Obamacare’s new insurance marketplaces are scheduled to open for business on October 1, just a few days from now. For all the attention that date has received, it is less important than it might seem. Because new coverage won’t actually begin until January 1, most people looking to get insurance on their own won’t start shopping until the end of the year. But October 1 is still a milestone. And with Republicans threatening to let the government shut down or default if Obamacare takes full effect, it’s also a good moment to take a step back and assess the law—to think, in the broadest possible terms, about whether the reforms it has enacted are worthwhile.
The public remains unconvinced, although feelings are more mixed than Senator Ted Cruz would have you believe. While poll results vary depending on wording and source, people tend to have negative views of the law but don’t want Congress to defund it or block implementation; they support the component pieces but doubt the whole package will help them personally. One reason for the ambivalence is confusion: Most people don’t know what the law really does. Americans are also reacting to the unrelenting, frequently dishonest attacks by the law’s opponents. Two weeks ago, this campaign of misinformation reached a new level of absurdity when Betsy McCaughey, a discredited advocate from the 1990s, suggested that Obamacare would turn doctors into “government agents” demanding information about patients’ sex lives. The claim is not true. It went viral anyway.
Still, some misgivings about Obamacare are reactions to what’s actually in the law, because pretty much everybody can find something in it not to like. Liberals are disappointed the law doesn’t cover everybody—and won’t guarantee everybody’s insurance is adequate. That’s true. Conservatives are furious that Obamacare means higher taxes and more regulation. That’s also true. Some employers will alter company benefits or hours for part-timers. Some people will pay more for insurance. Some of the fancy new websites for buying insurance won't be fully functional, maybe for a while. These are real problems, even if they affect relatively few people.
But compromises, trade-offs, and, yes, unintended consequences have been part of every reform in American history. The minimum wage and child labor laws took money out of the pockets of employers. Social Security raised taxes on workers. Today, Americans cherish those programs because the good far outweighs the bad—because what the country gained, in economic security, health, and freedom, more than made up for what it lost. The same standard should apply today.
If you’re going to judge Obamacare, you can’t do it by looking simply at the minuses or the pluses, as even its advocates are prone to do. You need to look at the whole thing—to see what’s getting better and what’s getting worse. And you can’t do that until you ponder a question few bother to ask: What would the United States look like today if Obamacare hadn’t become law?
Consider this set of headlines about our health care system:
FEWER EMPLOYERS COVERING HEALTH
HEALTH COSTS CLOBBER SMALL FIRMS
WORKERS TO PAY MORE FOR HEALTH CARE
TRAIN WRECK
If you’ve followed the debate over Obamacare, then you probably recognize these headlines, particularly the last one. Ever since Senate Finance Chairman Max Baucus worried aloud about the possibility of an implementation “train wreck,” critics have turned the phrase into a slogan. But these headlines aren’t from the last two years. They are from 2005 and 2006. That should tell you something. People were making the same complaints long before Obamacare came along. For the U.S. health care system, dysfunction is a pre-existing condition.
It started almost a century ago, in the late 1920s and early 1930s, when hospitals established the first modern insurance plans so that their patients would be able to pay their bills. Plans needed a mix of healthy and sick people: Premiums from the former covered the costs of the latter. To do that, organizers focused on groups of employees. (The first such plan operated in Dallas, Texas, under the direction of Baylor Hospital.) Later the federal government exempted employer health benefits from wartime price controls and then from federal income taxes, insuring that employer-provided insurance would be became the basis for health insurance in the U.S.
But that situation made health insurance highly dependent upon employment and income, particularly after the 1940s when commercial insurers introduced the practice of “medical underwriting”—charging higher rates, withholding benefits, or denying coverage altogether to people with pre-existing medical conditions. The creation of Medicare and Medicaid, in the 1960s, made it possible for the elderly and some of the poor to get insurance. But people who didn’t fall into either category struggled.
Worse still, insurance plans were still financing care the way they had back in the 20s and 30s—by paying whatever bills the hospitals and doctors submitted, at whatever prices. By the 1970s, the price of health care was rising much faster than incomes, just as American manufacturing companies and eventually other employers came under intense pressure (much of it from abroad) to cut their labor costs. After decades of loading up employees with insurance, in order to win their loyalty, businesses began looking for ways to contain or reduce the cost.
