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um first of all I'd like to talk to you
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about the key provision of the slau what
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what it seem to spark the most of eight
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is known as the individual mandate which
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requires all adults to buy health
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insurance either through their employers
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or buying it themselves could you talk
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to me a little bit about your views on
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this on this provision well these
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reflect once attitude towards whether
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it's constitutional and then the
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attitude towards the economics I
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primarily have considered the economics
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of a mandate and in principle a mandate
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can help overcome a free rider problem
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where people might not buy health
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insurance and then they go get care and
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emergency rooms or other contexts for
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which they can't pay and to some extent
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the cost of that care may be shifted to
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other so any Economist says in principle
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if you force people to buy health
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insurance you can reduce that problem
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when you unpa though a mandate in
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practice if you're going to have a
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mandate you have to mandate that people
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bu something and you have to specify the
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characteristics of what they have to buy
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so it necessarily involves a
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considerable degree of government
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control over the underlying features of
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the insurance contract which in this
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case extends the federal government into
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defining the underlying l in features of
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an acceptable insurance contract in all
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states in contrast to our historical
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practice where the states have basically
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had most responsibility for making any
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kinds of determinations about health
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insurance the other things that I find
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questionable about a mandate one would
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be it's widely recognized that
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enforcement is likely to be imperfect
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the Mandate included in the Affordable
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Care Act the enforcement has several
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features that would like likely make
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enforcement less than perfect including
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Provisions in the law that say they're
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not going to really go after people that
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don't pay the penalties the other thing
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related to enforcement is that the
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penalties themselves are quite small
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they start out really small now to be
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sure after three or four years it'll be
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$695 for an individual up to 2 and a
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half% of a person's income and family
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penalties will be greater than that but
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the penalties themselves might be
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relatively modest so as a practical
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matter some people will avoid the
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Mandate the other the other thing that's
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really important about the Mandate
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enforcement and penalties however is I
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don't think anybody believes that we can
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have a law that says people have to buy
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medical insurance without providing
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extensive subsidies or exemptions to
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people or low penalties so that people
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with of modest means who predominantly
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are people who do not buy health
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insurance don't really get hammered by
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the imposition of the Mandate so if you
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Circle back then to this free rider
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problem the fact that people don't buy
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insurance they may get care that other
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people pay for my impression is that
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cost is relatively modest and when you
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fold in what the law has done in terms
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of stipulating the Mandate the cost of
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subsidies which will be paid by somebody
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taxpayers in general are going to be
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much greater than any uh benefit from
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reducing uncompensated care if you just
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look at the dollars the other thing that
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the Mandate involves as part of the
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overall law is that we're going to very
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much limit insurance companies ability
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to say set rates based on age which will
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in effect require younger people to pay
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much more for insurance than they would
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without the Mandate because of these
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rating restrictions under the law so to
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some extent we're going to fund this
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subsidy delivery system we're going to
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fund this procedure that's designed to
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get more people to have coverage by
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having young people face higher premiums
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than what they would if we remain if we
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stayed with the status quo to be sure
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many young people will be eligible for
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subsidies so now they're going to face a
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product where they may get a premium
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subsidy but they're facing a premium
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that apart from any subsidy is higher
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perhaps significantly higher than what
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they would pay without this law and
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overall that tax subsidy package the way
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that works I think is much more
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complicated and problematic compared to
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the simple view that if we mandate
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something we can overcome this free
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riter problem and what is your opinion
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of the overall of the Affordable Care
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Act sort of getting away from the
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Mandate I actively participated in in
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writing op-eds during the debate over
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the law and I published numerous op-eds
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where I explained why I thought specific
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parts of the law were not in the public
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interest and that we could take an
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alternative incremental approach to
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improve healthc care before moving in a
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fairly compreh comprehensive direction
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as we did with the Affordable Care Act
