Tag Archives: Obamacare

How small business are dealing with Obamacare

One of the biggest detractors opponents of Obamacare would bring up when arguing against it was how small businesses would react to the mandate.  The argument that was brought up more often than not was that it would cause small businesses more costs which would hurt employment.  To give small businesses time to figure out their best policy, Obama gave them a break from the mandate until 2015 and for some 2016.  While over 8 million people have registered for Obamacare, small businesses are still trying to figure out the most cost efficient way for them to abide by the new health care law.  Business have two options when it comes to Obamacare.  They can either provide health insurance for all of their workers, or face a penalty of $2,000 per worker.  These added costs have them trying to figure out how to accept these costs without it effecting their bottom line.

Even though many of these businesses have until 2015 to figure it out, many don’t want to wait until then.  Business owners don’t want their customers see a drastic raise in prices to cover these costs which is what would happen if they waited until 2015. Unfortunately, this has had an effect on small business hiring practices.  45% of small businesses polled have said that they have reduced their hiring practices while 23% have said they have had to let workers go to account for these added costs.  The coverage isn’t the only cost that these business have to account for.  Many also face increased taxes and having to pay higher premiums.  The Wall Street Journal released a case study of two different small business and how it would effect their employees.  One of the most interesting interviews that they did of an employee is how he reacts to the new individual mandate.  He says that he is generally a healthy person and doesn’t visit the doctor because he never needed to.  A federal report released said that 65% companies with 50 employees or fewer, who are exempt from the mandatory health care law but offer health care anyway, will see their premiums increase.

While on an individual level, forcing everyone to have health care, even the healthy employees, makes sense because it keeps the premium down because insurance companies can distribute costs among more people.  Due to the 8 million people subscribed to the new health care, it seems almost impossible that the health care law will be repealed.  Unfortunately, the goal of federal health care was to reduce costs for the average American.  While it has reduced premiums in general, insurance companies are still predicted to raise premiums next year across the board due to the higher consumer spending on Health Care.  Instead of lessening the cost of health care, as Obama was hoping, there is now higher demand which will allow doctors to charge higher prices since the majority of these costs will be faced by the insurers.  This will lead to the higher premiums that analysts expect to see from insurers over the next few years.  I for one do believe that access to health care for everyone should be a definition for a developed country, but the US has some of the highest consumer spending on cost of health care and costs of practice.  The costs of providing health care should have been the focus of Obamacare instead of the cost of insurance and premiums.  The costs have just been shifted to insurers and dispersed among more people.  Obamacare feels like a band-aid instead of a systematic change in how health care is practiced.  One of the main reasons that health care costs are so high is due to the insurance that doctors have in case of malpractice suits.  The US has some of the highest malpractice suits in the world and the high costs of these suits are why many specialized visits are so expensive.  It seems that this may be an option that the federal government can look into instead of trying to reduce costs by dispersing them among more people.

The Census Bureau is Probably Not Cooking the Books

Writers at the Wall Street Journal (and, as far as I can tell, ObamaCare haters everywhere) are angry that the Census Bureau has changed the way it measures how many people are covered by health insurance, saying that

[T]he Census revamped the CPS household insurance questions, muddying comparisons between the pre- and post-ObamaCare numbers. The results of the new method will be disclosed this fall […]

Robert Pear of the New York Times obtained internal Census documents that note that the new CPS system produces lower estimates of the uninsured as an artifact of how the questionnaire is structured. One memo refers to the “coincidental and unfortunate timing” and that, “Ideally, the redesign would have had at least a few years to gather base line and trend data.”

The insinuation in this article is obvious: that the Census Bureau timed this change so that it would exaggerate the benefits created by ObamaCare. But I’m not convinced.

First of all, it is misleading to say that the new method producing lower numbers of uninsured is an “artifact” of the new questions. The new questions intend to produce lower numbers of uninsured Americans because research at the CB shows that the old questions they used create an upward bias. They are correcting an artifact, not  creating one.

