Why Is ObamaCare a Rube Goldberg Contraption?

Paul Krugman has written another one of those columns where almost every single sentence is wrong. But he did get one thing right:

The crucial thing to understand about the Affordable Care Act is that it’s a Rube Goldberg device, a complicated way to do something inherently simple. The biggest risk to reform has always been that the scheme would founder on its complexity.

Have you ever wondered why ObamaCare is burdened with so much complexity? Here’s the answer: Barack Obama. Obama? Yes, the president himself. He campaigned on the promise that he would put partisanship aside and unite the country behind sensible answers to pressing problems. Then he didn’t.

How could that possibly have worked in health care? Easy. Obama could have adopted the approach taken by his 2008 opponent, John McCain. In fact we now know that Zeke Emanuel and others on the White House staff were urging him to do just that. Also, before he became the president’s chief economic adviser, Jason Furman wrote a paper in which he endorsed a McCain-type approach to health reform. Since McCain’s approach was more progressive than ObamaCare, it would have been easy to garner support on the left. And how many Republicans would have opposed the plan, after campaigning for McCain and defending his health plan during the election?

Instead, the president chose a course that garnered not a single Republican vote. That meant that in order to get the Affordable Care Act passed, the administration had to appease every single Democratic constituency and every major special interest group. Imagine going around a table asking each group what is the one thing they must have in order to support the legislation — the insurance companies, the drug companies, the hospitals, the labor unions, AMA, AARP, etc., and no one making sure that all the separate demands fit together in a sensible way.

That’s how ObamaCare was created. No wonder it’s a Rube Goldberg nightmare.

 

What was the McCain approach? It was simple: give everyone the same refundable tax credit for private insurance, regardless of where they obtain it — at work, in an exchange, in the marketplace, etc. Think about how many problems would vanish had ObamaCare done that. As I wrote previously:

Virtually every problem with the online exchanges has one and only one cause: People at different income levels and in different insurance pools get different subsidies from the federal government.

Consider that when you apply for insurance on an exchange, the exchange has to check with the IRS to verify your income; it needs to check with Social Security to see how many different employers you work for; it needs to check with the Department of Labor to see if those employers are offering affordable, qualified insurance; and it has to check with your state Medicaid program to see if you are eligible for that.

To make matters worse, the subsidy you get this year is almost certain to be the wrong amount. Whether people use last year’s income or guess what this year’s will be, they are almost certain to err. If they underestimate what they will earn, their subsidy will be too high and they will have to give money back to the IRS next April 15th. If they overestimate, their subsidy will be too low and they will be entitled to a refund. All this will be annoying. It may also cause financial hardship.

With a universal tax credit, it doesn’t matter where you work or what your employer offers you. It doesn’t matter what your income is. It doesn’t matter if you qualify for Medicaid. You get the same subsidy [when you buy private insurance] regardless of all of the above.

That means that we could turn all of the exchanges over to eHealth, which has been operating an online private exchange for a decade and has insured more than 4 million people.

To make matters worse, under ObamaCare people who are eligible for Medicaid are not allowed to get private, subsidized insurance in the exchange and vice versa. Yet according to a study published in Health Affairs, more than 40 percent of adults likely to enroll in Medicaid or subsidized exchange coverage will experience a change in eligibility before the next open enrollment period!

To solve that problem, I like another reform that wasn’t in the McCain plan: give everyone the option to buy into Medicaid and let everyone on Medicaid have the option to claim the tax credit and buy private insurance instead. That way if people are in a plan they like they can stay there regardless of what happens to their income.

Back to Krugman for a moment. He is repeating the canard that there is another simple solution to health reform: Medicare.

…[G]iving everyone health insurance doesn’t have to be hard; you can just do it with a government-run program. Not only do many other advanced countries have ‘single-payer,’ government-provided health insurance, but we ourselves have such a program — Medicare — for older Americans.

But as I wrote here and here:

There is not a single major problem in ObamaCare that would be solved by moving everyone into Medicare.

