When asked by a voter during Sunday night's presidential debate what she would do about skyrocketing costs under Obamacare, Hillary Clinton praised the law's expansion of coverage, and also vowed to "fix" the problems with the law to get costs under control. However, her plan for fixing Obamacare, far from solving its problems, would make many of them worse.
Broadly speaking, Clinton's proposals boil down to increasing the amount that the federal government subsidizes and regulates healthcare. But Obamacare is rooted in the regulate and subsidize approach, and what has happened is that the regulations have driven up costs and even the hundreds of billions in subsidies aren't enough to chase those higher costs.
Insurers are forced to take all comers, even those with pre-existing conditions, but the mandates and subsidies haven't convinced enough young and healthy individuals to sign up to offset their new costs, leading to massive losses that have convinced many prominent insurers to bail on the program.
Clinton proposals, it should be said, are politically impractical (a number of Clinton's ideas were too ambitious for Democrats in 2009, when the party had much larger congressional majorities than Clinton will be dealing with even if she wins in a landslide). But for the purposes of this analysis, let's disregard the politics and focus on the policy merits in a bit more detail.
Among Clinton's ideas, the first is to work with governors to convince them to expand Medicaid. This is, in effect, no different from what the Obama administration has been doing since the 2012 Supreme Court decision that gave states the option of rejecting the expansion. But Clinton would have more difficulty because she would be trying to convince states with one less tool at her disposal.
Under Obamacare, the federal government picked up the full cost of the expansion from 2014-16, allowing the Obama administration to argue to states that they'd be getting "free" Medicaid money." But when Clinton takes office, states (many of which are already crippled by Medicaid spending) will have to start pitching in, and by 2020, they will have to cover 10 percent of the cost of the expansion. So instead of offering "free" money, she'll have to convince a lot of Republican states to take on more Medicaid costs.
Even if Clinton magically cajoles the holdout states into joining Medicaid, and even if we put aside the fact that Medicaid offers fewer choices of doctors and poor medical outcomes, it doesn't address the problem that Bill Clinton raised or that Hillary Clinton was asked about on Sunday. In his now infamous comments, Bill was talking about how middle-class Americans who earn too much to receive benefits are facing a lot of costs, but even an expanded Medicaid only covers those just above the poverty line.
For the middle-class population, Clinton has a plan to lower out-of-pocket costs. Several of her ideas, however, would drive up the costs for insurers by mandating new benefits (such as requiring that all policies provide three sick visits without counting toward deductibles) and thus put further upward pressure on premiums.
Another proposal is pure central planning. Clinton proposes giving the government more authority to block "unreasonable" premium hikes by insurers. The problem is that insurers are not in the business of losing money, and as it is, they are struggling to price insurance high enough to offset the cost of providing care to the new Obamacare population.
If insurers, in a Clinton administration, are prevented from raising premiums by the government to a level that can be profitable, they will respond in several possible ways.They could try to find other ways to make up the money, such as through higher deductibles and copays; reducing even further the number of doctors and hospitals available within their
They could try to find other ways to make up the money, such as through higher deductibles and copays; reducing even further the number of doctors and hospitals available within their networks; or reducing or eliminating out-of-network benefits. In addition, more insurers may decide that it's impossible to make money participating in Obamacare, and decide to exit, reducing choice and competition, and further putting upward pressure on prices.
Clinton has also proposed a tax subsidy of up to $2,500 per individual and $5,000 per family to help with out-of-pocket costs for insured Americans when those costs exceed 5 percent of their income. To qualify, individuals and families would have to have already purchased government-approved insurance with sky-high premiums.
This isn't much of an incentive then, for the young and healthy individuals with little to no out-of-pocket costs who the government desperately needs to attract into the insurance system. It will impose new costs on taxpayers and it won't do anything to change the underlying sticker price of insurance, which will have to be paid in full by those who don't qualify for subsidies.
In addition, Clinton has reintroduced proposals that were left on the cutting room floor during the push to pass Obamacare — one for a "public option" that would be a government-run plan offered along private plans on exchanges and another for accomplishing a similar end by allowing individuals to "buy in" to Medicare starting at age 55. Both of these are problematic.
The "public option" plan (whether it's offered on the exchange or in a more limited way through Medicare) is really an effort by liberals to gradually migrate to a single-payer system over time. The theory is that government doesn't need to make a profit, can keep administrative costs down and use its bargaining power to drive down the prices paid to doctors and hospitals. Putting such an option on an exchange, they argue, would also help keep insurers honest by offering more competition.
The problems are several-fold. Under the current system, government is able to pay lower rates, because doctors and hospitals are able to shift costs onto those with private coverage. But if many more people join government-run plans, it just means there are fewer people to shift costs onto — meaning premiums go up, insurers reduce choices of doctors or hospitals or fewer doctors and hospitals accept government insurance.
In terms of a government option providing competition, there's no way that government (which oversees and subsidizes the exchanges) could create a level playing field that wouldn't bias people toward enrolling in the public option.
Expanding through Medicare presents several other problems. When the Congressional Budget Office looked at the possibility of a more modest buy-in proposal in 2008 (for those 62-64), what they determined was that any buy-in program would tend to attract the least healthy members of the age cohort, since they'd be most eager to join, thus driving up premiums. CBO also predicted that such a proposal would provide an incentive for individuals to retire earlier because they'd be able to leave the workforce and still have health benefits.
There's also the issue of cost. The CBO estimated that average annual premiums under the proposal would be $7,600 for single coverage — in 2011. Though Clinton offers few details of her own proposal, the simple math works like this: If the proposal is to pay for itself, premiums will be out of reach for many individuals; if the government offers enough subsidies to make the premiums affordable, then it will massively drive up spending on a program that's already unsustainable.
Clinton, by virtue of presenting more detailed proposals and being more fluent in policy than Donald Trump, is often given a pass on the weaknesses of her own plans, and her own policy plans have gotten less scrutiny than they deserve.
I wish I could report that I trust Trump would deliver a great free-market plan to reduce costs and improve the healthcare system. But I cannot.
In the past, I've written in detail about Trump's incoherence on healthcare policy, and this was on full display last night. Though in the past he praised single-payer healthcare, specifically saying that Canada's system should be a "prototype" for the U.S. and that it worked there, at the debate he said Canadian-style single-payer would be a "disaster." To reduce costs and increase competition, Trump kept repeating that "we have to get rid of the lines around the state."
Though Trump didn't explain it well, the theory behind allowing interstate purchase of insurance came from a pre-Obamacare world, in which premiums varied widely by states. Residents of states that imposed more mandates and regulations on insurance policies could end up paying double what residents in neighboring states paid.
So, one proposal that became popular in free-market circles was to allow insurers to sell plans anywhere, which effectively would be an end-around to local regulations. However, Trump's actual proposal has an important caveat, that insurers could sell insurance out of state only "as long as the plan purchased complies with state requirements." This stipulation defeats the whole purpose of allowing interstate purchase of insurance.