Second, the change was announced in September 2013, before the botched ObamaCare roll out. If the CB meant to cover up the bad numbers, it must have been clairvoyant about the fact that the launch of healthcare.gov would encounter so many problems, and it should be obvious that this is not the case.

Moreover, do we really have any reason to think that the CB biases their results in Obama’s favor? Sure, one could claim that the statisticians at the CB have a liberal bias (though I see no evidence of this). But do they really have an incentive to construct an elaborate plan that will potentially muddy numbers so terribly that Obama looks good when he should look bad? If they do have such an incentive, I do not see what it possibly could be.

That said, this probably was not the best time to roll out a new measurement system, considering that health care coverage is such a charged topic right now. Still, we want the best estimates that we can get, and in the link provided above, the CB cites several sources that show that the new question formats provide more accurate data. The alternative to changing the method would be keeping a system that gives biased results for several more years.

Anyway, I imagine that once people cool down a bit and realize that the change is probably not a sign of corruption, this story will fade fast. But it gives us a good chance to reflect on the role government statisticians and whether we accuse certain organizations of being corrupt because it bodes well with our political ideology.

Retail Medical Clinics Respond to the Excess Demand

Demand for retail medical clinics is expanding recently. Newly insured people as a consequence of Obamacare make it possible. Currently, there are about 6000 such locations throughout the country as of 2012 in pharmacy/drug store and supermarket chain, operated by CVS, Walgreen, Kroger, and Target. Although some physician groups reject the existence of this chain, I think this is a good trend and good also for the patients.

As long as they only treat non-chronic disease and act as complement to the service of physician, as it is like now, the existence of these services is importance to reduce the workload of primary health service.  The flue, cough, blood-pressure measurement, vaccines, diabetes screening and other no chronic disease are among cases treated by nurse practitioners or physician assistances in retail clinics. There is no reason that they will replace traditional primary-care service as long as it is set up a set of regulations to limit services that they can provide. Moreover, as it is said by Ateev Mehrotra, an associate professor of health-care policy at Harvard Medical School, the typical patient at a retail clinic is a young adult (between 18-44), without a regular primary-care physician. That statement confirms the data of MinuteClinic, the CVS division, the largest player in this service that half of its patients, according to their report, do not have primary-physician. This fact proves that the existence of retail clinics is merely a supplement to the traditional clinics and they will widen medical service to those who have no access to primary-physician. At least, having access to retail clinics is better than just consuming over the counter medicine without prescription.

For patients, the existence of this alternative means more convenience. It is common that such clinics open seven days a week with evening service. Unlike ordinary physician services or primary care clinics that often have long waiting queue to make appointments, retail medical clinics do not require patients to make such appointments. Weekend and evening services also mean that no need for them to break from work. Thus, it is plausible if primary consumers of retail clinics are young adults that are more likely hesitant to leave work in order to visit traditional clinics. In this regard, this alternative will give convenience to them and thus will improve health of people in general.

One thing needed to be addressed is to make sure that the existence of this retail clinic chain will not replace traditional clinics by restricting services the retail clinic can provide including chronic and acute condition. Then, restricting retail clinics to provide service to baby and children is also important since their health is more vulnerable and according to the American Academy of Pediatrics, taking kids to retail clinics instead of primary care pediatricians fragments care, since the kids do not always see by the same medical provider. I believe that existence of such retail services will benefit society in general if it is handled properly.

New Premium Prices Could Actually Be Better

A lot of the complaint around Obamacare is the result of the fact that some people are seeing increases in healthcare premiums, as noted by Forbed.com. And while this article in the Wall Street Journal shows that healthcare expenditures (as a percent of gdp) have been declining in the past few years, it is no secret that the premiums themselves may cause trouble for some people. As with most legislation, there are winners and losers.

But this brings to mind a comment I made on one of our fellow student’s blogposts about Obamacare. I noted that higher prices for health insurance, while unpleasant, may in fact be closer to the prices that arise in a closer-to-perfect market than the prices we saw before Obamacare was implemented. In this post, I’d like to expand on that idea a bit.

