Megalextoria

Obamacare’s “People Will Die” Canard

Passions are high in the national health care debate. Some supporters of the Affordable Care Act (ACA) have taken to asserting that hundreds of thousands of “people will die” if it is repealed or significantly altered. These claims do not withstand scrutiny, and those who wish their policy arguments to be taken seriously would be well advised to avoid them.

These sensational claims rest on fallacious reasoning, which I’ll describe later in this piece. But first let’s acknowledge that neither I, you, nor anyone else has any idea how many Americans will live or die under alternative federal health care policies. It’s an inherently fruitless exercise to attempt to quantify these effects. However, if one seriously wished to attempt it, one would not do so via the methods now being employed to promulgate the “people will die” claim.

Effects of the ACA

The claims are based on extolling a single effect of the ACA: increasing health insurance coverage, which is said to reduce mortality. Of course, the ACA didn’t magically produce its coverage increase out of thin air. To finance it, the law included several features that likely have countervailing effects on mortality.

Below is a partial list of such effects, provided with the caveat that it would be just as silly to charge the ACA with killing people as it is to attribute deaths to its possible repeal:

• CBO found the ACA to reduce economic growth, meaning that as a nation we are collectively poorer because the ACA is on the books. Longevity correlates with income, as lower-income people have shorter lives. Repeal would increase national wealth, which correlates with greater longevity.

• CBO also found the ACA to reduce workforce participation. Although there is a fierce national debate over the effects and causes of unemployment, there is broad understanding that unemployment correlates with worsened health.
• The ACA imposed substantial taxes on medical devices and drugs, inhibiting their development and use. We do not know how many lives these products would otherwise have saved.
• Most of the ACA’s coverage expansion occurred through Medicaid, which has a limited supply of providers and services. Those who gained Medicaid coverage via the ACA gained access to subsidized health services. But unless the number of providers, facilities and services accessible through Medicaid grew at least as fast as enrollment did, there has been a corresponding reduction in health service availability to people previously on Medicaid.

What Studies Show

But even a balanced attempt to weigh the ACA’s net effects on longevity would be inherently problematic under the methods currently being employed to estimate them.

The widely-circulated figures for deaths supposedly caused by replacing the ACA are extrapolated from a study of the Massachusetts health reform experience. That study found that post-reform (2007-10) mortality rates in Massachusetts improved relative to pre-reform (2001-05) mortality rates more than was the case in other US counties after controlling for demographic and economic conditions.

The study is credible, interesting, and suggestive, but does not offer any generalizable proofs of the effects of national health policy on longevity. To the contrary, the authors state that “Massachusetts results may not generalize to other states.”

The study merely shows that longevity improved within Massachusetts after health legislation, more than can be accounted for by economic and demographic trends. This indeed might plausibly have happened because of Massachusetts’s particular health reforms but as the authors acknowledge, it could also have arisen from any of countless factors specific to Massachusetts.

Indeed, a similar study of Oregon’s experience with Medicaid expansion “did not detect clinical improvements other than depression reduction.” In any case, the Massachusetts study only tells us what didn’t cause its longevity improvement; it cannot definitively explain what did.

Killing Your Credibility

But the biggest problem with the “people will die” claim is that it rests on a fundamental logical fallacy. It is related to the familiar “Fallacy of Composition,” which any discerning interlocutor will call you on if you commit it. An oft-cited example of the fallacy is that just because a standing spectator can see a baseball game better than the patrons seated near him, this doesn’t imply that everyone will see better if they all stand up.

The application of the fallacy to health insurance is straightforward. One cannot leap solely from the observation that “having health insurance. . . results in better health” to the conclusion that “the more we expand health insurance, the healthier we all will be.”

Health insurance reduces the out-of-pocket costs individuals face when they buy health services. Expanded insurance coverage increases health service consumption which, considered by itself, should improve health. But it also increases cost growth, an effect widely recognized in health expenditure forecasting. People with insurance feel this cost growth through rising premiums, but the cost inflation is felt especially keenly by the uninsured, who must pay more whenever they buy health services (or receive less care for what they pay). The observation that the insured are relatively healthier doesn’t by itself imply that expanding coverage will save lives.

Thus, even if health insurance did absolutely nothing to improve national health outcomes, we’d still expect the insured to be healthier than the uninsured. Thus, the observation that the insured are relatively healthier doesn’t by itself imply that expanding coverage will save lives.

There are countless potential examples of the fallacy in operation. For example, consider the current tax preference for employer-sponsored insurance (ESI). Those who receive health insurance through their employer enjoy an advantage in these benefits’ exemption from taxation. This tax preference steers additional health benefits to these individuals. However, this does not mean improved health for the nation as a whole. To the contrary, the ESI tax preference is widely recognized as a driver of health market inefficiency, reducing the value of health services relative to dollars spent.

An even simpler example: the government could easily add to the wealth of ten individuals by sending them each a million-dollar check. It is a non-sequitur to infer from this that the national wealth would be increased by the government’s sending a million-dollar check to every American.

