Justin Fishel and Mary Bruce covers Trump’s dismantling of Obamacare:
The White House announced Thursday night that the administration will slash Obamacare subsidy payments to insurers. The “cost-sharing reduction payments,” worth an estimated $7 billion this year, are intended to reduce out-of-pocket costs for low-income Americans on Obamacare … House Democratic leader Nancy Pelosi and Senate Democratic leader Chuck Schumer issued a joint calling the action “pointless sabotage.” “Sadly, instead of working to lower health costs for Americans, it seems President Trump will singlehandedly hike Americans’ health premiums,” they said in a joint statement. “It is a spiteful act of vast, pointless sabotage leveled at working families and the middle class in every corner of America.”
Trump’s counter is that the health insurance companies are very profitable because they are reaping the benefits of these subsidies. I would argue that health insurance company profit margins are high in large part because we have not enforced the anti-trust laws and allowed a lot of market power. Brad and Michael Delong made this point last fall:
The United States’ Affordable Care Act (ACA), President Barack Obama’s signature 2010 health-care reform, has significantly increased the need for effective antitrust enforcement in health-insurance markets. Despite recent good news on this front, the odds remain stacked against consumers … It is not surprising, then, that in 2015 some of the largest private American health-insurance companies – Anthem, Cigna, Aetna, and Humana – began exploring the possibility of merging. If they could reduce the number of national insurers from five to three, they could then increase their market power and squeeze more profits from consumers.
Even five health insurance companies are two few. But suppose we did have real competition in the health insurance market – what would be the effect of subsidies. Let’s consider this primer on the incidence of taxes:
The tax incidence depends on the relative price elasticity of supply and demand. When supply is more elastic than demand, buyers bear most of the tax burden. When demand is more elastic than supply, producers bear most of the cost of the tax.
Most economists know this and we know how to translate this into the implications for the incidence of a subsidy. We have to admit, however, that Trump is really awful at economics. But he does have economic advisors. Trump is implicitly assuming a very elastic demand for health care or a very inelastic supply of health care. But where is his evidence for these claims? I guess when Kevin Hassett produces his “analysis, we might see a link from Greg Mankiw.
PGL:
While more healthcare insurance companies would be nice, it is easier to attack healthcare insurance companies than the commercial healthcare industry and its service for fees business model. Often times and rather than negotiate, healthcare insurance companies will add a percentage to Medicare acceptable pricing and use it for their pricing. In any case healthcare insurance mostly reflects the industry costs and is controlled by an MLR for individual and group policies.
I am sure you know this and I have said this before at Economists View also. One could always read an Anne C&P for her version of it.
Until someone in Congress tampered with the ACA Risk Corridor Program which also exists for Part D with the only difference being how each is forecasted, there were Coops in the exchanges who had a lower operating cost and were non-profit somethings which had disappeared from the healthcare scene in the eighties.
Intentionally and after Sessions received a letter from the GAO stating only Congress could administer funding, Representatives Upton of Michigan and Jack Kingston of Colorado took it upon themselves to block funding transfers for the funding of the ACA Risk Corridor program.
The program was meant to help Coops and companies recover their losses initially when they picked up a load of riskier patients. Unlike the Republican Part D Risk Corridor Program which is ever green, the ACA program was meant to last 3-4 years until companies sorted things out by increasing and decreasing premiums.
Section 227 of the Omnibus Bill signed December 16, 2014 blocked any transfer of funding from other associated healthcare programs. The risk Corridor Program was also scored in a positive fashion as generating the necessary funding to pay out to companies and Coops losing money.
Congress did not block the ACA from negotiating directly with healthcare insurance companies the same as Republicans did with blocking Medicare/Medicaid from negotiating pricing with pharmaceutical companies. There was opportunity except for the constant attacks on the ACA by Republicans attempting to block a President they despised.
Inelastic/elastic insurance supply and customers is a side show in comparison to what is going on in the commercial healthcare industry. Are profits high? Forbes always ranked them far lower than hospital supplies and pharmaceuticals which are double digit as compared to low single digit for insurance. That they were awarded a number of government sponsored citizens/customers who must have healthcare insurance has played a bigger part in this as well as the individual market.
There is so much going on here that people seem to forget or ignore.