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the the package that I believe would be
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appropriate if we change the Affordable
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Care Act we get rid of the Affordable
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Care Act would rely more on altering the
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system to improve incentives for
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consumers to consider uh the cost of
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their care to shop for coverage to be
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able to choose among insurance policies
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and similar Market driven Market
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oriented changes now spe just
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specifically I think most people agree
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we needed to do something to improve the
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portability of insurance coverage for
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people that have insurance say at work
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and then they lose their jobs or they
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want to change jobs and there's only an
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imperfect there's an imperfect mechanism
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for such people to be able to get
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coverage without being underwritten by
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an insurance company and thus face
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possibly High premiums for having
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adverse health conditions or or
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pre-existing conditions we could have
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done we could do many things things to
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improve portability one would have been
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a simple approach would basically have
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said if a person has been continuously
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covered by health insurance then if they
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lose coverage at one work site or they
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somehow lose their coverage they are
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able to get coverage without regard to
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health status and pre-existing
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conditions uh another thing I think we
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could have done to Target people that
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for some reason don't get insurance when
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they're young and then later on decide
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that they may need insurance or they
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they want to enter the market but they
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have ad conditions or pre-existing
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conditions we could have expanded
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Federal support for state run high-risk
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pools that would allow people to get
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limited coverage even though they have
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pre-existing conditions at rates that
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protect them from a lot of the increase
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that they would face on a perfectly
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private Market a third thing and I think
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a lot of economists would agree with
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this is we should have focused more
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attention on the tax code which
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historically for people in Middle the
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upper brackets has really encouraged
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them to accept compensation in the form
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of health insurance rather than the form
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of cash pay and over time the exclusion
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of the cost of health insurance from
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taxable income for people with middle
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and high incomes have encouraged them to
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load up on health insurance which
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provides broad choice and has limited
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co-payments deductibles and the like
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what you're doing with that system is
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encouraging perhaps the most educated
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part of the population specifically the
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most affluent part of the population not
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to choose their health insurance with an
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even tradeoff between health insurance
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and salary but to get more health
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insurance which discourages them from
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paying close attention to the costs and
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increase overall costs the Affordable
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Care Act does do something beginning in
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2018 high cost plans are going to have
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to pay a 40% excise tax I regard that as
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a step in the right direction I'm not
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sure I would have endorsed the specifics
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but as an alternative to the Affordable
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Care Act there are many propos proposals
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that would limit the tax subsidy to
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health insurance in ways that would
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encourage people people that are working
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with coverage to consider more carefully
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whether they want policies with higher
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deductibles and higher co-payments in
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exchange for a lower premium and I
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believe it would also encourage many
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workers to be willing to voluntarily
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choose Managed Care Arrangements such as
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health maintenance organizations that
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would have other mechanisms built in to
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control costs if you offer someone a
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significant premium reduction for going
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into a health maintenance organization
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where they may need to see a primary
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care physician before getting access to
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specials without the with limits on the
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tax subsidy I believe you'll see more
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voluntar voluntary choice of those types
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of Arrangements now I would just add to
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all that when I view the TA limiting the
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tax subsidy there are technical details
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that can make it tough but I I think it
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would be very important to try to do
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that in a tax tax neutral way I
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certainly would not favor eliminating
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the tax subsidy for health insurance or
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limiting it if you didn't somehow
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provide some offsetting reductions in
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taxes the short version there is I
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wouldn't endorse a tax increase without
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some offsetting uh reductions of other
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taxes if we move towards neutralizing
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the tax treatment of health
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insurance now what do you see as some of
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I mean can you talk a little bit about
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the possible outcomes of the Supreme
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Court case and I mean given each one
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where would we where do we go from here
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the case of course is complicated there
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are three main issues one is whether the
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law is right for adjudication prior to
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2014 another one is whether the
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expansion of Medicaid inappropriately
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compels the states to participate but