In short, the “people will die” argument is premised on an easily-recognized logical fallacy. Don’t use it if you want to convince others to adopt your health care policy views. If you do, the only thing certain to die will be your credibility.

Reprinted from Economics 21.

Editor’s Note:
Check out this hilarious video, parodying the “people will die” argument.

Charles Blahous

Charles Blahous is a senior research fellow for the Mercatus Center, a research fellow for the Hoover Institution, a public trustee for Social Security and Medicare, and a contributor to e21.

This article was originally published on FEE.org. Read the original article.

The Subsidy Solution Won’t Save Obamacare

As the election season draws to a close, the Department of Health and Human Services released some news that might qualify as an October Surprise: benchmark premiums for health insurance under the Affordable Care Act (ACA) will rise an average of 25 percent in 2017. These changes range from an increase of 145 percent in Maricopa County (Phoenix), Arizona, to a decline of 12 percent in Marion County (Indianapolis), Indiana. Several states only have one insurer offering plans on the ACA’s exchanges.

Skyrocketing premiums and insurer withdrawals have all the attributes of a death spiral, wherein the benefits of insurance do not exceed the costs for many prospective enrollees. Without healthy people to cover the costs of insuring sick people, insurers must either raise premiums or exit the market altogether. Regulations prohibit insurance companies from pursuing other solutions, such as trimming unnecessary benefits or charging more to the most expensive groups to cover. The end result is a collapse of the marketplace.

“Nothing to Worry About”

The Obama administration argues that fast premium growth is nothing to worry about because most people receive government subsidies to help them cover the cost of insurance. According to the HHS release, 77 percent of ACA enrollees can find a 2017 plan for $100 per month or less after taking subsidies into account.

This is misleading for two reasons. First, taxpayers must pick up the tab for subsidies, so high pre-subsidy premiums are not costless. Second, the ACA enrollees in the HHS subsidy figures refer to actual enrollees, not all potential enrollees.

ACA subsidies are mostly based on household income, and they rapidly phase out as income rises. A single, childless 27-year-old with earnings at exactly the federal poverty line ($11,770 for the 2016 enrollment period) qualifies for $225 in monthly subsidies, reducing his monthly premium to just $20. Yet if his income rises to 300 percent of the poverty line ($35,310), he qualifies for no subsidies and must pay $245 per month ($2,940 per year) for coverage. For this 27-year-old, 200 percent increase in income causes a 1,125 percent increase in premiums.

Note: I calculated these figures using this tool from the Kaiser Family Foundation. They refer to 2016 premiums; 2017 premiums will generally be higher.

Naturally, many people who qualify for little or no subsidy will skip paying thousands of dollars for coverage and instead pay the $695 fine for being uninsured. Since subsidies phase out as income rises, middle-class households make up a sizeable chunk of the uninsured, despite the perception that the uninsured are overwhelmingly poor. Forty-seven percent of the nonelderly uninsured had an income above 200 percent of the poverty line in 2015. Just a quarter of the nonelderly uninsured were below the poverty line.

More Money, Better Health, No Subsidies

According to the Kaiser Family Foundation, three million people who did not enroll in ACA coverage in 2015 were ineligible for subsidies due to their high incomes. Another 5.3 million were eligible for subsidies but did not enroll, possibly because the government assistance did not cover enough of the premium to make purchasing insurance worthwhile.

As there is a well-known correlation between income and health, ACA enrollees are likely to be sicker as a whole and thus more expensive to insure.The result is that the group of uninsured individuals who choose to purchase coverage through the ACA are disproportionately eligible for the most generous subsidies, and are thus likely to have lower incomes. As there is a well-known correlation between income and health, this also means the pool of ACA enrollees is likely to be sicker than the population as a whole, and thus more expensive to insure.

This is why it is misleading to argue that post-subsidy premiums matter more than pre-subsidy premiums. When pre-subsidy premiums increase at a faster rate, richer (and healthier) people will balk at ACA coverage. The group of people who do enroll will skew poorer and thus be eligible for more generous subsidies. As a result, post-subsidy premiums will appear lower. But pre-subsidy premiums will drive a richer and healthier group of people away from the ACA exchanges. The sicker pool of remaining enrollees will contribute to increases in the cost of insurance. Not to mention, many middle-class people will end up uninsured.

The 25 percent premium increase in 2017 will only exacerbate this pattern. People who receive little or no subsidy will disproportionately abandon the ACA exchanges, meaning that the net average premium for people who remain will be lower. The ACA’s defenders will cite that figure as evidence that premium increases are not as bad as they seem. But it will really show that the law is failing, as generous average subsidies (and lower net premiums) are consistent with a poorer, smaller, and sicker pool of enrollees – a recipe for collapse.

To prevent the collapse of the ACA exchanges, Congress would need to either increase individual mandate penalties or pour more taxpayer money into exchange subsidies. In other words, the only “fixes” to the law are either very unpopular or very expensive – and might not even solve the problem. The record shows that it is time to abandon the ACA model altogether.

This first appeared at E21.

Preston Cooper

Preston Cooper is a Policy Analyst at Economics21.

 

This article was originally published on FEE.org. Read the original article.