Introduction
Today’s post kicks off a series of blog commentaries on matters related to the Patient Protection and Affordable Care Act, a.k.a Obamacare (henceforth to be referred to as ACA).
I’ll begin with some general thoughts about healthcare in America that will lead to a discussion about the dynamics of health care insurance in the United States.
There will then be a good bit of discussion on ACA’s objectives and its mechanics before I close out with an analysis of the four ACA-related issues now before the U.S. Supreme Court, including my predictions on how the High Court will rule.
Oral arguments begin today and will continue tomorrow and Wednesday. The decision will be released in June.
I don’t want to reveal my predictions on how the Court will rule (you’ll have to wait a few days for that) but I do suggest paying particular attention to the oral arguments on Wednesday on the topic of severability. The lawyers for both the 26 states and the Obama administration are all arguing that a ruling against the individual mandate (oral arguments on that topic are on Tuesday) mean that the entire ACA law should be struck down; because the mandate is so integral to the law.
In the case now before the Supreme Court a district court judge in Pensacola agreed, ruling both the mandate and the entire ACA unconstitutional. His ruling on the mandate was upheld by the 11th Circuit Court of Appeals in Atlanta but his ruling that the entire ACA should fall as a result was overturned.
Because neither side agrees with that ruling Washington lawyer H. Bartow Farr III has been appointed as a friend of the court to defend the 11th Circuit ruling that struck down only the mandate.
In essence, the administration is betting the farm on the likely reluctance of the court – Justice Kennedy in particular – to throw out the clearly-constitutional baby with the less-clearly-unconstitutional bathwater; yet to be equally troubled by the prospect of wading into the vast, inter-related mechanics of the ACA law to say what can stay and what must go.
Ruling the individual mandate constitutional would make the messy severability question moot; thus a not unattractive option.
If you are inclined toward reading the oral argument tea leaves, the arguments on severability on Wednesday might be a good place to focus.
This suggestion and my upcoming posts are informed from a variety of court documents and articles I’ve read about this topic over the last two years. I have been working on distilling this information and writing this manifesto for the last two or three months. While I have credited my sources extensively I apologize in advance for any inadequacies in documentation. Suffice to say, as you already know, I’m not smart enough to have dreamed this stuff up on my own.
I would describe these blog posts as a combination of informed opinion and fact-based news analysis. Others might not be so generous. Regardless of quality and/or balance (or lack thereof), my purpose in writing is not so much to sway your opinion as to stimulate and, perhaps, inform both it and mine. Thanks for reading.
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Healthcare spending in the United States; where we are and how we got here
Healthcare costs are consuming America; creating a huge drag on governments at every level and in businesses of every size, discouraging entrepreneurship and retarding the American economy. We are on an unsustainable path that will end disastrously if the federal government does not take some significant corrective actions.
Thus, I tend to be a lot more concerned with the prospect of the status quo continuing unabated than with the perceived shortcomings of substantive proposals for change that try to address some of the major problems with the status quo; like the ACA or Rep. Paul Ryan’s proposals to reform Medicare (which I am not going to discuss in these posts because I have my hands full with ACA).
Sometimes the cure can be worse than the disease, but with the American healthcare crisis I don’t think that’s the case. We are deathly ill and we need to operate – stat. Thus I give Obama, Ryan and others willing to stick their necks out and make substantive reform proposals a lot of credit, and a lot of leeway.
Medicare’s Chief Actuary Richard Foster recently reported to Ryan’s House Budget Committee that healthcare spending in the U.S. has increased at a significantly faster pace than the economy, rising from 5.2 percent of GDP in 1960 to 17.9 percent in 2010. National health expenditures represented about 13.8 percent of GDP for much of the 1990s, reflecting stronger-than-average real economic growth during much of this period and the widespread adoption of managed care health plans.
However, the share of GDP devoted to health care accelerated sharply in the early 2000s in part as a result of the public backlash against health care utilization controls and the economic recession that began in 2001.
From their enactment in 1965, Medicare and Medicaid costs have also grown faster in most years than the economy. Medicare expenditures represented 0.6 percent of GDP in 1967 and 3.6 percent in 2010. The corresponding percentages for Medicaid are 0.4 percent, increasing to 2.8 percent.
Why is this, why did heath care costs increase 9.6 percent per year, from 1965 to 2010 when the economy as a whole grew only 6.9 percent per year over that same period?
Foster says about one percentage point of the annual health care cost growth is attributable to the growing population (more people, more health expenditures, all else equal). General, economy-wide inflation adds about four percentage points, he says.
Foster says medical prices tend to grow at a somewhat faster pace than general economic inflation; because (i) a greater proportion of health care is produced by human capital than in the economy at large, and (ii) productivity improvement is lower for health care providers, reflecting their higher labor share and the individualized nature of many health services. Together, these factors have increased medical prices by about 1.4 percent annually above the level of economy-wide price growth.
Over time, Foster says, people tend to use more health care services, and the services tend to be more complex and expensive as new technology is developed. This “volume and intensity” of services per person has added about 2.9 percentage points per year to personal health care expenditure growth, Foster says.
Together, the increases in population, general prices, excess medical-specific prices, and volume and intensity, plus a small contribution from changes in the age and gender distribution of the population, add up to an overall average growth rate for personal health care expenditures of 9.6 percent over the last 45 years (compared to 6.9 percent for the economy as a whole).
That’s what I mean when I say that healthcare costs are consuming America.
Contrary to popular belief, the baby boomers have not contributed to this problem significantly – yet. However, the leading edge of the Boomers are becoming Medicare-eligible and the Boomers will have a dramatic impact on future Medicare spending, Foster says.
Obviously, we cannot go on like this. It is unsustainable and something must be done.
However, a lot of people don’t seem to see it that way. They don’t see the need for change or feel any particular urgency to alter the status quo. Polls suggest that about half of Americans are satisfied with the status quo, which is a healthcare system that is obviously on an unsustainable path.
Why is this?
I believe a big part of the reason for the disconnect is that the majority of us are insulated from the problem by the byzantine way that healthcare in America is dispensed and paid for; and this disconnect is exacerbated by the government’s decisions in the 1940s and 1950s not to tax employer-provided health insurance. At the time this amounted to a relatively small tax break. Now it is, by far, the biggest, most costly tax loophole of them all.
If employer-paid health insurance was subject to income tax it would generate more than $100 billion in additional federal revenue each year. I suspect that, if our individual income taxes were increasing in step with our employer’s health insurance premiums, many of us would be a lot more cognizant of the healthcare spending problem than we are now.
Instead, employer-paid, tax-free health insurance and the federal government’s decision to borrow instead of increasing taxes to provide healthcare for some segments of the population (seniors, poor children, military, etc.) obfuscates the underlying problem of rising costs.
Politically-speaking, blissful ignorance may be the biggest obstacle to substantive healthcare reform.
(Next blog post; a primer on health insurance)
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