Love It or Hate It, Obamacare Redistributes Americans’ Wealth

Not everyone comes out ahead as a result of the Affordable Care Act. Somebody has to foot the bill when you shift that much wealth.

National Journal
James Oliphant
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James Oliphant
Nov. 20, 2013, 11:34 p.m.

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Pres­id­ent Obama has said a lot of things about health care re­form, not just that if you liked your health in­sur­ance plan, you could keep it. In a prime-time news con­fer­ence in Ju­ly 2009, his ra­tionales for a new law stacked up like planes on an air­port run­way dur­ing a hol­i­day week­end: It would provide “se­cur­ity and sta­bil­ity” for fam­il­ies; it would “keep gov­ern­ment out of health care de­cisions”; it would pre­vent in­surers from “drop­ping your cov­er­age.” He said the pro­gram “would not add to our de­fi­cit,” that it would “slow the growth of health care costs in the long run,” that it would be “paid for” but not “on the backs of middle-class fam­il­ies.” Most im­port­ant, he said, “I want to cov­er every­body.”

Even at the time, it soun­ded like the pres­id­ent was con­tra­dict­ing him­self. He sought to ex­pand cov­er­age to al­most every single Amer­ic­an who needs it, but he was also go­ing to re­duce the budget de­fi­cit. He was go­ing to force in­surers to ac­cept every con­sumer in the mar­ket­place, re­gard­less of their age, their in­come, or their health, but he was also go­ing to see to it that premi­um rates were con­tained.

Four years later, as the pro­gram that all sides now dub “Obama­care” stumbles through its tor­tu­ous im­ple­ment­a­tion, the fur­or over the rol­lout of the fed­er­al on­line in­sur­ance ex­change has ob­scured a lar­ger, more fun­da­ment­al truth: If the pro­gram was go­ing to ful­fill all that Obama pledged, not every­one was go­ing to come out ahead — someone was go­ing to have to pay the freight. Some sub­groups of Amer­ic­ans were go­ing to be worse off than they were be­fore.

Obama didn’t say that in Ju­ly 2009 — or any time while the pro­gram was be­ing de­bated in Con­gress. He couldn’t. He couldn’t stand up be­fore the Amer­ic­an pub­lic and say that the only way to achieve the pro­gram’s goals was to real­loc­ate money with­in the health in­sur­ance mar­ket. That there would need to be a trans­fer of wealth — from the young to the old, from men to wo­men, from the healthy to the sick. That to raise the floor, you had to lower the ceil­ing. To do so would have handed his en­emies the kind of weaponry they craved, val­id­a­tion that Obama was in­deed some sort of “so­cial­ist” who be­lieved in “re­dis­tri­bu­tion.” It could have killed the ef­fort in its tracks, then and there, mak­ing the tea-party erup­tion in town halls across the coun­try in the month that fol­lowed look like a Kiwanis meet­ing.

Very simply, un­der the Af­ford­able Care Act, there are win­ners and there are losers. And there were al­ways go­ing to be.

And had the fed­er­al in­sur­ance ex­change launched this fall with a min­im­um of fuss, it’s pos­sible the saus­age-mak­ing ma­chinery of Obama­care might have been ob­scured. If some of the mil­lions of con­sumers who had re­ceived can­cel­la­tion no­tices from their in­surers in the past few weeks were able to jump on the Web, se­lect a new plan, and en­sure con­tinu­ity of care, it might have al­le­vi­ated some of the polit­ic­al dam­age to the ad­min­is­tra­tion, even if those con­sumers were forced to pay more for their new plans.

But that hasn’t happened. In­stead, the ex­change web­site’s woes sparked a me­dia feed­ing frenzy that filled the air­waves with middle-class cit­izens re­lat­ing heartrend­ing tales of can­celed policies and rate hikes, adding to the per­cep­tion, fair or not, that the en­tire pro­gram is in deep jeop­ardy, or at the very least is some sort of scheme that will either col­lapse or soak con­sumers and tax­pay­ers alike. The cur­tain has been yanked back to ex­pose the un­gainly real­ity that lies at the very heart of the pro­gram: Very simply, un­der the Af­ford­able Care Act, there are win­ners and there are losers. And there were al­ways go­ing to be. That fact, even more than the star-crossed rol­lout, may be the more en­dur­ing polit­ic­al threat to Obama­care.

