Since we now have a preliminary Congressional Budget Office report on the effects of the American Health Care Act, the Republican replacement for the Affordable Care Act, this seems like as good an occasion as any to address the importance of medical insurance to the construction of an economy of entrepreneurs and entrepreneurship.
Since World War II, most workers have been covered by employer-based health plans
Employer-based health insurance became widespread for a simple, stupid reason: health insurance premiums were deemed deductible from the employer’s income as business expenses, but not treated as taxable income by the insurance beneficiaries. This meant, just as a dollar of tuition scholarship goes further than a dollar of room and board scholarship, employers had a huge incentive to pay their employees in the form of health insurance, rather than wages.
Those group plans also provided some basic protections to the insured: community rating, so sicker workers couldn’t be charged more for their plans, family coverage, so spouses and children would receive insurance through the worker’s plan and, after 1985, the right to COBRA continued coverage under a group plan (with the worker paying the entire premium without employer cost-sharing).
To be as clear as possible about this: there is no intrinsic advantage to offering health insurance through employers. The only reason this system exists is because wage controls during World War II could be evaded by employers who extended tax-free health insurance to their employees, and then the perpetuation of that tax regime in the following decades.
The pre-ACA individual health market was completely dysfunctional
Before the passage of the Affordable Care Act, the health care market did not adequately serve individual health insurance customers. Travel back in time with me to 2008, when the following problems were endemic among individual health insurance plans:
- Individual underwriting. If you were sick, you could not get coverage. If you had ever been sick in the past, you could be denied coverage or have your earlier condition excluded from coverage. If you forgot you had been sick in the past and didn’t mention it on your application, you could suffer retroactive rescission if you became sick in the future, losing your health insurance just when you needed it most. If you were a woman, you could be charged more for the same plan.
- Lifetime limits on coverage. If you were healthy, you might get a health insurance policy with a lifetime or annual limit on coverage, so after paying your deductibles and copays, and exhausting your plan’s lifetime or annual limit, you’d be left paying all your remaining bills out of pocket. This made medical bankruptcy a fact of life for many Americans.
The Affordable Care Act gives everyone access to comprehensive health insurance
Everyone picks and chooses what they want to highlight in the Affordable Care Act, or Obamacare, so I’m going to tell you I think of as the principle benefits of the Affordable Care Act:
- Employer health insurance becomes more comprehensive (this wasn’t the biggest problem pre-ACA, but it’s an improvement);
- Low-income people get access to Medicaid;
- The individual market is subsidized and regulated so all plans have community rating, guaranteed issue, no annual or lifetime caps on coverage, and affordable premiums.
This framework isn’t perfect (if it were up to me, subsidies would be universal and paid for with modestly higher income taxes), but it is exquisitely good at what it does, and what it does is provide universal health insurance.
You are free to quibble with the “value” of that insurance, free to complain about high co-pays and deductibles, free to complain about limited provider networks.
But that is not the point of health insurance: the point of health insurance is to keep people from being financially ruined by medical bills, as they regularly were in the decades leading up to the passage of the Affordable Care Act.
Why would we limit entrepreneurship to the young, single, healthy, male and married?
Before the Affordable Care Act was passed, of course people did leave their jobs to start businesses. And if they were young, healthy, and male, they may even have been able to afford individual health insurance. If they were married, they could remain on their spouse’s health insurance plan. If their business grew fast enough and profitable enough, they could start a group plan to insure themselves and their employees.
That is not going to be enough. We need a society that doesn’t just permit, but encourages entrepreneurs and entrepreneurship. And we are never going to have that society if leaving your employer to start a business exposes you to catastrophic medical debt.
We know what the world looked like before the passage of the ACA. It was a world in which people would do anything to keep their jobs and access to health insurance; when they would take any job in order to keep access to guaranteed employer-based health insurance.
That system never worked well, but it may have worked well enough in a world of lifetime employment for white-collar and blue-collar workers alike and in a world of relatively restrained medical costs. That’s not the world we live in anymore.
Access to comprehensive, affordable health insurance is the only way we can build the society of entrepreneurs and entrepreneurship that we must, in fact, build.
I do not know if the Congressional Budget Office is right that 24 million people will lose coverage under the Republican replacement plan. But I do know exactly what a world looks like without access to comprehensive, affordable health insurance, because that’s the world I grew up in and which I, unlike your cable TV anchor, remember perfectly clearly.