Today I’m going to say something nice about Obamacare. Not because I like the overall law, but because honesty is the best policy.
Regular readers know that our healthcare system is screwed up by bad government policy. More specifically, spending programs such as Medicare and Medicaid, combined with tax preferences and regulations that encourage over-insurance, have created a giant third-party payer problem.
Only 11 percent of health care spending in America is directly financed by consumers. The rest is paid for by taxpayers, insurance companies, and other third parties.
This has eviscerated the normal working of a competitive market. When people are spending their own money, they are careful and prudent. When they spend other people’s money, however, they are not overly concerned about cost.
As a result, we have a needlessly expensive system. And because third-party payer requires lots of administration and paper work, bad government policies also have caused absurd levels of inefficiency.
Well, there’s one small piece of Obamacare that actually is helping to mitigate this problem. The law includes a so-called Cadillac tax that caps the special tax preference for fringe benefits (if your employer provides you a health insurance policy as part of your compensation, that type of income isn’t taxed, unlike your cash wages).
And that reform is having a positive impact. Here are some passages from aBloomberg story.
Large employers are increasingly putting an end to their most generous health-care coverage as a tax on “Cadillac” insurance plans looms closer under Obamacare. Employees including bankers at JPMorgan Chase & Co. (JPM) and college professors at Harvard University are seeing a range of moves to shift more costs to workers. …The tax takes effect in 2018, and employers are already laying the groundwork to make sure they don’t have to pay the 40 percent surcharge on health-insurance spending that exceeds $27,500 for a family or $10,200 for an individual. Once envisioned as a tool to slow the nation’s growing health-care tab, the tax has in practice meant higher out-of-pocket health-care costs for workers.
The last sentence in the excerpt, by the way, is economically illiterate.
The Cadillac tax will restrain health spending because it means higher out-of-pocket costs for consumers. They are going to have more authority and responsibility of how to spend their own money.
Think of this analogy. Will you eat more if I give you $25 to buy a meal or if I give you a pre-paid voucher for a $25 all-you-can-eat buffet?
If you’re a normal person, you’ll take the $25 cash, buy a meal for less than that amount, and save the extra money for something else.
But if you’re given a pre-paid voucher for the buffet, you’ll pig out because there’s no additional cost for consuming more items.
And the Bloomberg story includes evidence that giving consumers more control over their income is having the predicted positive effect.
The tax on Cadillac plans — named after the luxury vehicle to denote their lavishness — is one reason the growth in health-care premiums has slowed since the Patient Protection and Affordable Care Act took effect in 2010. …The tax “is having the effect that was intended, which is the cost of these plans are being reduced,” Christopher Condeluci, a former Senate Republican aide who helped design it, said in a phone interview. …Premium increases for employer-provided health insurance, which covers about 48 percent of Americans, “slowed markedly” in 31 states since 2010, the year the Affordable Care Act became law, the New York-based Commonwealth Fund reported today. Nationally, premium growth fell by about a percentage point after the law, to 4.1 percent a year on average, the report said.
By the way, I should hasten to add that I’m not happy about the way the Cadillac tax was adopted, for a major reason and a minor reason.
The major reason is that it was part of a law that is otherwise a very expensivedisaster.
The minor reason is that, for reasons of both good tax policy and good health policy, I want to eliminate loopholes and tax preferences only if we can use every penny of revenue to finance lower tax rates.
And that’s exactly what you get with a flat tax, which is a system where you don’t even need a Cadillac tax because there’s no healthcare exclusion.
Under Obamacare, by contrast, the Cadillac tax limits the healthcare exclusion, but politicians used the money to finance bigger government.
Now let’s say something bad about Obamacare.
John Goodman of the Independent Institute has a column in today’s Wall Street Journal. He points out that the law is hurting many of the people it was supposed to help.
…the law is already hurting some of the people it was intended to help. By this time next year, we may find that many workers who earn within a few dollars of the minimum wage have less income and less insurance coverage (as a group) than they did before the mandate began to take effect.
How does John justify these assertions?
Because he did some real-world research, surveying 136 fast-food restaurants with 3,500 employees.
The results are not encouraging, at least for the workers.
Before 2014 about half the employees were “full time” as defined by ObamaCare; that is, they worked 30 hours or more a week. The potential cost to the employers of providing mandated health insurance to their full-time staff would have been about $7 million a year. But by the time the employers took advantage of all their legal options they were able to reduce their cost to less than 1% of that amount. The first step was to make all hourly workers part time. …workers in the survey whose hours were reduced to part time…can get subsidized insurance through an exchange, but they will be asked to pay up to 9.5% of their income for what is unattractive coverage. Some of them previously had mini-med plans, but this kind of insurance is no longer available to them. …Those few remaining full-time employees will get mini-med insurance for themselves, but they are unlikely to be able to afford coverage for any dependents they have. They will not get an ObamaCare bronze plan unless they fork over about one-tenth of their take-home pay, and they won’t be able to get bronze coverage for other family members unless they forfeit more than half their income. Out of 3,500 employees, only one that we know of got the kind of insurance that the architects of the Affordable Care Act wanted everyone to have.
One out of 3,500? Sounds like the typical success rate for a government program.
But we shouldn’t joke. It’s not funny that low-income workers are being hurt. Just like it’s not funny that young adults, retirees, and kids are being disadvantaged by Obamacare as well (on the other hand, it is somewhat amusing that politicians, IRS agents, and Harvard professors are upset about the law).
The bottom line is that an overwhelming percentage of Obamacare provisions make the healthcare system more expensive and less effective.
Yes, there are some positive effects of the Cadillac tax, but those are easily offset by all the features of the law thatincrease the size and scope of government.
P.S. Since I mentioned that third-party payer has messed up our healthcare system and caused prices to rise, I should point out that there are a few sectors where consumers are still in charge. And in those areas, such ascosmetic surgery and abortion, prices are falling in relative terms.
P.P.S. The folks at Reason TV put together a must-watch video on how a hospital can be more efficient and affordable in the absence of third-party payer.