EVERY­ONE’S A WIN­NER

Obama was con­fron­ted about that very pos­sib­il­ity at the Ju­ly 2009 press con­fer­ence. “When you de­scribe health care re­form, you don’t — un­der­stand­ably, you don’t talk about the sac­ri­fices that Amer­ic­ans might have to make,” Jake Tap­per, then with ABC News, poin­ted out to the pres­id­ent. Obama’s re­sponse to the ques­tion was al­most a thou­sand words long, but in it the pres­id­ent nev­er once sug­ges­ted that any con­sumer’s rates would rise.

But after that, Obama really didn’t have to ad­dress such mat­ters. Re­pub­lic­ans, led by the emer­ging tea party, fo­cused less on whom the pro­gram would bur­den and more on wheth­er it amoun­ted to a mon­strous takeover of the health care sys­tem, fix­at­ing on is­sues such as end-of-life care and phys­i­cian choice. Lost in the din was any in-depth ex­am­in­a­tion of how the ACA would ac­tu­ally work — how it could seem­ingly provide so much for so many with so few con­sequences. “This is not the de­bate we had in 2010,” says Avik Roy, an eco­nom­ist who served as an ad­viser to Mitt Rom­ney’s re­cent pres­id­en­tial cam­paign.

What the law ac­com­plished was subtler. It shif­ted stand­ard-set­ting for the in­di­vidu­al in­sur­ance mar­ket from the states to the fed­er­al gov­ern­ment. That led to es­tab­lish­ing a uni­form cri­terion for the com­pon­ents of a vi­able in­sur­ance plan — which meant that low-cost plans with high de­duct­ibles or ones that provided a min­im­um of be­ne­fits that some states al­lowed and oth­ers pro­hib­ited would be deemed un­ac­cept­able.

That has had the ef­fect of for­cing some Amer­ic­ans to pay for plans that cov­er things they didn’t feel they wanted or needed. At his Nov. 15 press con­fer­ence, Obama likened this to re­quir­ing drivers to wear seat belts, es­sen­tially say­ing the “junk plans” that have been sold by in­sur­ance com­pan­ies have put con­sumers in the po­s­i­tion of tak­ing un­war­ran­ted risks. But the gov­ern­ment’s in­terest lies bey­ond simple nanny-state-ism: The high­er premi­ums yiel­ded un­der the new re­gime help fin­ance cov­er­age ex­pan­sion.

Ma­ter­nity cov­er­age has emerged as a prime ex­ample. A plan pur­chased through a health in­sur­ance ex­change must cov­er the costs of preg­nancy and child­birth, even if the in­sured is a 24-year-old single man, even if there is little or no chance of his ever us­ing the be­ne­fit. To ad­voc­ates, that’s a pos­it­ive res­ult, one that en­cour­ages and sup­ports qual­ity care for ex­pect­ant moth­ers. To de­tract­ors, it’s a dir­ect sub­sidy based on gender.

It’s why pro­gress­ive re­formers were so dis­heartened last week when it ap­peared that Obama, along with some Demo­crats in Con­gress, were walk­ing away from the min­im­um-plan re­quire­ments after the can­celed-policy fur­or reached a fever pitch. The pres­id­ent pro­posed al­low­ing in­surers one more year to of­fer plans that would oth­er­wise be can­celed. Dav­id Cut­ler, a Har­vard Uni­versity eco­nom­ics pro­fess­or who helped design the ACA, wor­ries that sig­ni­fic­antly un­der­min­ing the law at this junc­ture would in­crease costs for oth­er con­sumers or keep some con­sumers out of the mar­ket­place al­to­geth­er. “We need to avoid a situ­ation where un­healthy people are in one set of plans and healthy people are in an­oth­er. That is a ter­rible out­come,” he told Na­tion­al Journ­al. “A per­man­ent sep­ar­a­tion of healthy and sick would be a big prob­lem.”

And it’s why the in­di­vidu­al man­date is the law’s linch­pin. The re­quire­ment that the young and healthy pur­chase in­sur­ance is crit­ic­al for en­sur­ing that con­sumers with preex­ist­ing med­ic­al con­di­tions or older Amer­ic­ans who more fre­quently use health care ser­vices can find af­ford­able plans. It sounds vam­pir­ic, but the only way cov­er­age ex­pan­sion can work is if the young­er and health­i­er as­sume some of the cost of tak­ing care of the older and sick­er. The ad­min­is­tra­tion’s total en­roll­ment goal for 2014 is 7 mil­lion people; of those en­rollees, the ad­min­is­tra­tion says 2.7 mil­lion must be between the ages of 18 and 35. So far, en­roll­ment has fallen far short of that goal.

