The idea | Why Did Obamacare Work?

Weve recently passed the 14th anniversary of the passage of the Affordable Care Act, known as Obamacare, even though many provisions of the law did not go into effect until 2014.

In its early years, Obamacare was the subject of strong criticism from the left and the right. In fact, as I pointed out in my recent column, politicians on the right are still saying the same things they were saying ten years ago, pretending that their doomsday predictions were not destroyed by events. But Obamacare has survived, greatly expanding health insurance coverage without affecting the budget. Critics on the left complain that it hasn’t produced universal health care, which it hasn’t. But it has done a lot and has become very popular:

So why did Obamacare work as well as it did?

The thing is, criticism of Obamacare from the left has a point. If your goal is to give people access to health care, why not just give them access, by establishing a single-payer system where the government pays the bills? This, in fact, is what we did for seniors when Medicare was created in the 1960s.

The ACA, however, created a complex system in which people must buy their own insurance, although in most cases the government picks up most of the tab. And the complexity of the system, combined with the fact that key parts of it are run by state governments, some of which are controlled by conservatives who want Obamacare to fail, means that many people fall through the cracks: 8 percent of the US population is still uninsured, although that’s much better than before of the ACA:

So why didn’t we want a single payer? Politics. It wasn’t just a matter of buying the insurance industry and keeping it in the center of America’s health care, although that was part of it. More important, I believe, was the perceived need to avoid disrupting Americans who are happy with their existing health care coverage, especially those who get insurance through their employers. Rather than overhauling our entire health insurance system, Obamacare sought to fill holes in our system by adding new features. In particular, it tried to create a labor market where people who are not covered by their employers can get affordable health insurance.

Many people, especially, but not only on the right, expected this attempt to fail. I don’t want to get too deep in the weeds here, but the ACA prevented insurers from denying coverage or charging higher premiums to people with pre-existing medical conditions. This type of regulation can cause people to die: Fewer healthy people buy insurance, so the risk becomes worse, which raises premiums, drives out healthy people, and so on.

Originally, the ACA included a penalty mandate for Americans who were uninsured but it was unclear how effective the insurance mandate was, and Republicans ended the penalty in 2017.

Yet Obamacare did not collapse. Why not?

Here’s how Id put it: Actually, Obamacare ended up working more like a single-payer plan after all, and these plans aren’t under the ghosts of death.

First, much of the increase in health coverage came from the expansion of Medicaid, the government’s single-payer health insurance for low-income Americans, although it is lower than Medicare:

Second, individual purchases of insurance in the marketplaces created by the ACA are subsidized. In fact, last year 91 percent of market enrollees were receiving so-called tax credits. In most cases these credits cover a large portion of an individual’s premium. And, most importantly, the funding does not take the form of lump sum credits. Instead, the law specifies a maximum percentage of income enrollees can pay for insurance (that percentage itself depends on your income) and makes a difference if premiums exceed that limit.

This is not single payer, of course, but it means that the government is a small payer, in the sense that even if premiums go up, most people don’t pay more and the government takes on some of the debt. This means that mortality is basically impossible, because even if healthy people drop their insurance, the cost of most enrollees does not increase.

This is a smart policy design; among other things it protects the ACA from hostile politicians. Shortly after taking office in 2017, Donald Trump declared that the best thing in politics was to let Obamacare implode. And although his attempt to repeal the law failed, his superiors engaged in acts of sabotage, essentially trying to cause a round of death. But funding was hampering this plan. In 2019 I asked Nancy Pelosi how politicians like her have engaged with the smart policy that has built this strong system. I’m a wonk, he replied.

So, Obamacare has defied the doomsayers. But what about warnings that it will prove to be unbearably expensive? As I noted in the column, federal spending on health care is currently much lower than the Congressional Budget Office predicted before the ACA went into effect, despite expanded coverage. How does this happen?

Part of the answer is that before Obamacare went into effect, the uninsured in America comprised disproportionately young adults and the health costs of young adults were, on average, much lower than those of older adults (who were already covered by Medicare). So covering most of the uninsured wouldn’t cost all that money, unless the policy design was seriously flawed, which it wasn’t.

Additionally, the passage of the ACA has been accompanied by a continued decline in the growth of overall health care costs:

We don’t know exactly why this happened. The ACA contains many measures aimed at controlling costs, which may partly explain the curvature of the curve. It is noteworthy, however, that health care costs have declined throughout the developed world. It is possible that the path of technological progress in medicine has changed, creating fewer treatments that were previously incurable and more ways to deliver care at a lower cost. And to some extent we may be seeing the effects of Steins Law: If something can’t go on forever, it will stop. Health spending could not absorb an ever-increasing share of national income, so at some point insurers and providers began to take cost control seriously.

In any case, Obamacare worked. It didn’t provide universal coverage, but it provided health insurance to millions of Americans, some of whom desperately needed that safety net and it did so without breaking the bank. Predictions that the ACA would not work have been proven wrong. For now, the only major threat the plan faces is a political one: The people who have been insisting, wrongly, that health care reform will die of its own accord may step in to kill it.

Quick Hits

45 million people.

Republicans still really hate Obamacare.

Some states (including Massachusetts and New York) are close to universal health care.