To start, let’s first recall that before Obamacare, there were many people who wished that they had health insurance but did not, either because it was too costly or because people were denied access for pre-existing conditions. In this sense, the pre-Obamacare market was imperfect from a welfare point of view because many people who wished that they had insurance did not.

Now, with Obamacare, that imperfection is essentially deleted. Everyone has access to healthcare coverage because, well, it’s required (and it’s probable that most of those who didn’t have coverage in the first place did indeed want it) and because those who could previously not afford it now can, with government subsidies. The wealth distortions is may cause are likely outweighed by the improvement in welfare.

Now, the big flaw with this argument is that the market previously was more perfect because demand curves are a function not only of your preferences for having or not having healthcare, but also your ability to pay for them (ie your budget constraint). But, the idea that this made the market more perfect assumes that there aren’t substantial welfare gains from Obamacare. That is, the pre-Obamacare demand curve may have been more pure when you think only about wealth maximization, but when you consider that the new, increased demand curve is associated with increased welfare for many people who gained a lot of utility from their newfound ability to purchase health care coverage, you might say that the new Obamacare demand curve is purer from a welfare point-of-view (which, ultimately, is what economists care about anyway).



Is Obamacare a Giant Lizard-Monster Destroying America?

Daniel Henninger of the Wall Street Journal has a piece today using the botched ObamaCare roll-out as evidence that the Democratic Party is a defective commodity and is going out of style.

On ObamaCare, he says

As American voters watch ObamaCare continue its Godzilla-like rampage across the national health-care landscape, it’s worth considering the collateral damage this political monster may be doing to the Democratic brand itself. What if ObamaCare’s problems become a metaphor for the modern Democratic Party?

It is unclear how Henninger justifies comparing ObamaCare to a terrorizing monster. Is he, perhaps, referring to the botched roll-out? If so, that is old news and no longer really relevant: as Paul Krugman points out, the program has been recovering pretty well from the initial horror. In fact, the new CBO report predicts that healthcare sign ups will be over 6 million by the end of March. This is still short of the originally-projected 7 million sign ups, but it is not bad, and certainly not a situation comparable to a giant lizard stomping around your city.

Or perhaps he is referring to that other part of the CBO report that speaks of the reduction in the labor force predicted over the next decade. But this, too, is a heavily abused statistic. As many other bloggers have noted, people choosing to leave the labor force is very different than people losing their jobs. What is more, the over two million people leaving number is not quite what everyone thinks it is. As a matter of fact, it is not necessarily that 2 million people will leave the labor force: rather, people will choose to reduce the hours worked (perhaps down to 0, perhaps not) and when you add all of those hours up, it is equivalent to over 2 million people leaving the labor force. So those who cry that ObamaCare is destroying jobs don’t exactly have their facts straight.

So, the two recent concerns about ObamaCare are not really a big deal, but Henninger uses the ObamaCare debacle as evidence that the Democratic Party is going out of style, comparing the system to a defective commodity that the market will flush out. First of all, this is just wrong: the younger generation is much more left-leaning than right-leaning, and I don’t see that changing any time soon. What is more, once you consider the facts on the current state of ObamaCare, you realize that the effects of the law aren’t a good reason to see the Democratic Party as a broken commodity, anyway.


(Revised) Hopefully Affordable Care Act

In early February, the Congressional Budget Office (CBO) attached an addendum to a decade-long budget projection that sharply raised the decrease in employment due to the ACA.  They write (on page 117):

The reduction in CBO’s projections of hours worked represents a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about
2.5 million in 2024.

Before the most recent report, the CBO estimated a decline of about 800,000 jobs due to the ACA.  This threefold increase was in large part due to the CBO revisiting a concept called the implied marginal tax rate.  Large parts of the new healthcare law involve giving people from 1.5 times the Federal Poverty Level (FPL) to 4 times the FPL subsidies to help pay for insurance.  As a person earns more, the amount of the subsidy falls.  Thus, when they earn more money through their job, they also happen to lose some government subsidies.  Thus, for some people, there are more incentives to not work than there are to work, so they reduce the amount out output they produce.  Depending on the state, they are also “coverage gaps” where people are neither eligible for Medicaid nor federal subsidies, and thus earning too much could cause someone to lose the benefits of Medicaid.  The White House responded strangely, saying:

“CBO finds that because of this law, individuals will be empowered to make choices about their own lives and livelihoods, like retiring on time rather than working into their elderly years or choosing to spend more time with their families.”