IN­SUR­ANCE ROUL­ETTE

The no­tion of sub­sid­iz­ing oth­ers isn’t for­eign, of course. Amer­ic­ans pay in­to So­cial Se­cur­ity and Medi­care, and the low-in­come re­cip­i­ents of those pro­grams get a bet­ter deal than the high-in­come ones. Tax­pay­ers pay for roads and schools, and up­per-in­come people pay more, even if they don’t drive all that of­ten or have any chil­dren in pub­lic edu­ca­tion. But Obama­care feels dif­fer­ent be­cause the be­ne­fits are dif­fuse and less tan­gible. Think of in­sur­ance cov­er­age as a casino, in which the loss a gam­bler takes play­ing roul­ette helps sub­sid­ize the loss the house takes when someone else wins at black­jack. Be­fore the ACA, the risk in the in­di­vidu­al mar­ket was in­dexed, with in­surers able to price policies on the basis of per­son­al cir­cum­stance.

Think of in­sur­ance cov­er­age as a casino, in which the loss a gam­bler takes play­ing roul­ette helps sub­sid­ize the loss the house takes when someone else wins at black­jack.

Obama­care con­sol­id­ates risk, group­ing those most likely to cost the house money with those who have little chance of re­ceiv­ing a pay­out. The lines of de­marc­a­tion between young and old blur, thanks to a com­pres­sion of what in­surers call “age rat­ing” — which used to al­low com­pan­ies to charge older Amer­ic­ans not yet eli­gible for Medi­care on the or­der of five times more than young­er ones — and the wide­spread use of what is known as “com­munity rat­ing,” which forces in­surers to as­sesses risk in terms of a pool, rather than an in­di­vidu­al. “Ideally, you want to be the sick­est per­son in the pool, so every­one is sub­sid­iz­ing you,” says Aus­tin Frakt, a health care eco­nom­ist in Bo­ston.

In the tra­di­tion­al en­ti­tle­ments, just about every tax­pay­er even­tu­ally be­comes a “win­ner,” but un­der the ACA that may nev­er hap­pen. In that way, the law is more of a dir­ect wealth trans­fer, something more akin to food stamps or wel­fare. “Medi­care and So­cial Se­cur­ity go to every­one over 65. They’re very iden­ti­fi­able as a group,” says a former Obama ad­min­is­tra­tion eco­nom­ist, who asked not to be iden­ti­fied be­cause of the sens­it­iv­ity of the sub­ject. “The people that are go­ing to be helped by the ACA are a more dif­fuse group; it’s harder to tell who they are. That group cuts across a lot of lines. It’s harder for that group to make its in­terests known in a cent­ral part of the de­bate. It is a re­dis­tri­bu­tion — and wheth­er it is worth it or not is a ques­tion so­ci­ety has to ask.”

Obama­care, in fact, has flipped the en­ti­tle­ment nar­rat­ive on its head: The losers tra­di­tion­ally have been the an­onym­ous tax­pay­ers whose in­cre­ment­al con­tri­bu­tions help keep those more vis­ible win­ners afloat. But with the ACA, the losers are angry, loud, and have been giv­en a power­ful plat­form — one that threatens to make hell for the pres­id­ent and his party alike. Mean­while, the win­ners are harder to find, largely be­cause many of them are strug­gling to pur­chase in­sur­ance on the fed­er­al ex­change. “We’ve got losers who know who they are and [are] scream­ing, and win­ners who don’t know who they are and aren’t smil­ing,” says James Mor­one, a polit­ic­al-sci­ence pro­fess­or at Brown Uni­versity.

Sup­port­ers of the pro­gram ar­gue that the act ul­ti­mately will make wide swaths of Amer­ic­ans win­ners, be­cause over­all health care costs will be re­duced. The growth of health care spend­ing is, in fact, slow­ing, but it’s not clear wheth­er that can be cred­ited to the new law. More wor­ri­some is the pro­spect that a new class of con­sumers, those who are eli­gible for the gov­ern­ment sub­sidies avail­able un­der the ACA, will be­come hooked in­to a private-in­sur­ance-driv­en sys­tem in which costs con­tin­ue to es­cal­ate and which then would re­quire great­er and great­er con­tri­bu­tions from busi­ness and gov­ern­ment alike to keep the sys­tem afloat. Again, however, the ad­min­is­tra­tion in­sists this won’t hap­pen once the new in­sur­ance mar­kets ma­ture.

