Who pays for the ACA?

Who pays for the ACA?

The Affordable Care Act does more than reshape the economics of health insurance in the United States.  The ACA creates winners and losers – some Americans benefit, and others are harmed.  Many people are comfortable believing it is only the wealthy on the losing side, but that isn’t correct.  The wealthy are a small proportion of the real losers – the young, the healthy, and all those that live above the poverty line and below the wealth line.  The ACA – also known as “Obamacare” – has become a deeply divisive political issue.  It shouldn’t have.  If it hurts innocent Americans, there should be no question what we think of it – no matter how many people it helps.

The ACA first transformed the supply side of the health insurance market by mandating that all policies be comprehensive.  The ACA requires that all policies:

  • Offer free annual checkups and preventive care
  • Cover all benefits and services required by HHS (including emergency care, labs, prescription drugs, and rehabilitation)
  • Extend coverage to individuals regardless of any pre-existing health conditions
  • Not place annual or lifetime limits on benefits
  • Allow children to remain on their parents’ health insurance plans until age 26

Each of these requirements costs something.  It is obvious that “free” annual checkups are not truly free – your doctor isn’t running a charity, after all.  Health insurance companies are forced to pay your doctor, and forced to pass on that expense to you.  When the government mandates that a private enterprise provide something for “free,” it is actually mandating a price increase.

It is less obvious, but equally true, that each of the other new requirements represents an upward pressure on costs for health insurance companies.  Consider the elimination of coverage caps.  The sick man that hit his $1 million annual coverage limit was already his insurance company’s worst customer.  Now there is no limit to how much red he can write into a company’s bottom line.  Those costs, too, must be covered.

Many of the ACA’s requirements are downright silly.  Why would an unmarried man need maternity benefits?  Why does a grandmother require substance abuse coverage?  Without the ACA these individuals could choose less expensive policies that didn’t include coverage for benefits they don’t need.  The ACA is indiscriminate in its additional requirements, and therefore indiscriminate in how it forces prices upward.

Basic economics predicts that when the price of a product goes up, sales go down.  Of course, the ACA aims to increase the spread of coverage as well as its comprehensiveness.  So in addition to intervening in the supply side of the market, the ACA has to change the demand side.  More explicitly, it forces demand to increase.

To prevent the jump in health insurance costs from driving people away from the market, the ACA requires all citizens to own qualifying health insurance.  If not provided by an employer, health insurance must be purchased individually at an average cost of roughly $3,000 per year.  This “individual mandate” could pose an impossible burden for individuals with lower incomes, so the ACA authorizes subsidies.  These subsidies are for individuals and households earning up to 400% of the “federal poverty level.”  (In 2013, this would have been $45,960 for a single individual and $94,200 for a 4-member household.)  In effect, the ACA represents a double stimulus to demand – it drags to market those who don’t want health insurance, and it subsidizes the last vestige that simply can’t afford it.

The ACA helps many categories of Americans; those of low incomes, the chronically ill, and those unexpectedly struck with major medical events.  It probably even benefits the health insurance companies who stand to profit from a guaranteed increase in sales.  However these winners come at the expense of many losers.  Take, for example, a 27-year-old American woman that earns $46,000 per year.  Her income is too high to qualify her for a health insurance subsidy.  If she already has health insurance already, her premiums will go up by an average of 55%.  If she doesn’t, she will be required to start paying for an expensive new policy.  In addition to this expense, she will be subject to higher taxes to pay for the subsidies being distributed through Medicaid.  She will be pinched on both sides.  Is this really what we want from healthcare reform – to harm young, middle-class Americans?

There are numerous objections to make against the ACA on economic grounds.  As a general rule, government manipulation of a free market has negative consequences.  Moreover, our government in particular has little authority to intervene in a functioning private market, and perhaps none in the pursuit of social programs.  However the strongest argument against the ACA is that it is simply un-American on principle.  The ACA benefits the poor at the cost of the middle class.  It subsidizes the old at the expense of the young.  It finances the unhealthy at the cost of the healthy.  Congress has no business turning half our population into winners and the other half into losers.  It has no right to mandate that individual Americans purchase health insurance or any other good or service.

Democrats had good intentions with the ACA.  Unfortunately, as is so often the case with social programs, it does far more harm than good.  Even the best of intentions do not supersede the principles of fairness and good governance.  The ACA is outside the bounds of American decency and it deserves to be repealed.