they are backed by the only real experience USA has had with universal healthcare at a state level.
Palmer, K.S. (1999). A brief history: Universal healthcare efforts in the US. [Lecture]. Lecture given at Physicians for a National Health Program meeting. San Francisco. Retrieved 04 Nov 2014, from http://www.pnhp.org/facts/a-brief-history-universal-health-care-efforts-in-the-us
Karen S. Palmer’s talk at the Spring, 1999 meeting of ‘Physicians for a National Health Program (PNHP)’ provides the necessary backdrop for the initial bonhomie between the American Association of Labor Legislation (AALL) and the American Medical Association (AMA). The talk also traces the roots of future antagonistic postures, which created the framework of healthcare debate in USA.