As a result of these factors, health insurance coverage deteriorated badly. Up through the 1970s, the percentage of non-elderly Americans with insurance from employers had risen steadily. But it stagnated after that and, after another two decades, started to fall—from a peak of 70.3 percent in 2000 to 63.7 percent in 2008 and then, thanks to the recession, 58.4 percent in 2012. More and more people qualified for Medicaid, but it wasn’t enough to offset the losses. As a result, according to the Census Bureau, the percentage of Americans with no health insurance at all rose from 12 percent in 1987 to more than 16 percent in 2009, although the increase was actually larger because of a one-time technical adjustment in methodology.
These numbers alone don’t fully capture what the old system was (and, for at least a little while longer, still is) like. People buying insurance on their own dealt with coverage hassles and benefit confusion. In one survey by the Center for Healthcare Research and Transformation, in Ann Arbor, Michigan, 45 percent of respondents who had bought insurance on their own said their coverage was “fair” or “poor”—a figure twice as high as other groups. And those people were the lucky ones, because they were able to find insurance. According to a study by the Kaiser Family Foundation, a little less than one in five people who apply for individual coverage are turned down because of pre-existing conditions. Those numbers don’t include people who didn’t even bother to apply, or who were able to get coverage but only at higher rates or without certain benefits.
It’s easy to assume people like this will be ok, because hospitals must provide stabilizing or life-saving care to people who need it. But people without insurance or with inadequate insurance frequently miss out on preventative and routine care. They also face financial hardship. In an international survey by the Commonwealth Fund, more than one in two Americans with chronic disease reported “cost-related access problems”—skipping prescriptions, tests, or recommended treatment because of the expense—within a two-year span. That was far and away highest among the countries surveyed. In France, the proportion reporting similar problems was less than one in four. In the Netherlands, it was less than one in ten.
Those two countries, like most of the developed world, had long ago decided to put health care under government control—guaranteeing insurance for all and setting some kind of national guidelines for health care spending. For generations, liberals tried to create a similar system here, ideally by expanding Medicare so that it was open to people of all ages. Unable to dislodge the private insurance industry or to overcome public skepticism of government, reformers in the 1990s, led by former President Clinton, tried to create a universal system based on private insurance. That effort also failed—in part, strategists later reasoned, because even Clinton’s proposal would have required large numbers of people with private insurance to change policies. Reformers determined not to make the same mistake again: The next time they had a shot at reform, they’d do everything they could to leave existing arrangements in place.
Obamacare is a product of such thinking. For people with coverage from large employers, or through Medicare, Medicaid, and most other government programs, Obamacare seeks to improve coverage by setting higher standards—by, for example, prohibiting insurers from imposing annual or lifetime limits on benefits. But that’s about it. Otherwise, the goal is to let those people keep their policies. The big changes are for poor people who don’t currently fall into one of Medicaid’s eligibility categories—to make the program available to everybody with incomes below 133 percent of the poverty line, or about $31,000 a year for a family of four.
The other big transformation will be for the “non-group” market—that is, people buying insurance directly, on their own. They are a relatively small group: About 10 to 14 million, depending on the estimate. But this is where Obamacare attempts truly radical surgery. The idea is to replicate the situation with large employers—to create a big pool of people, mostly healthy but some sick—and then offer insurance to all, at uniform prices and with standardized benefits, regardless of pre-existing conditions. To make sure healthy people sign up, there’s a financial penalty for remaining uninsured. That’s the “individual mandate.” And to make sure people can comply with the mandate, the government will offer subsidies in the form of tax credits. They will be worth thousands of dollars a year to some people.
But introducing so many changes without disrupting existing arrangements turns out to be more complicated than it seems. Take the prohibition on medical underwriting, which means insurers can no longer charge different rates to the healthy and the sick. Under Obamacare, some young guys with no health problems, accustomed to paying ultra-cheap rates for bare-bones coverage, will have to buy better policies and pay more for them—although subsidies will offset the difference for some. “When they passed fair wage laws it meant that women and blacks had to be paid the same amount for the same job—which meant that employers had less money to pay men and whites,” says Jonathan Gruber, an MIT economist and well-known advocate for these reform schemes. “That isn't a reason to not pass these laws.”
