Government: Mandating market conditions, not outcomes
In the two weeks since the Supreme Court ruled that the Patient Protection and Affordable Care Act was constitutional (given the taxing capabilities of the federal government), supporters have told opponents “it is time to get over it” and deal with the implications of what detractors still call “Obamacare.” Depending upon the outcome of the November elections, it may well be time to “get over it” and consider implications. In the final analysis, however, those who advocate for the Affordable Care Law may find themselves unpleasantly surprised by the reaction of markets.
It is important to understand the role of government actions — federal, state or local — in a largely market-driven economy. While government can dictate certain market conditions, it has no ability to mandate market outcomes. Such an all-consuming government role is reserved solely for a command economy where government makes all economic decisions in a top-down, centralized planning approach.
So, what are the likely outcomes that might be expected should Americans be required to “get over it”? To take a reasonable stab at such a complex issue, it is best to start with the non-government players in healthcare decision-making and the mandated changes they must accommodate.
In the case of businesses, they must (depending upon their size as measured by number of full time employees) provide insurance coverage for workers or pay a penalty … oops, I mean pay a tax, as defined by the Supreme Court. But consider how businesses may react.
First, they could find that the cost of the “tax” is less than the cost of offering the mandated minimum health insurance packages (which includes all applicable internal HR functions) required by the federal government. To date, indications from survey-based research suggest at least one-third of companies may opt-out and pay the tax. If true, so much for the notion that if you like your current insurance you can keep your current insurance. As an alternative, businesses could avoid some mandates by keeping full-time employment levels below 50 by either not hiring as many full-time workers and/or relying more heavily upon part-time employees … well, there go labor markets.
Next, consider insurance companies and how they might respond. While minimum health insurance packages can be mandated, there is no requirement that insurance companies provide such coverage in a non-profitable way. So in response, insurance companies will likely raise prices to customers so as to comply with the requirement that 80 percent of premiums be spent on providing actual healthcare benefits. As time progresses, people (via higher premiums-deductibles-co-pays) spend far more for the mandated coverage … making coverage significantly less “affordable” in the final analysis.
And what of healthcare providers, such as doctors? As matters now stand, doctors providing healthcare to Medicare/Medicaid patients must do so at the government’s reimbursement rates. But in an effort to control government expenditures, in the late 1990s the government began lowering reimbursement rates. Sounds like a great idea, unless you are the poor doctor stuck with an unsustainable cash-flow problem. Over time, impacted doctors have issued periodic warnings that if the mandated reimbursement reductions are instituted, they (doctors) will not accept new Medicare/Medicaid patients and may start dropping those they currently serve. As a result, for the past several years, a “doc fix” has been patched together to temporarily suspend reimbursement rate reductions. If the approximately 30 percent reductions are allowed to become functional (now required to help partially fund the Affordable Care Law via cost-savings), then some Medicare/Medicaid patients may find themselves with government-provided health insurance but no access to actual medical care, a tremendously important distinction.
Finally, consider “the rich” who are being mandated to help pay for the expanded health insurance coverage of others. This comes in the form of higher Medicare taxes (an extra 0.9 percentage points) and a 3.8 percent surtax on applicable investment income. But what happens if “rich” people decide to not work as much — there go the revenues from the 0.9 percent extra Medicare tax — or if they move their investments to areas not taxed by the U.S. government?
While there is no way of knowing precisely what market participants will do, it seems reasonable to assume they will do what is in their best interests, within the confines of the government mandates. But since government can only mandate conditions under which market behavior must occur, the actual outcomes which Americans face may be quite different from the healthcare nirvana envisioned under the Affordable Care Law.
Dr. James Newton serves as chief economic advisor to Commerce National Bank and is an auxiliary faculty member in economics and statistics at OSU-Marion and OSU-Newark. Dr. Newton’s views do not necessarily reflect those of Commerce National Bank or OSU-Marion/Newark.