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really the central issue is the
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individual mandate and whether it
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violates the
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Constitution I'd be surprised if the
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decisions that come down really relate
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to I would be stunned if it relates to
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the issue of whether the law is right
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for adjudication I'm less certain about
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what the court will say about Medicaid
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expansion regarding the individual
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mandate there are basically four
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possible outcomes one is the court says
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it's constitutional the entire law
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stands the second is the court says the
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individual mandate is
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unconstitutional but they let the
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remainder of the law stand as it is
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including the insurance reforms
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Community rating guaranteed to issue of
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coverage no underwriting for
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pre-existing conditions the creation of
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health insurance exchanges and the like
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a third possible outcome is that the
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court says we invalidate the individual
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mandate and because the insurance
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reforms are into are integrated with the
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individual mandate and that the entire
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package really consists of an integrated
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ho they get rid of title one which
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basically is all the insurance reforms
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including the insurance exchanges
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the fourth possibility perhaps if they
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also frown upon the Medicaid expansion
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is for them to declare the individual
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mandate
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unconstitutional and void the entire act
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to basically say that the entire law is
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inseparable from the individual
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mandate I would be
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surprised I would I would say what's
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likely to
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happen I would be more surprised than
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not if the court allows the individual
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mandate to stand and just basically says
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the law is okay I think there's a good
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chance of that but I'm inclined based on
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reading the transcripts of the court and
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doing a little bit of Court watching
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like other people do I'm inclined to
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think that the court will declare the
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individual mandate
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unconstitutional if they do that I would
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be surprised if they declare the entire
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law
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unconstitutional I wouldn't be astounded
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but I would I would basically be
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surprised I think given they invalidate
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the individual mandate probably what
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we're going to get is they say We'll
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isolate the Mandate and everything else
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STS or they will get rid of large
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portions or all of title one which is
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the package of insurance reforms of
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which the individual mandate would be
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deemed to be an integral part so it's
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sort of in the ranking I think the two
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most likely outcomes are they repeal the
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Mandate and either leave everything else
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or they repeal the Mand mate and the
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related Insurance reforms so I mean if
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they repeal the Mandate or repeal the
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Mandate and the related Insurance
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reforms I mean what would you say is
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most likely to happen next I mean what
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needs to happen next does Congress and
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the admin Obama administration just
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completely go back to the drawing board
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is there a way to maybe improve what's
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there I mean what what would you see as
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where does Healthcare go from
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here if the court were to invalidate the
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individual mandate but leave everything
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else
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stand it's difficult to predict what the
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Congress might do for obvious reasons
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especially given the election and we
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might have a change of
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presidence if the entire law were to
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remain but for the Mandate I believe it
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would be likely that the Congress would
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take legislative action to reduce some
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of the adverse effects of having
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eliminated the Mandate if the Mandate is
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eliminated and everything else is
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allowed to stand it will exacerbate the
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problem that's going to arise with the
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current law which is there will be a
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disproportionate number of people in
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poor health that will comply with the
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Mandate and seek coverage under the
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guaranteed issue and Community rating of
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individual coverage now we call that the
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adverse selection issue some people call
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it a death spiral issue because the
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penalties for non-compliance with the
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Mandate are already low I'm one of the
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people who thinks there will be a
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non-trivial amount of adverse selection
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which will put upward pressure on in
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premiums in the exchanges and the
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individual coverage that there will be
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strong cost growth because of adverse
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selection in those markets the way the
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subsidies are designed the federal
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government will end up picking up a
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large part of the cost if we do see that
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disproportionate risk selection and more
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sick people going into the pools that
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will create more strains obviously on
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the federal budget and the deficit so we
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already are going to have that problem
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to some extent
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my esteemed colleagues like Mark Paulie
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and others some people have said the
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mandate's so weak to getting rid of it
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probably won't matter that much I have