Another set of trade-offs was fiscal. When George W. Bush and his allies launched a prescription drug plan for seniors, they didn’t bother to pay for it at all. Obama and his allies refused to be so irresponsible. Whether out of principle or political expediency, they vowed to raise enough taxes and cut enough spending to offset the new cost of helping poor and middle-class people get insurance. Few people took the pledge seriously, but Obamacare’s sponsors were good to their word—and then some. Not only does the law pay for itself, according to the Congressional Budget Office. Over time it will actually reduce the federal deficit.
But the president and his allies had still loftier goals in mind. They wanted to stop medical care itself from getting so expensive. That meant attacking the practice and business of medical care from all sides, ideally in ways that would actually make people healthier. To do this, they set a limit on that tax break for employer insurance, effectively putting more pressure on employers to save money on insurance. They also included among the cuts to Medicare incentives designed to foster better, more efficient ways of treating patients.
The list of “payment reforms” is long and includes many items with conservative pedigrees. (There’s even an attempt at reforming malpractice reform, a cause Republicans hold dear.) But as Uwe Reinhardt, the Princeton economist, likes to point out, every dollar of wasteful health care spending is also a dollar of somebody’s income. When that income disappears, people complain. The rich and their defenders have attacked the higher taxes. Insurers are unhappy that Medicare is paying them less, while device makers are desperate to repeal a new set of taxes. Groups loyal to Democrats have their own issues: Unions are furious that insurance reforms threaten the “Taft-Hartley” plans some operate for their members.
The political cost of fiscal responsibility has been high. During the 2010 and 2012 elections, Republicans hammered Obama and the Democrats for cutting Medicare. More recently, they have cited labor’s discontent as proof Obamacare is bad for working people. Many of these same Republicans have voted to privatize Medicare and cut its funding. They hold the unions in contempt. The talking points resonate all the same.
Critics use the phrase “unworkable” to describe Obamacare almost as frequently as they use the phrase “train wreck.” It’s an odd choice of phrase, because unworkable suggests the idea itself is flawed. Meanwhile, the state of Massachusetts has a nearly identical coverage scheme in place and it appears to be working quite well.
Despite some early glitches—some uninsured had to wait months before enrolling, because of administrative backlogs—the program has allowed the vast majority of residents to get health insurance. Today, about 96 percent of the people in Massachusetts have health insurance, the highest, by far, of any state. (Some estimates suggest the proportion is even higher.) Studies have shown that access to health care has improved, and financial hardship has diminished, even at a time when other economic pressures are growing stronger. Both insurance premiums and health care costs are increasing in Massachusetts, as they have been across the country, but not at a faster rate—and, just now, the state has started to introduce the kind of cost control measures that Obamacare already has.
A key ingredient in the Massachusetts success was the strong support it got from the state’s business and political establishments—from the Republican governor who signed it (Mitt Romney) to the beloved baseball team that championed it (the Red Sox). Obamacare obviously won’t have that benefit. Particularly in deeply conservative states where officials are doing everything they can to undermine implementation, people are likely to benefit less—in no small part because, in those states, officials have taken advantage of a Supreme Court ruling making it easy for them to reject the Medicaid expansion. In Florida and Texas alone, more than two million people won’t get health insurance because conservatives won’t allow the states to join the Medicaid expansion. In these states with such large numbers of poor people, low-income populations won't be getting help up the economic ladder even as middle-class people do.
But even without those states participating in Medicaid, the number of people who stand to benefit directly from Obamacare’s coverage expansion is huge. The Congressional Budget Office estimates that the number of uninsured Americans will fall by about 25 to 30 million people over the next few years. Many more lower- and middle-class Americans will get financial help, because they suddenly become eligible for Medicaid or for the subsidies now available to people buying insurance on their own. These subsidies are not small: For the typical family, according to a Kaiser Foundation study, the tax credits will be worth several thousand dollars a year. More than half of the uninsured getting coverage will be able to find policies for less than $100 a month. As Robert Greenstein of the Center on Budget and Policy Priority has said, Obamacare represents the single biggest expansion of the safety net since the 1960s. Health insurance isn't the same as health care and some recent studies call into question the impact coverage has on physical health. But some effect on physical health seems likely and nobody disputes that insurance gives people financial protection.