This is an amazing twist of information; the Obama administration is implicitly praising people for living off government subsidies rather than working.  This is bad both from the perspective that taxpayers have to support people living off the government and they are adding nothing to the output of America.

January’s most recent number still indicate  that a smaller than expected number of uninsured young Americans have signed up for health care coverage under the provisions of the new Affordable Care Act (ACA).  They are deemed the “young invincibles” by commentators due to both the lower healthcare costs of younger patients and their own self-acknowledgement of that fact.  Unfortunately for legislators, the new healthcare law is built upon widening the overall pool of those with health insurance, including the healthy “young invincibles” in order to help subsidize the cost of universal healthcare.  If too many young people take the fine for not having insurance rather than buying insurance, the system for financing the new health care law could crumble.  The January report also indicates only 3.3 million people had signed up for insurance, about 1 million short of the goal for the month.

These few facts are just indications of a larger trend in American health care costs.  According to a 2012 piece by the CRS (Congressional Research Service), “CBO current-law projections indicate that federal health spending, including Medicare, Medicaid, and outlays for new health care exchanges and subsidies, could make up nearly 50% of mandatory spending in FY2022.

What are possible explanations for why the Affordable Care Act might not be affordable for America?  One that sticks out is that under the 2010 Affordable Care Act, consumers no longer pay premiums based on their health risks.   The idea behind this idealistic premise seems good; some people with preexisting conditions could not get health care or only get it for astronomical costs because no insurance company wanted to bear the cost (and loss on the bottom line), and that doesn’t seem right.  However, not being able to charge people more based on health risks really undermines the concept of insurance itself; more risk means higher premiums for any other type of insurance.   Simply changing what insurance fundamentally is doesn’t constitute a “better health insurance” system as proponents of the ACA claim.

As with any social policy, the actual costs cannot be realized until well after the program goes into effect.  However, Democrats in Congress clearly seem afraid of the turmoil the law has caused, and are themselves cutting into President Obama’s major policy.  They have begun supporting plans that don’t meet the minimum requirements set out by the law because they don’t want people to lose existing policies.  The President himself has changed the mandate on businesses.  Beyond the fact that the legality of these executive actions is dubious, they reek of politics.  Why would the President cut so heavily into the his trademark law, if not to try and get more people to sign up on the exchange (since less business will provide healthcare due to the new restrictions)?  I personally prefer good policy over good politics.  The evidence is mounting that “Obamacare” is the latter, and not the former.

‘Obamacare’ presents new challenges for rural Americans

Middle-class Americans, who can’t afford to pay $500+ per month for their health insurance but don’t qualify for the generous government subsidies, have been deemed the losers from the Affordable Care Act. I’ve previously written on the inequalities of American healthcare in this blog post from January. However, the Wall Street Journal reported today additional disparities between health insurance premiums for residents of urban versus rural counties. This discrepancy of rates could further damage the effectiveness of the ACA in America.

The reason for higher rates in rural counties comes back to the supply side of health insurance – or the insurers. Having less demand (or fewer people) to serve is the first and foremost reason that insurance providers are not entering these markets. The second, equally important aspect is the increased risk that rural populations bring. In rural counties, household income is generally much lower than in urban areas.

“In the 515 counties with only one insurer participating in the federally run marketplace, average household earnings were $56,766 in 2012, more than 20% below the national level, census data show.” (WSJ)

In addition, lifestyles in rural areas tend to lead to worse health conditions for residents than in urban areas (I won’t get into the reasoning for this discrepancy, but for more information see this study). This means a greater chance of cashing in the insurance to pay for health care and thus less profit for insurers. These conditions are causing providers to simply stay out of markets with low profit potential.