The ACA design un­der­scores the polit­ic­al chal­lenge that con­tin­ues to plague the Obama ad­min­is­tra­tion and may help ex­plain why Amer­ic­ans are so sharply di­vided on the ques­tion of wheth­er the pro­gram is a be­ne­fit or a bur­den. Ac­cord­ing to polls, low- and middle-in­come whites see the act as something that helps oth­ers, not them. The con­fla­tion of the new ex­changes and the ex­pan­sion of Medi­caid cov­er­age has ce­men­ted that con­vic­tion.

A United Tech­no­lo­gies/Na­tion­al Journ­al Con­gres­sion­al Con­nec­tion Poll taken this month found that only 25 per­cent of whites said the law would be­ne­fit “people like you and your fam­ily.” The share of minor­it­ies who viewed the law that way was double that — at 51 per­cent. Part of that dis­crep­ancy may be ex­plained by the fact that, ac­cord­ing to the Census Bur­eau, Afric­an-Amer­ic­ans and His­pan­ics are nearly twice and three times, re­spect­ively, as likely as whites to lack health in­sur­ance.

Mark Knapp, who owns a tool­mak­ing and sharpen­ing busi­ness in Fairb­anks, Alaska, is one of those white Amer­ic­ans who has al­ways held a jaun­diced view of Obama­care — but he re­cently has been giv­en good reas­on bey­ond ideo­logy. He and his wife re­ceived a can­cel­la­tion no­tice from their in­surer, Prem­era Blue Cross, that in­formed them the new policy would cost them $1,214 a month, a 62 per­cent in­crease from what they were pay­ing. Prem­era ex­pli­citly blamed the Af­ford­able Care Act for the change.

Knapp says the two policies are al­most identic­al in terms of be­ne­fits, and both keep the yearly de­duct­ible at close to $5,000. “It wasn’t a junk plan,” he says. The mar­gins for his busi­ness are such that he may have to con­sider tak­ing sub­sidies — which he and his wife may qual­i­fy for — to af­ford the in­sur­ance hike. That doesn’t feel like a vic­tory to him. “Nev­er in our adult lives have we re­quired as­sist­ance from the gov­ern­ment,” says Knapp, who is 52, adding that the sub­sidy will mask what, to him, is truly oc­cur­ring. “Everything is go­ing up,” he says. “Some­body is pay­ing the $13,000 [a year] for me if I’m not. It’s not get­ting more af­ford­able; it’s get­ting more ex­pens­ive.”

Roy, the former Rom­ney ad­viser, is a fel­low at the right-lean­ing Man­hat­tan In­sti­tute, which re­cently re­leased a state-by-state study show­ing that premi­ums in the in­di­vidu­al mar­ket na­tion­wide will rise an av­er­age of 41 per­cent as a res­ult of the ACA, with rates fall­ing in some states and rising in many oth­ers. However, much of that in­crease, Roy notes, will be mit­ig­ated by fed­er­al sub­sidies so that costs for many con­sumers will go down, not up.

FEAR OF THE UN­KNOWN

The nature of the in­come re­dis­tri­bu­tion is what makes Obama­care dif­fer­ent from even the share-the-wealth philo­sophy the pres­id­ent es­poused on the cam­paign trail in 2012. “This is not about [tak­ing from] the top 1 per­cent,” says one alarmed Demo­crat­ic strategist. “These are people mak­ing 60, 70, 80 grand a year.”

The people bound to be af­fected ad­versely by the Af­ford­able Care Act’s cost-shift­ing the most are those in the in­di­vidu­al mar­kets who, un­like Mark Knapp, don’t qual­i­fy for sub­sidies, yet are by no means rich. And, adds Ed Flem­ing, an in­sur­ance con­sult­ant in Colum­bus, Ohio, “if you have chil­dren, you get in­to a real pickle. If you have two work­ing adults who to­geth­er make $70,000, that puts them out­side the range of get­ting a sub­sidy. Now their choice be­comes pay­ing $700 a month for what they have or $500 a month with a $12,700 de­duct­ible.”