Medicare-for-all would move all the problems we are experiencing with ObamaCare to another bureaucracy without solving one of them.

Comments (25)

Trackback URL | Comments RSS Feed

  1. Floccina says:

    I have to disagree. Politicians need to hide the costs and show the benefits in order to get elected and that causes some complication. Then Politicians need to do some give aways to certain voters to get elected and so you have things like the mandate to cover birth control pills.

    It is complicated because the complication is good for the politicians.

    • Bill B. says:

      Only politicians thrive in a Rube Goldberg contraption.

    • Patrick S says:

      Health is like our tax system. The more complicated it is, the least amount of people understands it thus less people have an opinion they can argue for. It is politics 101, keep the population ignorant and they will do whatever you ask them to do, ranging from paying high taxes to supporting a reform that makes them worse off.

  2. Perry says:

    “Medicare-for-all would move all the problems we are experiencing with ObamaCare to another bureaucracy without solving one of them.”

    Please, for Pete’s sake, let’s not exchange one bureaucracy for another one.

  3. Brent N says:

    Krugman makes a statement that I can totally agree with. When he claims that one of the major sources of complexity is the power and involvement of the insurance companies, he is pointing to the cause of many of the current problems. I believe in free market and agree that government intervention should be minimal, that free enterprise is the solution. But, I don’t trust the insurance companies. The reform placed them in the middle of the industry, reason why their stocks have significantly increased since the law was passed (discussed here: http://healthblog.ncpa.org/medicare-advantage-cuts-dont-bite-health-insurers-stocks-rally/). The insurance companies are barriers to free market, not allowing doctors and patients to agree in a price, increasing the cost of healthcare (and forcing to pay a fee for their benevolence.

    Krugman criticize the insurance companies because he sees them as big, evil businesses the sort the left loves to attack. But, the real reason why these companies are harming the market is their intervention in the market that inflates prices and adds bureaucracy to the industry.

  4. Yancey Ward says:

    I think the real driver of the design of the ACA was the need to hide the actual cost to those funding it. A plan like McCain’s, or even the extension of Medicare to all has a price tag that can’t be concealed, and funding needs that can’t be hidden either.

  5. Thomas says:

    “The biggest risk to reform has always been that the scheme would founder on its complexity.”

    Krugman admits to it. So why can’t he clarify that ObamaCare is destined to falter due to its complexity? If there is a simpler solution to provide health insurance to individuals, why be a advocate for the over-complicated?

  6. Matthew says:

    “Obama could have adopted the approach taken by his 2008 opponent, John McCain.”

    He had to adopt his own approach to health care reform. Imagine if he had beaten McCain in 08, then used his policies.

  7. Buddy says:

    “…[G]iving everyone health insurance doesn’t have to be hard; you can just do it with a government-run program.”

    You can.. But it just makes it harder for it to be a self sustaining policy.

  8. Peter A says:

    I have always seen the health industry as a very complex mix of providers, patients, government and insurance companies that come together to decide something about the personal life of an individual. It is complicated but there are simple solutions (even though their success is questionable). Krugman’s idea of expanding Medicaid is simple, but bureaucratic. Goodman’s idea is a little more complicated but suitable for this country. Sadly we chose the complicated route, and its patchy implementation reflects on it’s over complication.

  9. Andrew says:

    “There is not a single major problem in ObamaCare that would be solved by moving everyone into Medicare.”

    Yikes. Really? What was he thinking when he wrote that one?

  10. Bill Sidhu says:

    I do not understand why are we so fixated on funding any irrational and arbitrary amount of healthcare “costs” charged by the health industry either through tax payer (Obama or even proposed McCain type of plans)or directly or indirectly by the consumer (via employer or individual plans). A pure market driven solution at least in the private sector can bring these rapacious costs charged by the healthcare industry bring down in very meaningful ways both for the consumer/business and the tax payer.

  11. Ken says:

    Good post.

