The Healthcare/Welfare Trap


This week’s health policy news roundup, curated by Jane M. Orient, M.D.

ObamaCare hurts a lot of people, but Republicans could be in terrible political trouble over efforts to repeal it because that will hurt people too.

The damage caused by ObamaCare has occurred throughout the economy, inflicting varying degrees of pain on people who are pulling the wagon. The beneficiaries of ObamaCare are the ones riding on the wagon, whose pain can be easily demagogued if they are cut off. And the pain suffered by individuals could be quite intense. The New York Times is already picturing patients in wheelchairs. The narrative is “tax cuts for the rich to take healthcare from the poor.”

Sen. Ted Cruz (R-TX) has proposed an off-ramp to freedom, an amendment that would allow insurers to offer plans that would permit lower-risk subscribers to pay less, as long as they offered at least one ObamaCare-like plan, with community rating: “if you like your Obamacare you can kind of keep it.” The problem would be that if lower-risk people dropped ObamaCare to avoid being overcharged, ObamaCare premiums would increase even faster. There would be subsidies to help cover those premiums, but these would phase out with income, creating an income cliff. The effect would be a greater than 100% marginal tax rate on people whose economic condition improved. This is the classic poverty trap in all welfare systems, including Medicaid: a strong disincentive to work harder or get a better job.

The “scary marginal tax rate” is also there without the Cruz amendment—if loss of a subsidy is the same as paying a tax.

The most powerful objections to repeal efforts may be coming from Republican governors, who don’t want to lose the federal Medicaid expansion cash.–Health%20Care-GOP%20Governors/id-baac464fff1f4636a359fdda6d64dfa5

Remember that Medicaid cash does not go directly to poor, sick people. In Arizona, an expansion state, a preliminary audit of publicly available documents showed that managed-care contractors made more than $225 million in pre-tax profits in just one year.  In 5 years, nearly $400 million of Medicaid funding was transferred to other state agencies.

Nevada’s Governor Brian Sandoval has been especially vocal as the “voice of reality.” Last year, Nevada Medicaid paid as much as $213 million to managed-care companies for more than 30,000 people who received no care at all.

Medicaid coverage is very poor, and it is only supposed to be a “safety net,” not a permanent situation, so “losing” it should not necessarily be a bad thing. Avik Roy supports the tax subsidy structure in the Senate bill and thinks the bill can lead to real Medicaid reform.

“Critics who wish to trap able-bodied adults into a lifetime of Medicaid dependency should be forced to defend the flawed Medicaid status quo,” writes Josh Archambault.

Many of the people on expanded Medicaid got there by trading in superior private coverage. In fact, the crowd-out rate might be 60 percent.

Various reform ideas are like offering to fix a stranded motorist’s car radio when the basic problem is a burned-out engine, writes Robert Book.

Or Republicans are trying to mitigate the damage caused by guaranteed issue/ community rating while keeping that provision intact.

The Republicans are trapped in set ways of thinking proposed for decades by various think tanks, generally variants of the “managed competition” promoted by the Clinton healthcare task force, writes John Goodman. We need “visionaries,” he states.

Goodman and others stop well short of saying that the federal government has no constitutional authority to pay for (that is, force taxpayers to pay for) other people’s medical—or other—needs. But once the idea of legal plunder is accepted, where does the politicization of medicine stop?

Seen on Social Media


Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.