The Affordable Care Act and Why we Need Health Insurance

This week we read about the Patient Protection and Affordable Health Care Act (sometimes referred to as the Affordable Care Act). The article from CQ Researcher gave us a good overview of the provisions of the act, a timeline of health care policy history, and a debate over some of the Act's more controversial policy changes. The chapter covers the most important aspects of the bill, but may not go into as much detail on the policy provisions that are of interest to you. If that's the case, here are some resources that you may find helpful. This dynamic timeline shows you when different parts of the healthcare law take effect, and what aspects are already in place. You can click on the policy change that interests you for more information about the specifics. Kaiser Family Foundation is a liberal-leaning think-tank focused on healthcare. They have a whole section on the health care reform law. If you are interested in the conservative perspective on the Affordable Care Act, the American Enterprise Institute will give you a nationwide take on the issue and the Goldwater Institute, located in Arizona, describes their case against the federal health care reform bill here.

Rather than give you even more information about the Affordable Care Act, I'd rather take a step back and talk about why we have health insurance in the first place. One of the comments I sometimes get in class about healthcare reform is that it's not fair to have a system where the healthy pay for the sick and the wealthy pay for the poor. Setting aside the second half of this comment, the healthy paying for the sick is the essential idea behind health insurance. Borrowing from Karen Pollitz, one of my former MPP professors at Georgetown and an expert in the individual health insurance market,  I present the swoop. (Please note that this is a very informal graph and would not be acceptable to include in an academic paper)

When it comes to healthcare, at any point in time most people cost very little, but there is a small group of very sick people who cost a lot. Pretty much everyone will fall into this small group of costly healthcare consumers at some point in their lifetime, and they have almost no control or ability to anticipate when that will be. Heart attack, pregnancy, cancer etc. can all shift someone into the high cost group. Sure, there will be some unlucky people who spend more time in the costly group and some very lucky people who remain relatively low cost throughout their lives, but we have no way of knowing who that will be. This is what we call "an information problem", using applied economic speak. Because we don't know how much we would need to save to pay for our healthcare needs or when we may need it and because we can all anticipate being high cost healthcare consumers at some point, it makes sense to enter an insurance pool.

When you have a large insurance pool where there are lots of people who do select in based on some reason: (employment, residence, citizenship etc.) aside from health status, you create a system where the healthy transfer money to the sick (because remember, most people are relatively healthy most of the time) with the knowledge that when they are sick, the healthy will in turn transfer money to them. The bigger the insurance pool, the more healthy people there will be to transfer money to cover the very sick, and the less costly one major illness will be for everyone. This is why the individual insurance market is so inefficient. It creates a system where more of the sick select into the insurance pool, and the relatively healthy stay out. This is also why the individual mandate is an important component of healthcare reform from the perspective of the insurance companies. They need healthy people in their pool to keep premiums low and ensure a profit.

In terms of the wealthy paying for the poor, the evidence is more mixed on this case. You can argue from a public health perspective the wealthy benefit from the poor having healthcare coverage. When people are able to get treatment for infectious diseases more quickly, it reduces the likelihood that the diseases will spread. Also, immunizations are an important aspect of preventive care. Children with certain diseases are unable to tolerate vaccines and have to rely on herd immunity to keep them well, if access to immunizations is reduced, herd immunity becomes less likely, and these children are more likely to get sick. This becomes especially true with the current cultural movement against immunizations that some more well off families are participating in. Preventive care also reduces the strain on our emergency systems, freeing up medical personnel for true emergencies. Finally, a healthy workforce is a productive workforce so greater healthcare coverage of low-income families is good for business' bottom line.

A recent ground-breaking study from the National Bureau of Economic Research  evaluated the impact of Medicaid coverage on low-income Americans and found that despite the issues with lower acceptance of Medicaid by doctors and healthcare providers, individuals on Medicaid had better outcomes than those without insurance. They got better health coverage, had better mental and physical health status, and were financially more stable. The study used a randomized design to avoid selection bias, and is a very strong study methodologically. This paper illustrates the importance of health insurance, especially for individuals and families who are already struggling.

If you want to learn more about healthcare access in the individual market prior to health care reform, the Frontline documentary Sick Around America  features Americans telling their stories of denial for pre-existing conditions and insurance recissions for incomplete medical histories. It's a moving documentary that is eye opening for those of us who have never had to purchase health insurance using the individual market. It does a great job of illustrating the problems with health care access in America. If you want to learn more about health care systems in comparable developed nations, the Frontline documentary Sick Around the World shows you how other five other countries have decided to address health care access, cost, and quality. This documentary does a great job illustrating health care policy alternatives. While both of these documentaries offer good insights into the healthcare system, we are talking about policy choices this week and the assigned documentary Obama's Deal shows us how we arrived at the health care reform bill that was actually passed.

What do you think about the Affordable Care Act? Have any of the enacted changes benefited or burdened you? Do you think the individual mandate is a "necessary evil" or should it be overturned as unconstitutional? Do you think the other parts of the Affordable Care Act can survive without it?