Reforming the ACA: Losing the forest for the trees

By Christopher Thornberg

 

Californians are right to be worried about the future of the Affordable Care Act now that Republicans control both branches of Congress and the White House. But they should be more worried about a looming crisis that neither candidate addressed during the contentious election season: the coming fiscal crisis driven by spiking costs of Medicare.

During the Obama administration, the Republican-controlled Congress voted well over 50 times to repeal the Affordable Care Act, his signature health care act—with the President faithfully vetoing their efforts every time. Now with the new administration in place, success is largely assured—and suddenly the rush to end the ACA has slowed sharply. As it turns out, the political grandstanding is easier than finding solutions to very real problems in the U.S. health system.

The ACA largely focused on the problem of the uninsured. In 2009, 15% of Americans were medically uninsured, including one out of five working age people (see Table 1). The ripple effects of this pool of people created crises in many corners of the economy. The ACA used a combination of subsidies and fines to encourage individuals to buy health care—and while at it, they also changed some of the rules about how and what kind of insurance can be sold.

This had some success—although it was not to the extent that was initially hoped. The uninsured rate fell to 9.4% in 2015, only by about two fifths, and only by a third for working age people. And to be clear, a significant portion of these gains were driven not directly by the ACA, but rather the business cycle, with improvement in the labor markets implying more people working for firms where they could be insured. 

California was one of the more aggressive states to work on enacting the ACA, and the results were better than the national average. Here the rate of uninsured dropped by over half, from 18% to 8.6%, and 24.4% to 12.1% for working age people. We did better—but still not good enough. The reality is that the carrot was a little too small and the stick not quite big enough to get a better response. And this is one reason why the exchange premiums have been going up recently—too many healthy people in the state and nation remain uninsured. The ACA system needs to be tweaked to achieve better success, an action that has been impossible over the last six years.

Yet, while the immediate fear is that we will reverse course—as noted, the Republicans have started to move on this very slowly. While the ACA system has not gone far enough, there are still huge political and economic ramifications to simply throwing it out. Consider that a recent report from the Congressional Budget Office (CBO) estimates that simply repealing the ACA would cause 18 million people to lose their insurance, and many more would see their coverage reduced, and new popular benefits lost.¹

The social impact would be substantial. The economic impact is very real as well. For all the focus on manufacturing jobs by the current administration, it is worth noting that the nation has added over 1.4 healthcare jobs for each manufacturing job lost over the last two decades. The health system embraced the ACA, and rebuilt their systems around it. It would cause substantial problems for the system to try and go back now—with potential job impacts.

Throwing out the ACA in a vacuum is a potential political catastrophe for the right, as the cooler heads in that camp have realized. Ultimately, the Republicans may find that they will need to find ways to keep the many popular provisions of the ACA—meaning they must focus their efforts on finding ways to improve the ACA, rather than tearing it down wholesale.

The debate over the ACA will be ferocious—wherever it ultimately takes us. And unfortunately, within this turmoil we are still being distracted from the true crisis that is bearing down on the USA that has nothing at all to do with the ACA—namely the wave of boomer retirees pouring into Medicare.

Today there are 46 million seniors living in the United States—the vast majority insured today under public health care insurance, not unlike they were at the start of the ACA debate. And the financial pressures here are just starting to mount. According to the U.S. Census Bureau, there will be 77 million seniors living in the US in 20 years as result of increased longevity and the boomer crest hitting the 65 plus range.

In 2015, the federal government spent $13,500 per senior on health care—roughly 3.6% of GDP and 18.7% of federal budget revenues. Because of increases in public health care cost, and the changing demographic base a conservative forecast suggests that in the next 20 years public spending on health for seniors will expand to 8% of GDP—and eating up over 41% of federal tax revenues.

This is simply not sustainable. The federal budget has many competing demands, from defense, education, R&D and infrastructure to the competing needs of seniors regarding Social Security. And let us not forget it also includes increasing support for health for non-seniors through Medicaid as per the ACA.

We say these are conservative figures—as they do not consider the current administration’s hostility toward immigration or the promises they have made to cut federal tax rates. Both of these actions will cause the situation to become proportionally worse by reducing revenues for the government, even as it slows labor force growth, and thus, economic output growth.

The US is hardly unique in this problem. Europe, Japan and even China are facing similar demographic crises. And like the U.S., political leaders in those nations seem little inclined to take on the political heat that will be involved with reforming health systems for seniors. Yet in reality the crisis will not be diminished by ignoring it. In short, expect the health care debate and crisis to stay with us for a long time after the ACA situation is behind us.

Christopher Thornberg is the Director of the UC Riverside Business Forecast and Founding Partner of Beacon Economics. The opinions in this article are presented in the spirit of spurring discussion and reflect those of the author and not necessarily the treasurer, his office or the State of California.