The law’s sup­port­ers ar­gue that be­cause the in­di­vidu­al mar­ket ac­counts for just 5 per­cent of Amer­ic­ans — 15 mil­lion people — the bur­den falls on a se­lect few. (By con­trast, 12 mil­lion people who are cur­rently un­in­sured are ex­pec­ted to se­cure cov­er­age through the ex­changes.) But that 5 per­cent isn’t a stable group of in­di­vidu­als; con­sumers enter and exit that mar­ket all the time as they gain and lose jobs, start or aban­don busi­nesses, or gain or lose con­tract work. In ad­di­tion, there re­mains the very real pro­spect that the slice of the mar­ket will grow if small busi­nesses stop provid­ing health in­sur­ance in the group mar­ket and in­stead pay sub­sidies to help their em­ploy­ees pur­chase in­di­vidu­al plans.

“It will be­come a lar­ger pop­u­la­tion that is shop­ping on the ex­change,” says Frakt, the Bo­ston eco­nom­ist. “That status quo is go­ing to change. We’ll be hav­ing a dif­fer­ent con­ver­sa­tion in a year.”

In­deed, tre­mend­ous cost pres­sures are already af­fect­ing the small-busi­ness mar­ket, Flem­ing says. Em­ploy­ers are rush­ing to re­new their group policies for 2014 just to lock in their rates, even though many re-upped their plan earli­er this year — each time ac­com­pan­ied by a rate hike. “You’ve taken two in­creases in your cal­en­dar year,” he says. But such is the fear of full im­ple­ment­a­tion of the ACA. The more com­pre­hens­ive be­ne­fit plans, the pre­vent­ive-care re­quire­ments — all of it, he says — “is mak­ing premi­ums go through the roof.”

“Any­body who said they had a good handle on this was ly­ing,” Flem­ing says.

Ad­mit­tedly, it’s an open ques­tion wheth­er health in­surers are us­ing the act as an ex­cuse for big rate hikes, as some Demo­crats have charged. But the in­creases il­lus­trate an­oth­er re­dis­tributive as­pect of the ACA: The gov­ern­ment has as­sessed fees on in­surers as an­oth­er means to fin­ance ex­change sub­sidies, which places the in­dustry in the po­s­i­tion of help­ing con­sumers buy its own product. At the same time, those costs will be passed along to oth­er poli­cy­hold­ers who don’t re­ceive sub­sidies, such as, again, small em­ploy­ers. “All the taxes that are levied on in­sur­ance com­pan­ies are go­ing to fil­ter down to the price of their products,” says Holly Wade, an ana­lyst with the Na­tion­al Fed­er­a­tion of In­de­pend­ent Busi­ness.

The un­der­pin­nings of Obama­care could crumble in a num­ber of ways.

And there is the more clas­sic means of re­dis­tri­bu­tion: the fed­er­al tax rev­en­ue used to fund the Medi­caid ex­pan­sion called for by the ACA. That will help fund cov­er­age for an es­tim­ated 13 mil­lion Amer­ic­ans na­tion­wide, which sup­port­ers ar­gue will pro­duce both so­ci­et­al and eco­nom­ic be­ne­fits. At present, that’s the largest straight com­mit­ment of fed­er­al tax dol­lars, but con­ser­vat­ive crit­ics worry that if oth­er ACA fund­ing mech­an­isms fall short, the gov­ern­ment could end up bear­ing more of the load.

“The whole fin­an­cing struc­ture for the law is a house of cards,” says Charles Blahous, a fel­low at the Mer­catus Cen­ter at George Ma­son Uni­versity and a pub­lic trust­ee of So­cial Se­cur­ity and Medi­care. “Un­like a web­site, it’s not so eas­ily fixed.”

The un­der­pin­nings of Obama­care could crumble in a num­ber of ways: if young people fail to sign up for in­sur­ance in the droves needed to make the num­bers work (and, giv­en the mea­ger pen­alty for fail­ing to do so, that re­mains a def­in­ite pos­sib­il­ity); or if the so-called Ca­dillac tax on high-dol­lar health plans sched­uled for 2018 nev­er hap­pens (labor uni­ons, among oth­er in­terests, hate it); or if Con­gress, at the be­hest of the in­dustry, fol­lows through on its threat to elim­in­ate the tax on med­ic­al devices; or if the long-prom­ised sav­ings in Medi­care fail to come to fruition; or if, down the road, a cash-strapped fed­er­al gov­ern­ment aban­dons its Medi­caid com­mit­ments to states.

