Kentucky voices

Ky. Voices: Less burdensome ways to offer health insurance than new law

October 30, 2013 

John Garen is a UK economics professor and chairman of the Bluegrass Institute Board of Scholars.

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Gauging the success of any public expenditure program often is difficult. However, it certainly involves more than counting the number of beneficiaries.

But this is the way many, including the Herald-Leader editorial page, are judging the initial impact of the Patient Protection and Affordable Care Act.

Many people apparently have applied for coverage on exchanges created by Obamacare, or are in the process of doing so; more may join them.

While the numbers say something about the potential delivery of benefits, there are many more crucial questions:

■ How effectively is the intended beneficiary group being reached?

■ Are there eligible people who might receive benefits but are not in the intended target group?

■ Are there unwanted burdens or perverse incentives placed upon beneficiaries?

■ What are the costs being delivered to non-beneficiaries?

■ Are there also perverse incentives for non-beneficiaries as well?

■ And most importantly, are there alternative policies that deal more effectively with the issues at hand?

While virtually everyone agrees that the health care system needed reform, the answers to the above questions regarding Obamacare itself are decidedly unfavorable. Some reasons for this are:

■ The newly eligible for Medicaid are placed in that program, but it is one that is distinctly subpar, where physicians are difficult to find and participants are treated as second-class citizens.

■ The subsidy for insurance falls with income, implying that low-income workers suffer a financial loss — losing some or all of the subsidy — by working more hours.

■ Insurance premiums for most young people rise dramatically relative to pre-exchange days. The higher premiums are to subsidize those in poor health. But why put the burden of assisting those in poor health on the backs of healthy young people? Also, it's likely that many will pay the penalty for not becoming insured and seek coverage only if they become ill.

■ Since healthy people's premiums are overpriced and unhealthy participants are underpriced, insurers make money on the former and lose money on the latter. Thus, the system imposes a financial penalty on insurers who serve a disproportionately large number of the unhealthy.

■ Eligibility for a government subsidy to buy on the exchange extends to an annual income of more than $90,000 for a family of four. This certainly goes well beyond helping families who otherwise can't afford insurance.

■ Employment is likely to be negatively affected. Except for businesses employing fewer than 50 people, the federal health-care law will require firms to provide insurance to their employees, raising the cost of hiring. The penalty for not offering insurance is low relative to the cost of insurance, so firms may cancel their plans and pay the penalty.

■ Firms may help employees purchase subsidized insurance on the exchanges with cash assistance, putting more people on the subsidized exchange at taxpayers' expense.

It is these perverse effects and incentives that those who oppose Obamacare want protection from. While it is difficult to say what the actual magnitudes of these possible perverse effects are, why force citizens to face all these potential hazards when there is a better way?

There are people in need of care and insurance whose means to purchase it is limited. Some face serious pre-existing conditions. Let's focus public assistance on this group, while enabling others to make the choices best for their particular circumstances.

This is accomplished with two basic steps.

Step 1: Encourage and embrace market competition and consumer-directed health care to keep costs low, quality high and increase access. This, in and of itself, will enable many to acquire affordable and high-quality insurance and health care.

Step 2: Devise a targeted program focused on individuals who are truly needy, due to low earning capacity or precarious health conditions.

The first step would eliminate unneeded regulations that increase costs and make the tax treatment of individual insurance plans the same as employer-provided ones. Consumers would have much more choice among plans, and people would not be left without coverage if they lose or change jobs.

This can be done without generating the heavy burdens of Obamacare on everyone.

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