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to think it'll matter uh I can't
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quantify how much but I I think there's
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a difference between a penalty that
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could be two and a half% of one's income
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and no penalty at all plus the the
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ethical component of some people comply
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with the government law an important
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government law they don't look just at
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the penalty and do an economic
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calculations so I think if we get rid of
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the Mandate the adverse selection
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problem will be worse I think it
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probably will create enough concern that
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if we don't revisit the entire healthc
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care space Congress will do something to
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limit adverse selection which would
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involve uh allowing a free a window of
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opportunity for people to get coverage
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without being underwritten and if they
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don't get coverage within a certain
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window maybe they face potentially
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higher premiums if they have health
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conditions there are steps that can be
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taken to limit the adverse selection but
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I think much more importantly in the big
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picture if the Mandate itself goes but
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everything else stands it makes it more
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likely that we're going to end up with
00:15:39
the overall structure of the law going
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forward but for what could happen come
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November with the election if the
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Mandate goes and the health insurance
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reforms go Community rating pre-existing
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conditions uh limitations on
00:15:54
pre-existing conditions even eliminating
00:15:57
the part of the law that would create
00:15:59
state-based health insurance exchanges I
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think that makes it more likely
00:16:03
politically that some sort of overall
00:16:06
alternative to the ACA gets legs in the
00:16:09
Congress clearly if the Republicans were
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to get a majority in the Senate and if
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we had a Republican president certainly
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the campaigns are saying that we will do
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a repeal and replace kind of scenario
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regardless of what the court does I
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think the Court's decisions could
00:16:26
influence the ultim m excuse me the
00:16:29
ultimate
00:16:30
outcome and given I mean are there any
00:16:32
initiatives currently in progress or PL
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things going on elsewhere that I mean
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you could see as a model like in terms
00:16:38
of that you think would work well I mean
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if there is going to be some adjustment
00:16:42
of the law or even if given what would
00:16:43
happen in the election a complete
00:16:46
rejiggering there have been proposals
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around for for many years that I would
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describe as Market oriented consumer
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Centric proposals for report for
00:16:55
reforming Healthcare and I talked a
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little bit about this a few minutes ago
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but no one in the political domain has
00:17:02
really put out a hard and fast plan it's
00:17:04
all sort of generic uh these are the
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broad points but I think the broad
00:17:08
points are good ones and just sort of
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sort of to reiterate one thing is to
00:17:13
look at how protect how current features
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of legal environments that don't allow
00:17:19
portability of coverage for people that
00:17:21
have had continuous coverage do
00:17:23
something to allow people that have had
00:17:26
coverage if they changed jobs to be able
00:17:28
to get coverage without facing
00:17:31
significantly higher premiums because
00:17:32
they've got some adverse health
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condition we can do things to greatly
00:17:37
improve portability we've already got
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laws that enhance portability
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significantly but there are gaps we can
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close those gaps the second thing I
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mentioned is think very carefully about
00:17:49
the tax subsidies that exist that are
00:17:51
especially pronounced for middle and
00:17:53
upper income taxpayers to load up on
00:17:57
generous insurance with free choice of
00:17:59
providers which puts strong upward
00:18:01
pressure on costs we can help reduce
00:18:03
costs by rationalizing the tax treatment
00:18:06
of health insurance and wages to make
00:18:08
people more neutral about whether they
00:18:10
want more generous health insurance with
00:18:12
choice of Provider or they're willing to
00:18:14
accept some restrictions on choice of
00:18:15
provider and greater co-payments for
00:18:17
their health insurance in exchange for
00:18:19
getting take-home pay third thing I
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think we do need to look very carefully
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at targeted areas where we can provide
00:18:28
as a nation greater subsidies to people
00:18:30
of modest means to get health insurance
00:18:33
clearly the Affordable Care Act that's a
00:18:35
major part of the ACT there are less
00:18:37
intrusive and less costly methods and
00:18:40
more targeted methods of of basically
00:18:42
saying how big do we want the safety net
00:18:45
to be how can we provide subsidies that
00:18:48
will provide as few distortions as
00:18:50
possible for incentives of the people to
00:18:52
work but I believe even most
00:18:56
conservative uh members of Congress and
00:18:59
people that are running for office would
00:19:01
be open-minded to an expansion of the
00:19:03
safety net now to be sure given Federal
00:19:05
deficit concerns It's A Hard Sell and
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it's hard to think about how are we
00:19:08
going to get the dollars but if the
00:19:11
Affordable Care Act were replaced there
00:19:13
is some room to maneuver to
00:19:15
simultaneously think can we provide more
00:19:18
help to people with low income in order
00:19:21
in order for them to get health care
00:19:24
then the fourth thing again is people
00:19:26
that fall between the cracks end up
00:19:28
without insurance ins don't have the
00:19:30
portability they don't have continuous
00:19:31
coverage they need insurance and now
00:19:33
they've got a pre-existing condition
00:19:35
that's very expensive to insure have a
00:19:37
safety valve in place expanded state
00:19:40
level highrisk pools more Federal money
00:19:43
for those pools but it's important to
00:19:46
have some sort of penalty if a person
00:19:49
waits to get coverage until they really
00:19:52
need it so you can't say we're going to
00:19:54
give you coverage at the same terms and
00:19:55
conditions you would get if you were
00:19:56
healthy I I don't think that works
00:19:59
but we can provide some overall level of
00:20:03
expanded safety nets now the kind of the
00:20:05
big picture here we have a big picture
00:20:07
going forward is how do we help control
00:20:09
costs and improve quality of care or at
00:20:11
least not reduce quality of care one
00:20:14
philosophical view is to say if we can
00:20:16
engage consumers more in their decisions
00:20:19
about their health care and their health
00:20:20
insurance that that will overtime create
00:20:23
incentives that will help control costs
00:20:26
I think that it's worth it to move in
00:20:28
that direction to see incrementally if
00:20:31
we try a consumer oriented model and we
00:20:34
get benefits we can see the benefits
00:20:36
working that would be terrific if it
00:20:38
doesn't work and we continue to have
00:20:40
crises after crisis with Healthcare then
00:20:42
you can think about more top- down
00:20:44
centralized approaches to trying to
00:20:46
limit the amount of care that's provided
00:20:49
in order to make it affordable I would
00:20:51
just I would just also add regardless of
00:20:54
how the ACA plays out we're going to
00:20:57
have a battle over Medicare funding and
00:21:01
we'll probably have a big battle over
00:21:02
Medicaid funding so even if the court
00:21:05
allows the ACA to stand and even if the
00:21:10
election doesn't change the Dynamics so
00:21:12
that there could be a repeal of the law
00:21:13
or a substantial modification of the law
00:21:16
sometime during the next two three or
00:21:18
four or five years we are going to have
00:21:22
a major debate in the United States
00:21:24
about what we should do about Medicare
00:21:26
to make it fiscally sustainable over the
00:21:29
long run we're also going to have a
00:21:30
major debate about Medicaid and how to
00:21:33
make it fiscally sustainable with the
00:21:35
federal and the state level over the
00:21:37
long run those battles are going to be
00:21:39
fought with tremendous implications for
00:21:42
the future of the country regardless of
00:21:45
how the Affordable Care Act uh plays out
00:21:47
before the courts or in the Congress
00:21:53
[Music]
