more on SCOTUS, ObamaCare, and health care/insurance

Last night, I posted a bunch of links-- with key points in the blog post-- on the SCOTUS decision on ObamaCare. Check that out if you haven't already.

A few more thoughts: 

-We'll have a series of explicit tax increases in 2013-- payroll taxes and investment taxes on some of the wealthy; excise tax on medical device sales. There will be a reduction in the subsidy of unreimbursed medical care on one's income taxes-- nice to see a loophole get reduced (why not eliminate it), but odd to see them go after that in the context of trying to improve access to health care.

-Mandating coverage/purchase is one thing. The extent of the coverage mandated is quite another. Mandating coverage for preventative care and for rare, catastrophic events causes minimal distortion and cost inflation.

-In 2014, there will be "new limits" on savings in HSA's/MSA's. I hope this doesn't reduce incentives-- to pursue true health insurance and take more ownership of one's health care decisions-- too much.

-In 2018, there will be a 40% tax on "Cadillac" health insurance plans. This is an ad hoc fix for what should be done-- disallow the immense ($100B+), regressive subsidy currently in place, as so many employees receive subsidies to acquire health insurance through their place of employment. (The 40% is a penalty beyond the original subsidy, so that's an interesting approach.) This subsidy is at the root of most of our problems in health care/insurance. So, this will help, but it's still six years away. 

-The impact on business, particularly small business, is still mixed with a unhealthy dose of uncertainty. The SCOTUS ruling tells us that ObamaCare passes Constitutional muster. This move forward still does not pin down the impact on businesses and business decisions-- most notably, the desire to invest, expand, hire more workers, etc. That's better news for the economy, but far from good news.

-This CBS article (h/t: C-J) mentions one of the big concerns going forward. Economists call this the moral hazard problem; laypeople refer to it as a bailout (at least in some settings). Most recently, it was seen in the federal government's willingness to bail out entities that were deemed "too big to fail". (More accurately, it would be "too big to be allowed to fail".) The problem? If one has a sense they will be subsidized, it encourages riskier behavior-- ironically, of the sort that the policy attempts to mitigate. This problem-- and seeing politicians avidly extend it-- makes economists wince.

There’s also an added safety net for all Americans, insured and uninsured. Starting in 2014, insurance companies will not be able to deny coverage for medical, nor can they charge more to people with health problems. Those protections, now standard in most big employer plans, will be available to all, including people who get laid off, or leave a corporate job to launch their own small business.

What if people-- particularly the young and healthy-- decide (reasonably) that paying the penalty (and getting insurance when/if they get really sick) is considerably cheaper, without any additional risk. The policy begs for abuse. On top of that, one of the prospective gains from ObamaCare-- expanding the risk pool to include younger, healthier people-- would be mitigated or the problem could even be exacerbated.

The article continues by noting Justice Roberts opposition to ropes (rather than strings?) from the Federal government to the states on Medicaid rules, coverage, and funding. 

The Medicaid expansion would cover an estimated 17 million people who earn too much to qualify for assistance but not enough to afford insurance. The federal and state governments share the cost, and Washington regularly imposes conditions on the states in exchange for money. Roberts said Congress’ ability to impose those conditions has its limits. “In this case, the financial `inducement’ Congress has chosen is much more than `relatively mild encouragement’ – it is a gun to the head,” he said.

Although one can debate the extent of the force implied by government, this is a clear case where democracy could easily struggle to reflect the will of the people. If state X wants to do something, they may have little or no control over what happens in DC.