Perceptions of the Affordable Care Act

Today’s Managing Health Care Costs Indicator is 44%

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The Kaiser Family Foundation does periodic tracking surveys, asking Americans for their opinion of the Affordable Care Act.  The January survey showed that 44% of the public regard the bill unfavorably, while 37% regard the bill favorably. 

KFF explored the percent of nonelderly who would benefit from the ACA by PUMA (Public Use Microdata Areas – a bit larger than zip codes).    Interestingly, Republican congressional districts got substantially more benefit than Democratic congressional districts. 

The KFF summary:

On average, an estimated 17% of the non-elderly population nationwide would benefit from the Medicaid expansion and tax credits. In parts of Florida, New Mexico, Texas, Louisiana, and California, 36-40% of population could benefit.  In areas of Massachusetts, Hawaii, New York, and Connecticut – states that generally have high levels of employer-provided health insurance or have already implemented reforms to make insurance more accessible and affordable – 2-4% of the non-elderly could benefit from the coverage expansions in the ACA.

Click image to enlarge.  Source

Harold Pollack had a thoughtful essay in The Incidental Economist, debunking some of the right wing press which misstates conclusions from Jonathan Gruber who evaluated impact of the ACA in Wisconsin, Minnesota and Colorado.   He concluded with a question:

Millions of people will join health insurance exchanges. Most will be relatively healthy. They will see certain relatively small and immediate things, such as contraceptive coverage and clinical preventive services. They will not (yet) experience chronic illness and thus the resulting interactions with their insurer. Will they perceive and value the improved actuarial value of this insurance? Two years ahead of time, it is impossible to answer this basic question.

I don't feel sanguine about this.  The fact that Gruber and others show that on the average households will be better off doesn’t mean that the Affordable Care Act will be popular.  Distribution of benefits from the ACA and our understanding of behavioral economics gives us some reasons to worry

1.     The Affordable Care Act includes defines essential coverage, which will prevent insurers from selling policies that would not cover preventive care.   Many people won’t realize that the preventive care wasn’t covered before (especially if they had HMO policies which traditionally cover such services.) Most employer policies cover preventive care already.  

2.     Medicare cuts in future hospital reimbursement increases are necessary – and there is no credible health care reform plan that does not include such cuts.  However, these cuts will be blamed every time a hospital has a layoff  - and might be highlighted whenever a patient has access difficulty.  This is a framing problem – the ACA will be compared with what we had before 2010 – not what we would have had instead.

3.     The ACA’s prohibition against underwriting for kids and against excluding preexisting illnesses will provide much-needed new benefits to a very small number of people.   Most of those with employer-based insurance already have this.  Many who had previously purchased defective coverage – which would not have protected them if they had a major illness – value their current low premium, which will increase under the ACA.   They will in the future have an insurance plan that is a  “Chevy” rather than a Yugo with a defective engine block – but they didn't realize their old policy was defective if they were in good health.  They liked the low premium for the Yugo though!

4.     The ACA only allows a three-fold difference between the price of coverage for the oldest vs. the youngest health plan beneficiaries.  This means that there will be substantial subsidization of the old by the young.  That might seem politically good (middle age people vote in higher numbers than the young).  However, people hate losses much more than they like gains.  Therefore, the “losers” in the new system will be much more unhappy than the “winners” will be gleeful.

5.     We tend to like what we already have (“Endowment Effect,”) and many people will lose their current policies. They might get better policies – but still change is unpopular.

6.     We also tend to like choices.   While there will be more choices in health insurance exchanges (assuming that each state has a functional exchange) than the current choices available to individuals and small groups – there are mandates now which limit individual choice.

7.     2012 had relatively low rates of health care premium inflation. If that inflation rate is higher in 2013 or 2014, many will blame the ACA – even if actuaries know that the incremental requirements are responsible for only a tiny portion of overall health care premium inflation.

There are a few concepts from behavioral economics to suggest how the Obama administration should approach the political conundrum of gaining more public support for the ACA

1.     Discounting: Be sure to show the benefits as soon as possible.  We discount too much in our minds -  so a benefit in the distant future is like no benefit at all.  2014 seems like an eternity away right now, and the uncertainty around the Supreme Court challenge makes this problem worse.  (The KFF survey showed that the majority of Americans think the Supreme Court will find the individual mandate unconstitutional).  Coverage of young adults on their parents’ policies was an excellent idea.

2.     “Availability”.  We really like stories – much more than facts or statistics.  Therefore, we need more stories about families with hemophiliac kids no longer facing ruin because of lifetime limits, and families covered for dramatically less than they had to spend prior to health care reform.

3.     We overestimate the chances of small-likelihood events – which is why we gamble and play the lottery. It’s also why we worry about being killed in  a plane crash. (Cars kill over 40,000 per year; in the average year the deaths from civilian air crashes with scheduled carriers is less than a dozen).  The Affordable Care Act would protect Americans from terrible outcomes from rare events.   We need to hear more about this.

The Affordable Care Act will be good for the average family – and over time should be quite good for our economy.   But many will continue to doubt the overall benefits of the ACA – and we need an effective political campaign to show its benefits.

Health Care Crowds Out Other Worker Compensation

Today’s Labor Day Managing Health Care Cost Indicator is 170%

I show this slide a lot; it's from the Kaiser Family Foundation, and shows how the cost of health care premiums have increased more dramatically than either overall inflation or worker income.  I point out that worker productivity has increased.  The increased value of labor, though, has been largely absorbed by the increased cost of health care. Hence, most people don’t feel like they have improved their income much or even at all over the last few decades-- and they're right 

Source.  Click Image to Enlarge

My colleague Steve Nyce has coauthored a white paper “Treating our Ills and Killing our Prospects,” highlighting research he has done into the broader social consequences of the high rate of inflation in health care costs.

One of the interesting analyses he has performed is to show how the increased cost of health care differentially affects those in the lower earning deciles.  Essentially, the high trend rate of health care costs eats up only a small portion of income for high income workers, while the high trend rate sometimes accounts for more than 100% of gain in compensation for low-wage workers.   In fact, the projections of health care cost increase suggest that health care will account for 170% of potential compensation increases for those with the lowest 10% of income from 2009-2030!

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Rapidly escalating health care premium costs contribute to the increasing disparity between rich and poor.

Why Medicare Recipients Shouldn't Have More Skin in the Game

Today’s Managing Health Care Costs Indicator is 16.2%

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I recommend a column by Drew Altman of the Kaiser Family Foundation, who points out that on the average Medicare beneficiaries spend 16.2% of their income on health care.  That’s on top of the federal funding for Medicare. 

There’s a lot of conversation in the policy world about how patients with inadequate “skin in the game” might demand low value services. Such patients want too much because they are paying for these low value services out of the public trough, a classic problem of moral hazard. 

However, almost half of all Medicare beneficiaries have income at or below 200% of the federal poverty level. Therefore, increasing out of pocket costs substantially would be likely to price many elderly Medicare recipients out of health care.

We all know that we deliver many health care services in this country that are of low value (like ordering tests that are unlikely to inform a clinical decision) , or even value destroying (such as performing unnecessary procedures that have some risk).   We might be pressing too hard on increasing patient liability, and we are not going to ‘solve’ the problem of low value services without addressing the provider side of this equation.