The real death spiral from Obamacare

The failures of HealthCare.gov — the federally run website for signing up for new health insurance under the Affordable Care Act (ACA) — have set off talk among critics of an “Obamacare death spiral.” For the ACA to “work,” the story goes, the exchanges must attract a diverse set of customers, including the young and healthy. But if enrollment is too hard, only the sickest will sign up for insurance, since only they will bother to repeatedly enter data into a faulty website. That will raise rates, because a sicker risk pool is more expensive to insure than the population as a whole. And once rates go up, healthier people will be even more disinclined to sign up for insurance. If the cycle keeps repeating itself, the only people left in the risk pool will be the very sick, forced to pay premiums that are close to what they would have paid directly for care without insurance.

It’s easy to poke holes in this story. Massachusetts’ universal health plan had a slow start, but the state ultimately expanded coverage to nearly all its residents. Nevertheless, death spiral imagery is alluring. It’s kinetic, evoking images of tornadoes, whirlpools and bottomless pits. It also suggests a logic of inevitability: Once the spiral starts, there’s no way of stopping it. But it’s important to note when an apparent spiral is really only a small part of a much bigger turbulence. In this case, even if an actuarial death spiral transpires on the Obamacare exchanges, it’s a trivial eddy on the edge of a Charybdis of inequality transforming American politics and living standards.  

The health law’s logic of forcing the healthy to pay for the sick has some merit. Even young people who think they’re invincible should realize that they could get sick. Even if they remain healthy now, a civilized society will eventually “pay it forward” by covering their illnesses when they get older. But the second problem with Obamacare is that many of the people who are now being called on to shore up our failing health care system are those who are not only relatively young and healthy but also scrambling to make ends meet in precarious jobs. Good health is not very well correlated with economic security. Though the ACA includes sliding-scale subsidies to help those making less than four times the poverty level, they are often inadequate. Many might choose to pay a fine rather than the premiums.

So where should the money for Obamacare come from? Anyone who complains about a death spiral should immediately consider the possibility that the thousands of American households (11,445 in 2011) who earn more than $10 million a year might be able to pay a bit more in tax to cover the premiums due from strapped 20-somethings. Young workers on the exchanges could find the insurance plans to be more of an economic burden than a benefit: 50 percent of Americans account for just 3 percent of our health costs, while 5 percent — who are not typically young — account for 50 percent of costs.

Redistribution from current workers to seniors is a familiar feature of American social insurance. The “grand bargain” between generations is that those who are workers now will eventually be supported in old age by their children and grandchildren when they enter the workforce. But in an era of rising inequality, Obamacare is alienating hundreds of thousands of people who feel too hard pressed to shoulder yet another set of costs. It is the rich — not the healthy members of the classes that are struggling — who should be subsidizing the sick.

To its credit, the Affordable Care Act does impose some progressive taxes on income over $250,000. Indeed, a lucky hedge-fund manager with $1 billion in income will pay $38 million in new Medicare taxes, thanks to the ACA. But this funding mechanism is dwarfed by the amount of money due from ordinary families on the exchanges and various cannibalizations of existing health care budgets, ranging from Medicare cuts to a medical device tax. In the end, someone has to pay for the expansion of coverage — and that increased burden should fall on the rich. 

Unfortunately, some of the most politically active American elites view our economy as a zero-sum game. They believe that, for their wealth to expand, the expectations and entitlements of the lower and middle classes must fall or, at the very least, be confined to current levels. That is why so much of the resistance to Obamacare denounces it as a form of redistribution.

Ironically, even these “malefactors of great wealth” would probably be better off if the ACA were more redistributive and used hoarded wealth to address drug shortages, antibiotic resistance and other serious problems. What’s the greater threat to America’s wealthy: a few more percentage points of taxation or a superbug that could hit rich and poor alike? If it takes the former to combat the latter, the answer is simple. Moreover, a healthier population overall is more productive, and will produce more useful goods and services for all. 

In “The Body Economic: Why Austerity Kills,” David Stuckler and Sanjay Basu demonstrate that endless pressure to cut public spending — including health spending — has “ruined or extinguished thousands of lives in a misguided attempt to balance budgets.” Data also show that over the past two decades, white women without high school diplomas lost five whole years of life expectancy, and little progress has been made in reducing other disparities. There are many public health programs that could help close the gap between America’s poorest and richest citizens’ health outcomes — but little funding for them. And the less funding such programs receive, the sicker and less productive the workforce becomes, further diminishing the tax base.

Indeed, there are other “death spirals” far more dangerous to the American polity than whatever actuarial angst now afflicts the exchanges. As Susan Sered and Rushika Fernandopulle explained in 2007, America’s uninsured face a death spiral of sickness and poverty. If you’re too poor to see a dentist, you might lose your front teeth. If you lose your front teeth, you might have a harder time getting many service jobs. Fail to get a job, and you might not be able to get a dentist even as the rest of your teeth fall out. However much America may pride itself on extending anti-discrimination law to the disabled, in the rough-and-tumble of the low-wage workplace, employers have all manner of pretexts to justify their failure to hire the sick and deflect whatever litigation might ensue from it.

We can expect the trend of mutually reinforcing sickness and poverty to intensify in the states rejecting the Medicaid expansion that was supposed to be a core element of the Affordable Care Act. Medicaid is a vital safety net program, and its expansion played a crucial part in the ACA’s vision for near universal coverage. But in its decision in National Federation of Independent Business v. Sebelius, the Supreme Court hamstrung the expansion of Medicaid by endorsing a dubious right of states to “opt out” of the new coverage. Conditioning all federal Medicaid funding on a state’s willingness to expand Medicaid eligibility was excessively coercive, seven justices ruled; states need the option to maintain Medicaid in a more limited form.

At least 20 state governments are now choosing that option, leaving millions of citizens uninsured. Those decisions largely resulted from the most important death spiral in America today: the corrosive effects of self-reinforcing inequality on our politics. When billionaires can successfully pour hundreds of millions of dollars into elections and lobbying shops to influence legislation designed to increase their wealth, it’s hard to see how any policymaker can stand in their way. And as political scientist Larry Bartels has shown, the wealthy are amply represented in Congress, where they successfully fended off the most progressive proposals for health reform.

Meanwhile, people whose illness goes untreated thanks to lack of health insurance, or who are too exhausted to participate in politics thanks to all the work they have to do to pay for premiums, copays, coinsurance and deductibles, are in no position to fight back against the austerity juggernaut. Nor were they able to fight for the one policy that would have alleviated the burdens of Obamacare: a public option like Medicare for anyone without decent employer coverage. 

Wealth buys influence, and influence, wealth. That’s the death spiral that afflicts not just health policy but the viability of our political economy as a whole. And it’s far more scary than any just-so story about a broken website driving away the healthy.