With fewer providers and less competition in the market, suppliers can dictate prices within the market. This means that rural counties with only one provider – Blue Cross Blue Shield, in particular – will have much higher prices due to monopolistic market effects. One example of this discrepancy comes from a rural Florida resident, Rebecca Stephens.

“Rebecca Stephens, an office manager from Wauchula, Fla., recently discovered there was only one health insurer offering coverage in rural, low-income Hardee County, and the midlevel plan she wanted to buy cost about $200 more a month than a similar plan in nearby Tampa.” (WSJ)

The “marketplace,” as government website HealthCare.gov was meant to be, can benefit consumers if providers have to compete for their business. The key to success moving forward will be finding ways to increase the number of available options. ‘Obamacare’ will have to find a solution to the rural versus urban issue by ensuring companies are entering rural markets, as well as the higher income, urban ones. While subsidies are helping some middle-class Americans afford these higher premiums, others are being completely overwhelmed by up to a 500% increase in their health insurance plans. Most Americans simply can’t afford that.

More Obamacare Means More Unemployment

According to the Congressional Budget Office, the Affordable Care Act (aka Obamacare) will reduce the labor force by 2 million workers by 2017.  And it’s not because employers aren’t hiring.  The CBO explicitly states that the Affordable Care Act will “reduce the total number of hours worked, almost entirely because workers will choose to supply less labor – given the new taxes and other incentives they will face and the financial benefits some will receive.”  Interestingly, the same analysis performed by the CBO in 2011 showed a mere 800,000 person reduction in the labor force by 2017.  Why is this estimate so different now?

The reason is the newly implemented structure of Obamacare.  Under the Affordable Care Act, Americans are provided with a certain amount of free health care given the amount they work.  In the reverse fashion of our progressive tax system, as you work more (generating more income and contributing more hours), the amount of free coverage you receive declines.  According to CBO Director Douglas Elmendor, in this way Obamacare imposes an “implicit tax on additional work.”  In response to this implicit tax, the CBO estimates that significantly more workers will choose to work part time instead of full time, as doing so maximizes their level of free coverage.

Specifically, the law works as follows. First imagine an American supporting a 4 person family.  This American can choose between a part-time job paying $36,000 a year or a full-time job paying $42,000 a year.  If he chooses the part-time job, he will qualify for about $10,000 more of free coverage each year relative to the full-time job.  Assuming consumers treat health care coverage as a type of income/compensation (I feel safe making this assumption because health care coverage is now legally required.  If you’d like to challenge this assumption, please do so), the part-time job is clearly the better choice.

Now consider another American support a family of four.  He is choosing between a job paying $54,000 a year and a job paying $72,000 a year.  Given the reverse-progressive (regressive?) coverage rates of Obamacare, this individual would only lose out on $7,000 of free coverage by choosing the higher paying job.  As such, this American, who is in in a higher income range, will not distort his behavior based on Obamacare’s coverage rules.

What this example shows is that Obamacare does distort employment decisions, and that it does so on the low-end of the income spectrum.  The benefits for low-wage employees are so high, that Obamacare encourages them to remain low-wage employees.  For high-wage employees, while losing out on free coverage is certainly disappointing, the free coverage is not significant enough to alter indivdiual behavior.

At a time when income inequality and a lack of income mobility are such key issues in this country, it seems that Obamacare is fighting against our end goal: making the American Dream easier.  At least for the poorest Americans, Obamacare seems to encourage individuals to give up on the American Dream, because if the government will pay your expenses for you, why go out and get a higher paying job.  Personally, I think that in this way, the Affordable Care Act is hurting America.  And while I think health care is extrememly important, maybe Obamacare should focus more on helping businesses pay their full-time employees healthcare (which would likely encourage employment as it is a requirement for coverage) instead of bypassing businesses and going straight to consumers…

The effects of Obamacare

The 182-page Congressional Budget Office (CBO) report projects more people will scale back how much they work as they seek coverage through the Affordable Care Act, better known as Obamacare. Republicans have long criticized Obamacare as job-reducing and economy-devastating, while Democrats insist that the law would transform into a blessing to American people. Based on the data from the report, it looks like Republicans are winning. The report forecasts that the new health law would “reduce the total number of hours Americans work by the equivalent of 2.3 million full-time jobs in 2021.” This labor-force impact is nearly three times larger than the agency’s earlier projection of 800,000 workers.