  12. charlie bond says:

    Good morning John,
    Only one comment this morning: Health care reform is giving me a complex.
    Cheers,
    Charlie Bond

  13. Devon Herrick says:

    The Affordable Care Act is a Rube Goldberg contraption because there is a tendency for bureaucratic systems to adopt the engineering approach to health care. For instance, in health care there is a common problem that some people cost more than others. Health care engineers deduce that averaging premiums over young and old, sick and healthy must fix this problem. Then, the young and healthy balk at signing up. The solution, have a mandate that forced everyone to sign up. But not everyone can afford this. The solution: have a subsidy that provides some people with a tax credit. It’s all very cumbersome.

  14. Jimbino says:

    This post continues the stupidity of confusing health care with insurance. I, like the Amish and Mennonites, don’t believe in insurance of any kind. If there are to be tax benefits for health insurance, they need to be extended to those of us who pay cash for our health care.

    Why the hell do we have to support the insurance-medical-hospital-drug complex?

  15. Ron says:

    ObamaCare gives us:

    1. The efficiency of the Post Office,
    2. The financial soundness of Amtrack,
    3. The compassion of the IRS,
    4. The Privacy of the NSA,
    5. The Safety of Homeland Security, and
    6. The equality of the Justice Department

    Tell me again, why does anyone trust big government?

  16. Bob Hertz says:

    The McCain tax credit plan had many virtues, but it was not purely simple.

    a. It would have increased the federal deficit, even in the short term. Giving out tax credits would cost well over $500 billion. Making employer premiums into taxable income would not have raised that much revenue, especially if employer premiums declined as they almost surely would.

    b. If the insurance industry was still allowed to do full underwriting, then for a minority of persons the tax credit would be small potatoes. A 60 year old with diabetes might face an actuarially accurate health insurance premium of $14,000 a year. A $2,000 tax credit is not so much help.

    Maybe federal high risk pools would be the answer, but there is another $30-$40 billion in annual spending.

    I do not intend to praise the ACA. I am just saying that the McCain plan might never have passed and would not have had even universal support from Republicans.

    • John goodman says:

      Bob:

      The McCain plan (with the numbers I am using) would cost about $400 billion — $300 billion of which comes from the elimination of the current subsidies for employer provided coverage and $100 billion can come from ObamaCare revenues.

      People would have a one time opportunity to enroll without medical underwriting, but after than they would face underwriting. All movement between plans would be at actuarially fair premiums — just like in the Medicare Advantage program.

  17. Bob Hertz says:

    Reading the Robert Carroll article from 2008, he was using a figure of $2500 for individual tax credits aned $5,000 for family tax credits. He then must have been assuming about 75 million single persons and 40 million families getting credits.

    Whether that is realistic, I am not sure.

    I am interested in the comparison to Medicare Advantage. All parts of Medicare have no age rating and a large amount of risk adjustment. Dr Goodman are you saying that private insurers could handle the under 65 population that way?

    Thanks

    • John goodman says:

      Medicare Advantage has 70 or so variables it uses to risk rate premiums. This could be a good starting point in deciding what health plans should pay each other when an individual moves from one plan to another.

      But plans would be free to negotiate other, better arrangements. I call this market based risk adjustment.

  18. Paul Nelson says:

    Its all about healthcare employment. Parkinson’s Law (1957) for complex institution’s states that work will expand to use the resources available. Yes, a national cost-plus industry regulated by a centralized, autocratic and coercive government producing a highly inefficient and variably effective healthcare industry. You will recall in 1957, Parkinson wrote about the administrative employment of the British Admiralty that had grown by 7% compounded annually between WWI and WWII even though the number of ships in the British Navy was the same. I figure that the cost of our nation’s healthcare has grown by 5% annually, compounded between 1965 and 2009, all with a national maternal mortality ratio that has doubled.

  19. katty brown says:

    im regularly follow your post.every time you give me very useful information that helps me a lot
    —————————————————