America's most cherished programs evolved over time: Social Security famously left out agricultural and domestic workers, and didn't provide the support it does today. Obamacare, as enacted, has similar deficiencies. The minimum coverage that the law guarantees everybody is not that generous, which means even some people with insurance will face high out-of-pocket expenses.
But the relevant comparison is to what those people have now—frequently even less protection, or no protection at all. And that’s the standard by which to assess all of the law’s side-effects. Are employers squeezing retirement health benefits? Yes—but they’ve been doing that for years, long before Obamacare came along. Are some part-time workers losing hours? Yes—but part-time work was rarely stable and at least now all part-timers can get health insurance. Will people trying to buy insurance on the new online marketplaces sometimes find the process difficult and frustrating? Yes—but buying individual coverage is even more complicated and nightmarish now. As a recent Kaiser Foundation briefing notes, the standard applications for insurance in Wisconsin and Illinois include five pages of questions on medical history alone. Under Obamacare, insurers won’t be asking those questions at all.
Probably the most surprising news about Obamacare is about medical costs: All of a sudden, they are rising more slowly than at any time in recent history. And while that reflects many factors, including the recession, there are signs that Obamacare is starting to have an influence, too. One intriguing piece of evidence comes from statistics on hospital readmissions. Under the health care law, Medicare now penalizes hospitals when re-admit certain kinds of patients. The idea is that hospitals will better prepare patients for what happens after discharge—and maybe even monitor their progress—if money is on the line. Sure enough, readmissions are down. And some hospitals have started innovative programs for follow-up care, like sending visiting nurses to check on patients after they’ve gone home. It’s just one development, and far from clear-cut. But many experts see a trend. At the very least, the fact that medical inflation has slowed undermines one common argument against Obamacare—that it would cause health care spending to spiral out of control.
This slowdown in costs should change the way we interpret some of the stories that have gotten attention lately—in particular, those about employers changing benefits, supposedly because Obamacare has made their health plans more expensive. The new law’s regulations are raising costs for large employers, although modestly, mostly because employers must now cover some children through age 26 and because, starting next year, more employees will take up coverage in order to comply with the individual mandate. A few weeks ago, UPS cited these new requirements when it announced that it would no longer offer coverage to employee spouses who could get coverage elsewhere. But companies had been making those sorts of changes for years. And while the health law’s regulations means companies are under slightly more pressure, the slowdown in health spending means they are under slightly less pressure. And that's not to mention other positive effects of guaranteeing insurance, like making it easier for entrepreneurs to leave big companies and start their own ventures. Obamacare taketh away, but it also giveth.
Conservatives contend that Obamacare’s tradeoffs are not worthwhile. And they have their reasons. They have more faith in the free market and less faith in the government. They think it is better to err on the side of exposing people to more financial shock than risk lulling them into subsidized complacency. They would accept higher premiums for older people if it means lower rates for younger people. They doubt cuts will stay in place and expect costs to rise more than projections suggest. And so on.
These are not matters of right and wrong. They are opinions and, in some cases, philosophical preferences to which conservatives are entitled. But Obamacare critics should also be candid about the magnitude of problems they cite in their arguments. Conservatives have made a great deal of fuss about young, healthy people paying more for their coverage. But these people are almost certainly a minority of the people getting coverage on their own or through Medicaid, not to mention a tiny minority of the population as a whole. Meanwhile, even those paying more will be getting something in return—more comprehensive insurance and the ability to hold onto it, without fear of outrageous annual rate spikes or cancellation because they become sick. The prices themselves are in line with what employers would pay for comparable policies.
Obamacare critics should also come clean about the trade-offs of their own alternatives. A week ago, the House Republican Study Committee released a health care reform plan, drawn mostly from ideas conservatives have floated before. The centerpiece is a proposal to convert the existing tax break for employer-sponsored insurance into a tax deduction that anybody could use for buying insurance. Other features include proposals to allow the purchase of insurance across state lines and to limit financial awards in cases of medical malpractice. For people with pre-existing conditions, the ones insurers try to avoid, the government would finance special "high-risk" plans. Nobody has published a formal estimate of its impact, but estimates of previous proposals with similar features make it possible to guess what it might do.
