The Key To Obamacare's Survival?

Even though the House of Representatives has just voted to use the budget bill to defund Obamacare, its chances of survival are pretty good.  Not just because the Senate will delink the defunding from the budget bill, but also because Obamacare suddenly seems to have some powerful supporters.

Not that these supporters are speaking openly.  But here's the scoop.  Major American corporations are moving their workers or retirees to the private exchanges.  Wahlgreens, Sears, and Darden Restaurants (think Olive Garden, Red Lobster, Longhorn Steakhouse, Capital Grille and more) have announced that employees will move to the private exchanges.  IBM and Time Warner are moving retirees to the private exchanges.  Apparently, these companies will pay employees or retirees subsidies to reduce their premium costs.  But these companies, and others making similar moves, are offloading a very important risk--the unpredictability of health care costs.  They provide fixed subsidies, thus stabilizing their costs.

Businesses love predictability and certainty.  Profits are more likely if you can control major cost items like health care coverage for employees and/or retirees.  In essence, Obamacare is on the verge of becoming an important subsidy to big business.

Experience teaches that government subsidies are virtually impossible to eliminate.  Long after the Great Depression and Dust Bowl, agricultural subsidies that make no public policy sense persist.  Even after being nationalized just before they could bring down the entire U.S. economy, Fannie Mae and Freddie Mac roll along, now more centrally positioned in the financing of residential real estate than ever before.  Virtual giveaways of access to minerals on federal land continue unabated even though the settlement of the West was effectively complete by 1890.

With Obamacare in the process of becoming a potentially really, really important subsidy to really, really big corporations, do we really think that it's going to be eliminated?  The Tea Partiers in the House make a lot of noise, but can they take on the political firepower that big business lobbyists can bring to bear?  Recent polls indicate that a majority of Americans support Obamacare, and politicians in a democracy eventually have to pay attention to the polls (see Obama-Syria-poison-gas-response for more on this point).  But, just as importantly (or more so), powerful business interests can arrange the survival of big subsidies no matter how loud some people in the House of Representatives scream.  This may reflect poorly on the nature of the political process, but it's the truth.  And Obamacare may well now have the backing of some highly influential lobbyists who will speak softly (to stay out of the cross-hairs of the Tea Party) but will wield big sticks to keep their clients well-subsidized.

Will the Affordable Care Act Lower Health Insurance Costs?

In 2014, two of the most important provisions  of the Affordable Care Act take effect.  These require health insurers to accept all applicants without regard to prior medical conditions, and to provide unlimited coverage.  Although some recent news stories indicate that health insurers are raising premiums in 2014 to compensate for these provisions, it's possible to foresee a time when these same provisions will constrain the growth of health insurance costs. 

These requirements--no exclusion for prior medical conditions and unlimited coverage--provide powerful incentives for insurers to manage health care rationally.  Currently, many health insurers endeavor to limit their exposure to the costliest patients (i.e., those with existing medical conditions and those needing very expensive care).  In other words, insurers attempt to avoid covering those most in need of coverage.  It's no surprise that the most common reason for individuals to file bankruptcy is unmanageable medical bills.  It is perhaps surprising that most of these individuals have some health insurance coverage--but not enough. 

By forbidding insurers to squeeze out those in the greatest need of coverage, the Affordable Care Act now steers insurers' attention toward managing care rationally and providing the best quality, most effective care.  Preventive care, such as regular physicals, screenings, immunizations, wellness programs, and so on will take priority. People will hopefully fall ill and injure themselves less often and perhaps less severely.  In the long run, this fundamental change in approach may lower the growth of premiums, as improvements in health from better preventive care hopefully reduce the need for medical treatment.  Premiums will rise next year for many--but only because they're getting better coverage.  And that improved coverage may pay off in the long run.