Bronze, Silver, Gold, Platinum – Why Choose?

For all the political controversy surrounding the rollout of the Affordable Care Act, the remarkable thing is how few persons are affected by it. The first annual period of open enrollment ended last week, 7.1 million persons have signed up.

Never mind the political bickering about the composition of the group – it is inside-baseball stuff, at least until plans begin setting their 2015 rates, early next year.  Never mind the more interesting question of why the implementation of the program was so badly botched. (Why are governments, at least in the US, so generally bad at buying information technology?)

Even at its flood, expectations are that as few as 25 million previously uninsured persons will take advantage of the act.

In contrast, more than 150 million Americans are covered by insurance purchased by employers. Another 49 million persons are enrolled in Medicare, because they are 65 and older.

In other words, the ACA controversy is about bringing the poor and the relatively powerless into the health care system, partly out of considerations of fairness, partly in hopes of reducing the overall cost.

So why the ruckus?  Republicans have feared from the beginning that the measure is a Trojan Horse, concealing plans for a single-payer system run by the Federal government.  And indeed, many early supporters of the Obama administration’s health care restructuring initiative were hoping for just that.

For instance, New York Times columnist Paul Krugman wrote last week that the ACA is “a Rube Goldberg device, a complicated way to do something inherently simple.” To extend Medicare-style insurance to the uninsured, he said, “the government could have simply sent a letter saying ‘Congratulations, you’re covered.’”

Instead, he noted, the ACA requires individuals and companies to go online or make a phone call and then make a complicated choice among options that depend on the presence or absence of subsidies. A lot of things could go wrong along the way, Krugman said.

More interesting to me is the camel’s nose that is the individual mandate.  There is a big difference between giving citizens health care as a right and requiring them to buy it as a responsibility – and then subsidizing those who cannot afford the most basic plans.

The individual mandate was, you’ll remember, a major issue in the Democratic primaries in 2008. It had been the basis of Gov. Mitt Romney’s successful health care reform in Massachusetts, three years earlier. In 2008 it was Sen. Hillary Clinton who proposed enacting an individual mandate, and Sen. Barack Obama who resisted the idea – until he won the nomination.  Then he hired her advisers and took over her position.

Two years later, in 2010, the Democratic majorities in Congress passed the ACA.  Citizens would have to show that they were insured, by their employer or by the government, or go to the exchanges to insure themselves.

The measure was eventually structured without a “public option” that would have allowed purchasers to simply buy into Medicare – a sop to the large and powerful private insurance companies that have grown up since World War II.  It was then that Congress, reluctant to permit manufacturing companies to raise wages carefully regulated under wartime controls, instead doled out tax breaks to firms  that offered workers health insurance.

Over the next sixty years, workers grew accustomed to generous company-sponsored health plans that seemed to cost them little, even though cash wages clearly were reduced somewhat as a result. And corporate benefit offices grew expert at negotiating with insurance companies, doctors and hospitals to keep costs down.

Here’s where the health care exchanges created by the ACA come in. From the beginning, there’s been a problem with the name. Massachusetts called its exchange “the Connector” (its organization, but not the name, became the model for the ACA). Jon Kingsdale, a high-level consultant who was its founding director, now prefers to call exchanges “marketplaces.”

An insurance exchange is “a virtual insurance store,” Kingsdale wrote in January in The New England Journal of Medicine. Like any retailer it must decide which products (qualified health plans) to offer, which suppliers (insurance carriers) to work with, how to market its wares, and how to help customers compare options and select a product.”  It must seek to standardize plans so that they may be realistically compared, strive to keep administrative costs low, encourage competition, and endeavor to  improve medical care. A tall order, considering the relatively small numbers of persons who will obtain their insurance through exchanges – at least at first.

But employers, no longer the powerful oligopolistic producers that they once were, have begun turning to private exchanges to relieve themselves of the expense of negotiating employee health plans – initially for their retirees. IBM Corp., DuPont Co. and Time Warner Inc. were among those that last year turned to a Utah-based Medicare supplemental coverage exchange to administer benefit plans for retired workers.

Through such private-public collaborations, state exchanges in time may garner as much power to negotiate with insurance carriers, hospitals and physicians as corporate benefit offices once enjoyed.  Corporate health care plans, already shrinking, may eventually become much rarer – just as defined benefit pension plan gave way to defined contribution plans and 401(k) accounts in the 1990s

At that point, individual decision-making under the individual mandate may become a potent force in the market place, just as it is in the automobile insurance market. I have never covered the immensely complicated health care industry. But I know enough economics to think that locating the decision about which insurance to purchase closer to the ultimate consumer could ultimately be a good thing. Bronze? Silver? Gold? Platinum? Faced with an overall budget constraint, persons ordinarily can be counted on to choose what’s best for them. The individual mandate and private-public marketplaces that now seem jury-rigged may in the end turn out to be the most important parts of the mechanism.

4 responses to “Bronze, Silver, Gold, Platinum – Why Choose?”

  1. I suppose discussion of the big-shots has it’s place ( principals ) although I find an adulation of individuals deplorable . I am interested in economic principles, but find little discussion of that topic here.

  2. wankers aren’t afraid aca will morph into single payer, they are simply afraid people will like it and reward democrats. also it will become so popular it can’t be repealed in future.

  3. The idea that individuals can choose what’s best for them has another name: anti-selection. If insurers actually allowed it, they would quickly go broke. As such, using the idea as part of the discussion of goals is little more than right wing marketing propaganda designed to scare people away from what they would otherwise recognize to be their best interests.

  4. I certainly agree with bruce bartlett above. The Republican strategy since December 2008 has been to never allow Obama to secceed at anything. The idea is to show the voters that the Democrats do not have any workable policies and are incapable of governing. As far as allowing individuals to choose, the problem is there is no marketplace because there is no information available to consumers and there is no competition because entry into the market is restricted. Also transaction costs are purposely very high. The ACA will do some good, but it still leaves 35 million people without coverage. The Republicans will be able to prevent single payer for as far into the future as I can see.

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