One likely result would be disruption of current insurance arrangements, the very thing conservatives decry now. That’s because healthy people would have more incentive to drop employer coverage and buy cheap, bare-bones policies available on the outside. Once that happens, employers would be left with sicker and sicker people to insure, causing rates to rise for those who remain. Another likely consequence would be a quick “race to the bottom” among insurers, as they all relocated to states with the fewest benefit requirements—much as the credit card industry congregated in states like Delaware and South Dakota that promised not to regulate them heavily. Conservatives complain that Obamacare is forcing people who want less coverage to put up with more, but their plans would force people who need more benefits to make do with less.
Less coverage is a theme of conservative proposals. This is deliberate—and a point they don’t like to advertise, except among fellow policy experts. When conservatives say they have alternatives for expanding health insurance, they generally mean they will cover fewer people or offer people less protection. Based on available details, the Republican Study Group plan would probably reach many working class people—but do almost nothing for the millions of low-income people who, without Obamacare, would remain uninsured. The insurance available through the high-risk pools would either have higher premiums or offer less financial protection than the benefits available to the healthy. "The Affordable Care Act is intended to help people who don’t have insurance, especially those who are less than healthy, get it," write health care analysts Aaron Carroll and Austin Frakt. "The House proposal is intended to make insurance cheaper and easier to get if you are healthy." There's a reason for this. Covering more people and making better insurance available to the sick would require more regulation and more government spending. Conservatives cannot abide that.
But when imaging what health care would look like if conservatives had their way, the most important thing to remember is that none of these plans received a majority vote in either house of Congress. That tells you something about Republican governing priorities—and about how realistic their proposals are. One reason Obamacare is so complicated is that it’s full of compromises. The architects had to win votes from rural and conservative lawmakers, satisfy or at least mollify members of the health care industry, and deal with the public’s frequently conflicting impulses. If Republicans ever tried to enact something like the Republican Study Committee proposal—or any other conservative proposal—they’d have to make a whole other set of compromises. The likely result would be a law that looks a lot less appealing than what they are talking about now.
These are the things to remember next week and beyond. There will be stories about glitches and side-effects, and of people who, for one reason or another, are worse off. Some of the stories will be fake or at least exaggerated. Some will be real. But the question is not whether Obamacare has its downsides. Of course it does. It’s how those downsides compare to the upsides—and whether that balance is better than the world we have now.
So when listening to these reports, it's helpful to remember some other stories—the stories of people whose struggles were the original impetus for reform. A few years ago, I wrote a book about some of them. In upstate New York, a middle-class, fortysomething husband and father lost his job and then his insurance—and couldn’t find coverage even when he returned to work, because his new position was officially on a contract basis. His wife put off checkups, leading to a delayed diagnosis of breast cancer that took her life and left the family bankrupt. In central Florida, a realtor couldn’t find insurance because she had diabetes. She thought she lucked out when she found a decent policy willing to overlook her pre-existing condition. It turned out to be a fraudulent insurer, leaving her with five-digit medical bills. In Los Angeles, an uninsured security guard went partly blind because he couldn’t get treatment for his diabetes. Outside of Denver, the husband of a woman begged a hospital to keep his wife, who had severe mental illness, even though his insurance had run out. He lost the battle—and, shortly thereafter, she committed suicide.
They were extreme cases. They were also emblematic of a system that marginalized tens of millions and frustrated many millions more, a system that was bankrupting our society, and a system that was getting worse, not better, with time. Obamacare won’t solve these problems, but it will make them much better. Those who would take the law away owe you more than complaints about what they don’t like. They should tell you why restoring the old system—the one that caused so much misery—is a better alternative. That’s a tough case to make.
Correction: I originally wrote that, in the polls, most people oppose repeal. That's wrong. When pollsters ask a straight-up quesiton, whether respondents favor or oppose repeal, they have generally (though not always) supported it. But polls asking more detailed questions suggest people would rather Congress fix and improve the bill—and oppose efforts to defund it or block implementation. I've changed the reference accordingly.