The top factor to account for this drop is the subsidies for health insurance. To ensure Americans can afford the premiums on the new health care, Obamacare grants tax credits to those who earn between 1 time and 4 times of the federal poverty line. The credits are given on a decreasing scale. Thus, people are subject to a higher tax rate as their income rises, discouraging people from working more hours to increase their income. And with full health insurance coverage, poor workers have access to better health care even with relatively a low income, which might reduce the incentive for them to work harder to self-support. There is also Medicaid. All those earning up to 138% of the poverty line will qualify for the Medicaid program. Hence, workers slightly above this quantity may choose to work less to be eligible for this program.

The main goal of Obamacare is to help the needy, but we always assume that the needy are lazy and maybe that is why they become needy in the first place. Clearly, this logic puts us in a dead circle. But economics assumes people are rational and incentives do play a vital role, so health insurance may not be the most effective way to really help the needy. To avoid the “moral hazard”, I think it’s better to engage the working hours of the needy into the subsidy. For instance, the subsidy can be applied to the wage, which is based on the hours someone works. So one needs to work more to get more subsidies to pay all their health care expenses. Unlike the tax credit, which may act as a negative incentive to working hours, wage subsidies encourage poor workers to work more if they want to earn more. Either way, it’s still redistributing income by transferring money from the rich to the poor. But wage subsidy will not diminish jobs and working hours and will help economy growth.


The Health Benefits of the Earned Income Tax Credit

Believe it or not, the Earned Income Tax Credit (EITC) does more than help low income families get involved in the economy.  A new study by the Federal Reserve Bank of Chicago finds that the EITC helps low income families to eat healthier.  (WSJ: Households Spend More on Healthy Foods When They Get Earned Income Tax Credit)

Unlike food stamps, the EITC is paid out as a lump sum payment, which takes advantage of the wealth effect.  Low income families, feeling richer after receiving a large cash payment, alter their spending habits and choose to purchase more healthy foods such as fish, eggs, and dairy products, and consume less unhealthy foods such as sugary beverages.  Given that obesity rates are significantly higher in low-income families (because unhealthy foods is typically much less expensive than healthy food), the EITC is helping to fight a rising economic concern in the United States.

According to Forbes, in 2012 obesity passed up smoking as the most expensive health issue in the United States, increasing annual national healthcare bills by over $190 billion a year!  Indeed, the average obese male has health care bills costing nearly $1,200 more each year compared to non-obese males.  For the average obese female, this cost is an additional $3,600 per year!  (Forbes: Obesity Now Costs Americans More in HealthCare Costs than Smoking).  Furthermore, given that obesity is most common in low-income families that will now have a significant portion of their health care costs paid by the government (via The Affordable Care Act), much of the cost of obesity will be passed on to the Federal Government, contributing to this country’s already growing debt problem.

By encouraging healthy behavior, the EITC is helping to drive down healthcare costs that are indirectly paid for by taxpayers.  Obesity has grown 34% since the 1960s, and this growth has made obesity is an issue that we literally cannot afford to ignore.  Additionally, the impact that the EITC has on food spending illuminates another important issue in the United States: the price disparity between healthy and unhealthy food.  It is unfortunate when a double-bacon cheeseburger costs $3 and a salad costs $10.  By the substitution effect, this type of pricing obviously encourages less healthy eating.  I think it is important for us to address the horrifying price gap between healthy and unhealthy foods, and I think a good place to start is farm subsidies.  I have already written about the impacts of farm subsidies on the market for high fructose corn syrup (https://econ411w14.lsa.umich.edu/why-farm-subsidies-are-stupid/), and as you pointed out with your comments, tariffs and trade barriers are likely another way that we can confront this price gap.  However we address this price gap, it is important that we do so soon, as rising obesity rates are not only saddening, but grossly expensive as well.