The conservative campaign (and to some extent, the liberal campaign) against the Affordable Care Act depends on a mischaracterization of the health policy status quo ante as some sort of fairer and less government-dominated system. Focusing as it does on appealing to, while vastly exaggerating the number of, people who will not have as good a “deal” when ACA is fully implemented, anti-Obamacare propaganda ignores the preferences embedded into pre-Obamacare health care and insurance practices. Josh Barro pointed this out in a persuasive Business Insider column yesterday:
Once Obamacare is implemented, America’s health insurance system will be a thicket of subsidies and transfers that benefit some people and harm others….
But here’s the thing: Before Obamacare, our health insurance system was already a thicket of subsidies and transfers. The law doesn’t simplify the system, but it does make the thicket of subsidies and transfers more sensible: directed more at people who have low incomes or high health needs, and greatly shrinking the share of the population that doesn’t have health coverage at all.
Making the thicket more sensible will mean that some people’s costs go up, producing “rate shock.”
Barro cleverly uses Ted Cruz’s health insurance (actually, his wife’s) to illustrate his argument:
Take a look, for example, at Sen. Ted Cruz (R-Texas). Cruz has frequently noted that he declines the health plan that is offered to him as a member of Congress. Instead, he is covered through insurance that his wife gets as a Managing Director at Goldman Sachs.
Health care economist Austin Frakt ran the numbers on that Goldman plan. As of 2009, Goldman’s health insurance coverage for employees at the managing director level and higher cost a stunning $40,000 per family. (The typical cost for a family health insurance plan in the United States is around $16,000).
Health insurance benefits are not taxable income, so Cruz and his wife get a big tax break on that plan. The break cut their tax bill by about $15,000 as of 2009, the last year for which we know the plan’s value. The Cruzes aren’t alone; every American who gets health insurance coverage through work gets this tax break, but the Cruzes enjoy an especially large one because their plan is so expensive and their tax rate is high.
For comparison, Medicaid coverage for two adults and two children cost about $11,000 in 2010, meaning (unless Goldman has radically changed its health benefits since 2009) Cruz is getting a tax break worth more than the benefits a family on Medicaid gets — even though he is a Senator and his wife is a highly paid investment banker and they have no need for subsidies to obtain health coverage.
This is insane health policy, and the Affordable Care Act changes it.
Starting in 2018, the law will impose a “Cadillac Tax” on high-cost health plans of the sort the Cruz family enjoys. The 40% tax on the portion of family plan premiums exceeding $27,500 will serve partly to raise revenue by offsetting the income tax exclusion for insurance. It will also encourage firms like Goldman to offer less-generous plans (which will reduce upward pressure on health care prices) and pay more of their employees’ compensation as taxable salaries (producing additional new revenue).
So does that change reflect more or less “government interference” in health care? Is it more or less “socialistic” than the status quo ante? Truth is, it’s mostly just an adjustment of government preferences to make them more widely available to people who need them most. As Barro argues:
The new system of subsidies and cross subsidies that Obamacare sets up is far from perfect. But perfect is not on the table. The question is “is it better than the old system, where huge subsidies go to people with no need for them and tens of millions are left uninsured?” That answer, if you consider the costs and benefits honestly, is yes.
Of course there is a human tendency, which Obamacare critics are counting on, to view one’s own subsidies as “earned” or “fair” or just natural, and anything that diminishes them in value as “redistribution,” particularly when it might benefit those people. So the idea that the health care system is moving towards one in which everyone is protected against unbearable adversity, whether it’s a health condition that makes one radioactive to insurers, or a financial calamity that makes decent insurance unaffordable, is an essential part of the argument, along with the contention that a more rational system will be less prone to boost costs every year for just about everybody.