Imagine your favorite team has just coasted to a blow-out win. In the game’s final minutes, your team takes it easy, so as not to unnecessarily embarrass the opposition. As a result, the margin of victory was slightly smaller than it could have been.
Now suppose the referees, seeing the reduced effort, declare your team to have forfeited, on grounds that, in the end, they were clearly not trying to win.
You’d be shocked and outraged. By focusing on a small piece of the game while ignoring the larger context, the refs mischaracterized your team’s intent.
Something as ludicrous as this would never happen in sports, at least where Russian figure skating judges were not involved. But sadly, exactly this sort of absurdity will be front and center next week, when the Supreme Court hears the latest challenge to the Affordable Care Act.
The case, King v. Burwell, rests on a tortured interpretation of two subclauses buried deep in the 2,500-page law. According to ACA opponents, because the two—TWO!—sentences in question refer specifically to insurance exchanges established by states, people who purchased coverage from the federal website are ineligible for the subsidies at the heart of the law’s promise of affordability. In other words, if you happen to live in a state that exercised its option, as the law permitted, to let the federal government run its exchange, then you don’t get affordable health care.
It all makes complete sense—if you are a Russian figure skating judge.
Like a corrupt referee, King v. Burwell is attempting to overturn a win for social insurance by blowing a small detail out of proportion. The shame of it is that the intense opposition to the ACA the case embodies rests primarily on a gross misunderstanding of why the government is involved in health insurance in the first place.
Put simply, social insurance is what government does. It has been this way for decades—and Americans like it.
It’s a point TCF Fellow Ed Kleinbard makes eloquently in his latest book, We Are Better Than This: How Government Should Spend Our Money. Nearly two-thirds of our $3.5 trillion federal budget—a cool $2.2 trillion—is allocated to Social Security, Medicare, Medicaid, and a handful of other programs that provide security for Americans in the face of old age, ill-health, loss of income, or other of life’s unpredictable experiences. It’s hardly an exaggeration to characterize the United States government as a large insurance company, albeit one whose current spokesman lacks the cuddly charm of a British-accented lizard.
Let’s face it: Americans love insurance. By allowing us to trade the potential of catastrophic losses for the certainty of paying small monthly premiums, insurance shifts life’s risks from individuals to insurers, who then spread the burden across the insurance pool. It’s a classic example of the common good—everyone pays a little and gets a lot. Those who never have to file a claim get peace of mind; those who do are protected from financial ruin.
In many cases, private markets can efficiently provide us with all the insurance we need. Insurance companies are quite proficient at assessing risks for things like house fires and car accidents, and often can do so more accurately than consumers themselves. The risks in question are tangible, large-scale events that, while individually uncertain, occur with predictable regularity across a large population of consumers.
But when it comes to health, the usual rules don’t apply, thanks to something economists call “adverse selection.” Put simply, consumers know more about their health status than insurers, and they’re inclined to buy coverage only when they’re sick. As a result, insurers must price their policies higher, to cover a smaller, sicker pool. Higher prices become self-fulfilling prophecies, driving more healthy people out, and forcing prices still higher, causing a destructive cycle affectionately referred to as a “death spiral.”
Government, because it makes the laws, can avoid adverse selection by requiring that people buy insurance, and that insurers provide access on equal terms. That’s the point behind some of Obamacare’s most discussed provisions—like the individual mandate and community rating for insurers.
Even so, health insurance doesn’t come cheap, especially for those with limited income. Of course, that’s exactly the point of the subsidies that are under attack in King v. Burwell. Ensuring everyone can participate in health insurance is good not only for subsidy recipients. Indeed, it’s critical to making the entire enterprise work: premiums can be priced reasonably for everyone only if insurers are certain the risk pool is unbiased—in other words, that both sick and healthy people are participating.
But subsides cost money, which Obamacare’s opponents criticize as redistributive handouts. Underlying this antagonism are astonishingly hypocritical nods toward “fiscal responsibility.” The cost of subsidies, the argument goes, will saddle our children with crippling national debt.
The reality couldn’t be more different. The federal government does spend vast sums on health insurance. But, as Kleinbard emphasizes, these expenses have nothing to do with Obamacare. Instead, the bulk of subsidies are for employer-provided health insurance; you know, the kind that honest, hard-working Americans have responsibly obtained for decades.
The numbers are staggering. In 2015, the federal government will spend about $206 billion on tax breaks for employer-sponsored health insurance. That’s about three times what it will spend on Obamacare exchange subsidies ($34 billion) and the Obamacare Medicaid expansion ($47 billion) combined. The difference is that employer subsidies take the form of “tax expenditures”—invisible outlays that flow through the tax code—rather through tangible budget appropriations.
Think of it like this. Employer-sponsored health insurance is just another form of compensation, like salaries and bonuses. But because it isn’t taxed, its recipients have higher take-home pay than they would otherwise. As a foregone revenue rather than a proactive expense, it’s absent from budget ledgers; but as a cost to government, it’s every bit as real.
The practice of exempting employer health insurance from the taxman traces its origins to World War II–era wage and price controls. That it has endured for six-plus decades—to the point where it is no longer recognized as a government subsidy—goes a long way toward explaining some of the most pernicious ills in American health care, including outsized spending and lack of access.
These undisputable flaws aside, an appreciation of the full extent of subsidized health insurance in America should influence the interpretation of what’s at stake in King v. Burwell.
As it turns out, Obamacare isn’t an unprecedented incursion of government into the private health market, nor are the subsidies it affords low-income households handouts for moochers. Rather, Obamacare is a recognition of—and a remedy for—the cruel perversions of a health system that has for many decades been propped up by hidden tax breaks available only to Americans fortunate enough to hold steady, full-time jobs.
The notion that the legislators who crafted the Affordable Care Act intended to extend the exalted American tradition of discounted health insurance only to residents of states that set up their own websites ranks somewhere between Boston snow totals and the Knicks’ playoff chances on the absurdity meter. In the balance, as many as 13 million Americans are at risk for losing subsidized coverage in 2016.
Judges love to debate details; let’s hope that, as the Supreme Court justices consider the technicalities of the ACA, they don’t miss the point. Because if they do, there’s a winter sports-obsessed country that might be looking for new referees.