Uwe Reinhardt: The Rationale for the Affordable Care Act

Uwe Reinhardt tries to explain things to Senator Johnson:

Uwe E. Reinhardt: The Economics of Privately Sponsored Social Insurance: I am puzzled about why the senator does not see in the Affordable Care Act a sincere attempt to replicate his family’s fine health care experience for millions of low-income, uninsured Americans. The idea is to help those with family incomes above 133 percent of the federal poverty level (currently about $30,000 for a family of four) procure — on an organized state- or federally run health-insurance exchange — community-rated, publicly subsidized, private health insurance of the sort that financed his daughter’s cure. A government-run health insurance exchange is not such a novel idea, nor should it be controversial. The federal government’s Office of Personnel Management has for decades run such an exchange for every member of Congress and for federal employees, and very successfully, by all accounts.

To see why the Affordable Care Act is actually trying to mimic employment-based private health insurance, let me propose this definition: Employment-based group health insurance, American style, is publicly subsidized, privately sponsored, community-rated social insurance sold to American employees on formally organized health insurance exchanges.... [E]mployees actually pay most or the full premiums for their employment-based health insurance, even if they do not make an overt contribution toward the insurance premium.... [T]o assist employees in making this purchase, the benefit managers organize a formal health-insurance exchange that lists a side-by-side comparison of the different insurers among which employees can choose.... [S]maller companies usually list fewer and sometimes only one or two insurers on their exchanges. Part of the intent of the Affordable Care Act is to offer these small employers access to the larger state-run exchanges, so their employees have more choices among insurers.... [T]he contributions employees make directly toward the premium for health insurance (through explicit deduction from their paychecks), plus their indirect contribution through reductions in take-home pay, are effectively community rated.... [T]he idea that raised so many hackles last year — that younger, healthier Americans should, through community-rated health-insurance premiums, subsidize sicker Americans — has long been accepted by the bulk of Americans at their place of work.

In this sense, then, private employment-based group insurance qualifies for the label of “social insurance,” even though it is privately sponsored. It is, of course, not socialized medicine, but neither are the Medicare, Medicaid and Tricare programs, government-sponsored social insurance programs that procure health care from the private sector.

Only the program that Americans reserve for military veterans, and apparently preferred by them — the vast Veterans Administration Health System — is pure socialized medicine.

Finally, Americans who procure health insurance at their place of work receive generous public subsidies toward that purchase... between $200 billion and $300 billion a year....

Having said all this, I ask you to imagine a low-income family whose head or heads of household work at very low wages in small companies that do not offer their employees health insurance, which is the case at many small companies. Suppose their little daughter was born with exactly the same condition as was Senator Johnson’s daughter. What should the fate of that little girl be?

Perhaps the senator could provide some commentary on that, as well.