While de­scrib­ing Obama­care as a house of cards falls squarely with­in the lex­icon of con­ser­vat­ive hy­per­bole, the simple truth is that the Af­ford­able Care Act is, from a cer­tain point of view, either a finely tuned ma­chine whose parts have to work in an al­most or­ches­tral fash­ion for it to pro­duce the well­spring of res­ults that have been prom­ised, or an in­fernal, jury-rigged con­trap­tion that could col­lapse from the smal­lest series of stresses.

In light of the prob­lems the ad­min­is­tra­tion has had over the past sev­en weeks, it is tempt­ing for fair-minded people of any polit­ic­al stripe to see it as the lat­ter. Right now, that, more than any­thing, is Obama­care’s heav­iest bur­den.

EVERYONE'S A WINNER

Obama was con­fron­ted about that very pos­sib­il­ity at the Ju­ly 2009 press con­fer­ence. “When you de­scribe health care re­form, you don’t — un­der­stand­ably, you don’t talk about the sac­ri­fices that Amer­ic­ans might have to make,” Jake Tap­per, then with ABC News, poin­ted out to the pres­id­ent. Obama’s re­sponse to the ques­tion was al­most a thou­sand words long, but in it the pres­id­ent nev­er once sug­ges­ted that any con­sumer’s rates would rise.

But after that, Obama really didn’t have to ad­dress such mat­ters. Re­pub­lic­ans, led by the emer­ging tea party, fo­cused less on whom the pro­gram would bur­den and more on wheth­er it amoun­ted to a mon­strous takeover of the health care sys­tem, fix­at­ing on is­sues such as end-of-life care and phys­i­cian choice. Lost in the din was any in-depth ex­am­in­a­tion of how the ACA would ac­tu­ally work — how it could seem­ingly provide so much for so many with so few con­sequences. “This is not the de­bate we had in 2010,” says Avik Roy, an eco­nom­ist who served as an ad­viser to Mitt Rom­ney’s re­cent pres­id­en­tial cam­paign.

What the law ac­com­plished was subtler. It shif­ted stand­ard-set­ting for the in­di­vidu­al in­sur­ance mar­ket from the states to the fed­er­al gov­ern­ment. That led to es­tab­lish­ing a uni­form cri­terion for the com­pon­ents of a vi­able in­sur­ance plan — which meant that low-cost plans with high de­duct­ibles or ones that provided a min­im­um of be­ne­fits that some states al­lowed and oth­ers pro­hib­ited would be deemed un­ac­cept­able.

That has had the ef­fect of for­cing some Amer­ic­ans to pay for plans that cov­er things they didn’t feel they wanted or needed. At his Nov. 15 press con­fer­ence, Obama likened this to re­quir­ing drivers to wear seat belts, es­sen­tially say­ing the “junk plans” that have been sold by in­sur­ance com­pan­ies have put con­sumers in the po­s­i­tion of tak­ing un­war­ran­ted risks. But the gov­ern­ment’s in­terest lies bey­ond simple nanny-state-ism: The high­er premi­ums yiel­ded un­der the new re­gime help fin­ance cov­er­age ex­pan­sion.

Ma­ter­nity cov­er­age has emerged as a prime ex­ample. A plan pur­chased through a health in­sur­ance ex­change must cov­er the costs of preg­nancy and child­birth, even if the in­sured is a 24-year-old single man, even if there is little or no chance of his ever us­ing the be­ne­fit. To ad­voc­ates, that’s a pos­it­ive res­ult, one that en­cour­ages and sup­ports qual­ity care for ex­pect­ant moth­ers. To de­tract­ors, it’s a dir­ect sub­sidy based on gender.

It’s why pro­gress­ive re­formers were so dis­heartened last week when it ap­peared that Obama, along with some Demo­crats in Con­gress, were walk­ing away from the min­im­um-plan re­quire­ments after the can­celed-policy fur­or reached a fever pitch. The pres­id­ent pro­posed al­low­ing in­surers one more year to of­fer plans that would oth­er­wise be can­celed. Dav­id Cut­ler, a Har­vard Uni­versity eco­nom­ics pro­fess­or who helped design the ACA, wor­ries that sig­ni­fic­antly un­der­min­ing the law at this junc­ture would in­crease costs for oth­er con­sumers or keep some con­sumers out of the mar­ket­place al­to­geth­er. “We need to avoid a situ­ation where un­healthy people are in one set of plans and healthy people are in an­oth­er. That is a ter­rible out­come,” he told Na­tion­al Journ­al. “A per­man­ent sep­ar­a­tion of healthy and sick would be a big prob­lem.”

