View: What's Wrong With Obamacare?

This economics perspectives essay is contributed by a loyal reader (MSc Economics)

I would like to share some simple views and perspectives about the debates about Obamacare, and its possible repeal by Donald Trump and the Republicans (afternote: President Trump after 20th Jan 2017). This economics essay is an opinion piece, and just takes a fluid and flowing approach, expressing my views and explaining issues as they arise, rather than making solid or theoretical economic arguments, since after all this is an emotive issue for many US citizens and for both Hilary/Obama supporters and Donald Trump supporters alike. 

First and foremost, what is Obamacare? Some people say it is "universal healthcare", and others say that it is "compulsory insurance mandate", and some don't even know it is. 

Here are some basics. 

Basically, Obamacare is an informal term for a law in the USA intended to improve access to health insurance for US citizens. And the official name of the law is the Affordable Care Act or the Patient Protection and Affordable Care Act in full. Basically, it requires that all US citizens purchase a Private Health Care plan, get an exemption, or pay a tax penalty on their federal income taxes. US citizens who cannot afford health insurance will either qualify for Medicare, Medicaid, CHIP (the Children’s Health Insurance Programme) or get social assistance in tax credits or economic assistance with up-front costs through their state’s Health Insurance Exchanges. If health insurance is still not affordable after financial assistance, or if it costs more than 8% of a family’s income for self-only coverage, an individual can be exempted from getting individual insurance.

And the Affordable Care Act does lots of important things, including offering US citizens a number of benefits, rights, and protections: for example, setting up an online Health Insurance Marketplace where Americans can purchase federally regulated and subsidised Health Insurance; expanding Medicaid to all US citizens in many states; improving Medicare for seniors and those with long-term disabilities; expanding employer coverage to millions of employees; and requiring most people to have coverage each month in order to get an exemption, or pay a fee. 

In my view, some of its provisions are simple common sense healthcare reforms. For example, in the past, there was no uniform system for showing benefits included in insurance plans, but under the Act, a simple, standardised document makes comparing insurance options easy. Reducing information asymmetry reduces market failure - a commonsense economic argument. And a common sense one too. I think there can be little serious debate against some of these clearly useful healthcare reforms. 

Some interesting provisions are that, among other provisions, the law eliminates lifetime and unreasonable annual limits on benefits completely by 2014; prevents individuals from being dropped from coverage for any reason, aside from fraud, which means that insurers are stopped from dropping patients when the cost of care gets too great; and provides assistance for those who are uninsured because of a pre-existing condition. Under this law, no one can be charged more or dropped from coverage due to having a pre-existing condition and cannot be charged more due to health status either. This wonderful idea only works when there is compulsory insurance, which is what Obamacare basically is. 

To return the question posed at the start - What's wrong with Obamacare? I think there's nothing wrong with Obamacare, from the perspective of those who are insured by it. (There are of course some problems with Obamacare, such as tax issues, which we can deal with later in a future discussion.)

In response, this is what Donald Trump has to say – most notably in what some have termed “a post truth world”, an age of misinformation, mistruths, rumours, and misrepresentation – “Obamacare collapses under its own weight if we don't repeal”. Any other points?

“One thing we have to do: Repeal and replace the disaster known as Obamacare. It's destroying our country. It's destroying our businesses. You take a look at the kind of numbers that that will cost us in the year '17, it is a disaster. It's probably going to die of its own weight. But Obamacare has to go. The premiums are going up 60 , 70 , 80 percent. Bad health care at the most expensive price. We have to repeal and replace Obamacare.”

Putting aside the questions of sanity and rationality, can Trump really do it? While rolling back Obamacare, as Donald Trump has promised to do in his first few days in the White House, could be accomplished easily, enacting the legislation necessary to replace the law while protecting millions of US citizens who depend on Obamacare may prove challenging. Such a major step to roll back benefits, a step unprecedented in modern US history, would destroy state healthcare markets in the US. 

The Republicans could roll back Obamacare… as they have done before. Using Senate rules that exempt some budget-related laws from filibuster, the Republicans have passed a bill before that eliminated hundreds of billions of dollars provided by the health law to expand Medicaid coverage for poor US citizens and subsidise health insurance for low and moderate income US citizens on marketplaces created by the law. The bill, which also scrapped the unpopular insurance mandate (which essentially penalises US citizens who do not have health insurance, because effectively the only way to pay for Obamacare is to ensure universal insurance), envisioned a phasing out of the current law, giving Republicans time to develop an alternative policy proposal.

The Republican plan would transform Medicaid, the government health programme for the poor, by eliminating federal rules that establish who should be covered, such as poor children and pregnant women, and which benefits should be offered, leaving those decisions to states. It should be pointed out that currently Medicaid and its related CHIP provide coverage to more than 70 million Americans. Another Republican approach may be that US citizens who don’t get coverage through an employer or through Medicare or Medicaid would qualify for a tax subsidy they could use to help offset the cost of a commercial insurance plan, similar to the system set up by the Affordable Care Act. Republicans argue these health plans would be more affordable than current plans available through Obamacare marketplaces because they would not be subject to as many federal regulations.

To conclude, while it looks like Donald Trump will get his way, we should think of this final point: before Obamacare was passed, an American citizen could be denied coverage or treatment because they had a pre-existing condition, be charged more because of their gender, or be dropped mid-treatment for making a simple mistake on his or her insurance application. Under Obamacare, all US citizens have access to a large number of unprecedented new benefits, rights, and protections. Think about losing that – and hopefully loss aversion will stop the US from repealing this law. 

JC Economics Essays. An economics blog with opinions. Special thanks to SS for his personal contribution to this economics blog. The opinions and views expressed are the author’s own views and are all made in his own private capacity. And his economic research came from articles written about Obamacare and the US healthcare system. Thank you for reading and cheers.