In a June 30 New York Times column, Robert Frank, a well-regarded Cornell economist usually associated with the left-of-center, captures the opportunities and realities created by the Affordable Healthcare Act in a way that entrepreneurs might appreciate. Since he's done such a good job with this difficult topic, I thought I'd summarize his key points for you here but suggest that you read it in full as soon as you can.
Titled "Giving Health Care a Chance to Evolve," Frank's article points out that the Affordable Care Act, which was meant to fix a broken health care system, was already seriously flawed before the Supreme Court considered overturning the legislation. The package of reforms was built atop our existing employer-provided healthcare insurance system rather than a universal healthcare approach because, as Professor Frank writes, "forcing voters to abandon a status quo that most of them say they like would have doomed more ambitious proposals from the outset." Yet most people can't explain why their insurance is provided by employers to begin with. Frank reminds us of the early fluke of history which created this unusual connection:
"To control costs of World War II mobilization, regulators capped growth of private-sector wages, making it hard for employers to hire desperately needed workers. But because many fringe benefits weren't capped, employers spied a loophole: they could offer additional benefits, like health insurance."
That's right, healthcare benefits provided by employers started out life as a loophole. Had we not tied employment with healthcare as a way of attracting workers when the government needed wages to stay low, we would probably have adopted universal or government-provided health care just as the rest of the industrialized world has.
Important decisions are sometimes made in the most unexpected ways but this little fluke of history is now showing its age. We have the highest unemployment rate in a generation and are currently undergoing a transformative shift in the relationship between productivity and employment. Frank observes that the number of workers covered by employer plans has dropped from 65 percent to 55 percent in just 10 years. That's more than just a sad drop which mirrors the increase in unemployment, it also screws up the insurance formulas dramatically.
Any insurance agent will tell you that insurance schemes work best when the population of those insured spans the widest cross-section of the population it covers or else, as Frank writes, the "most profitable customers [would be] lured away by competitors offering lower rates made possible by selling only to healthy people." In other words, fewer people covered by employer health care insurance means rising health care costs for everyone. Rising health care costs leads to higher insurance rates for those still employed which means that those raises your workers have been wondering about? They're being funneled towards rising health insurance premiums. "So," Frank writes, "even if we ignore the inherent failings of the employer model, it simply won't be able to deliver broad health coverage."
Frank predicts that the "new insurance exchanges will provide a broader array of care options." and that "no matter which model proves most effective, it is likely to spread faster in the competitive environment established by the insurance exchanges." In other words, the days of employer-provided healthcare may be numbered.
The most common argument I hear from opponents of the Affordable Care Act is that the government's share of costs could skyrocket out of control. While clearly the new law will change the way healthcare is paid for, I tend to see it as Professor Frank does and I'll give him the final word on that, "The point worth celebrating is that last week's ruling will at last enable our distinctly dysfunctional health care system to evolve into something better."