Current Events Health Insurance Health Reform Medicaid Public Policy

Will Better Care deliver better care?

The Senate’s new health care bill, the Better Care Reconciliation Act of 2017, proposes a number of changes to the Affordable Care Act.  The Kaiser Family Foundation has a detailed breakdown of the bill and compares it with the Affordable Care Act that President Obama passed and the American Health Care Act that was proposed by the House of Representatives. How should we evaluate these changes?

From an economist’s point of view, there are generally two dimensions over which one evaluates economic policy: efficiency and equity.   Efficiency asks whether the bill will increase market efficiency and improve overall social welfare.  Efficiency is not everything.  As a society we value providing support for the least fortunate among us.  Whereas maximizing efficacy is generally a good thing, equity depends on societal preferences.  No redistribution would provide little support to the poor, complete equity would lead to a communist society with little incentives for innovation or hard work.

Now back to the Better Care bill.

In terms of efficiency of health insurance markets, there is little to like.  The bill keeps in place premium subsidies for the working poor, but the value of these subsidies drops from 70% of the plan’s actuarial value to 58%.  Additionally, provisions to reduce cost sharing provisions for the poor  have been stripped.  Thus, fewer people are likely to buy insurance, particularly healthy people.  Second, the bill eliminates the individual mandate.  Thus, fewer people are likely to buy insurance, particularly healthy people.  Third, the employer mandate will be repealed meaning that fewer employers will offer insurance.   Many people may claim that the Obamacare health insurance exchanges were suboptimal.  For instance, community rating gives health insurers an incentive to provide poor care to the sickest patients to get them off their plan.  Nevertheless, a suboptimal but functional insurance market is better than one likely to go into a premium death spiral, which is likely what we have with the Better Care plan.

In terms of overall societal efficiency–taking into account things besides health care–there are some small things to like.  Taxes are lowered, which is a positive due to the deadweight loss taxes create.  For instance, distortionary taxes on specific services (e.g., health insurers, pharmaceuticals, medical devices) are dropped.  Allowing individuals to buy health insurance at 58% of actuarial value will allow more people to buy insurance, and still have funds left over for other expenses (even though some of those expenses will inevitably be out-of-pocket health care costs not covered by insurance).

In terms of equity, the plan is certainly bad for the poor.  Medicaid expansions will be rolled back over time (although not as quickly as in the AHCA).  As described above, premium and cost sharing support will decrease.   As described by Axios, the biggest winners of the bill are young healthy people who either no longer need to buy health insurance or who can buy less generous but less expensive (58% actuarial value) coverage.  The biggest losers are the poor and elderly, who will face some combination of higher premiums, or more cost sharing.  Better Care does provide some funds to States to set up high risk pools–which could be separate from the general health insurance exchanges and thus could drive down premiums–through the State Stability and Innovation Program.

In short, despite some tax cuts, there is a serious risk that the health insurance exchanges  collapse and poor and near elderly individuals are left with either no insurance or much less generous insurance.

Politically, this was much less of a repeal and replace, rather just more of the same.  According to Megan McArdle:

I called the House health care bill “Obamacare Lite,” but compared to the Senate bill, the House was offering a radical new taste sensation. The Senate bill touches very little of the underlying architecture of Obamacare; all it does is eliminate the insurance mandates, cut spending and give states somewhat more autonomy in how those dollars are spent. Repeal Obamacare, you say? They’re barely even worrying it.


1 Comment

  1. Hi Jason,

    What a great, concise and to the point review.



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