And it’s why the in­di­vidu­al man­date is the law’s linch­pin. The re­quire­ment that the young and healthy pur­chase in­sur­ance is crit­ic­al for en­sur­ing that con­sumers with preex­ist­ing med­ic­al con­di­tions or older Amer­ic­ans who more fre­quently use health care ser­vices can find af­ford­able plans. It sounds vam­pir­ic, but the only way cov­er­age ex­pan­sion can work is if the young­er and health­i­er as­sume some of the cost of tak­ing care of the older and sick­er. The ad­min­is­tra­tion’s total en­roll­ment goal for 2014 is 7 mil­lion people; of those en­rollees, the ad­min­is­tra­tion says 2.7 mil­lion must be between the ages of 18 and 35. So far, en­roll­ment has fallen far short of that goal.

INSURANCE ROULETTE

The no­tion of sub­sid­iz­ing oth­ers isn’t for­eign, of course. Amer­ic­ans pay in­to So­cial Se­cur­ity and Medi­care, and the low-in­come re­cip­i­ents of those pro­grams get a bet­ter deal than the high-in­come ones. Tax­pay­ers pay for roads and schools, and up­per-in­come people pay more, even if they don’t drive all that of­ten or have any chil­dren in pub­lic edu­ca­tion. But Obama­care feels dif­fer­ent be­cause the be­ne­fits are dif­fuse and less tan­gible. Think of in­sur­ance cov­er­age as a casino, in which the loss a gam­bler takes play­ing roul­ette helps sub­sid­ize the loss the house takes when someone else wins at black­jack. Be­fore the ACA, the risk in the in­di­vidu­al mar­ket was in­dexed, with in­surers able to price policies on the basis of per­son­al cir­cum­stance.

Think of in­sur­ance cov­er­age as a casino, in which the loss a gam­bler takes play­ing roul­ette helps sub­sid­ize the loss the house takes when someone else wins at black­jack.

Obama­care con­sol­id­ates risk, group­ing those most likely to cost the house money with those who have little chance of re­ceiv­ing a pay­out. The lines of de­marc­a­tion between young and old blur, thanks to a com­pres­sion of what in­surers call “age rat­ing” — which used to al­low com­pan­ies to charge older Amer­ic­ans not yet eli­gible for Medi­care on the or­der of five times more than young­er ones — and the wide­spread use of what is known as “com­munity rat­ing,” which forces in­surers to as­sesses risk in terms of a pool, rather than an in­di­vidu­al. “Ideally, you want to be the sick­est per­son in the pool, so every­one is sub­sid­iz­ing you,” says Aus­tin Frakt, a health care eco­nom­ist in Bo­ston.

In the tra­di­tion­al en­ti­tle­ments, just about every tax­pay­er even­tu­ally be­comes a “win­ner,” but un­der the ACA that may nev­er hap­pen. In that way, the law is more of a dir­ect wealth trans­fer, something more akin to food stamps or wel­fare. “Medi­care and So­cial Se­cur­ity go to every­one over 65. They’re very iden­ti­fi­able as a group,” says a former Obama ad­min­is­tra­tion eco­nom­ist, who asked not to be iden­ti­fied be­cause of the sens­it­iv­ity of the sub­ject. “The people that are go­ing to be helped by the ACA are a more dif­fuse group; it’s harder to tell who they are. That group cuts across a lot of lines. It’s harder for that group to make its in­terests known in a cent­ral part of the de­bate. It is a re­dis­tri­bu­tion — and wheth­er it is worth it or not is a ques­tion so­ci­ety has to ask.”

Obama­care, in fact, has flipped the en­ti­tle­ment nar­rat­ive on its head: The losers tra­di­tion­ally have been the an­onym­ous tax­pay­ers whose in­cre­ment­al con­tri­bu­tions help keep those more vis­ible win­ners afloat. But with the ACA, the losers are angry, loud, and have been giv­en a power­ful plat­form — one that threatens to make hell for the pres­id­ent and his party alike. Mean­while, the win­ners are harder to find, largely be­cause many of them are strug­gling to pur­chase in­sur­ance on the fed­er­al ex­change. “We’ve got losers who know who they are and [are] scream­ing, and win­ners who don’t know who they are and aren’t smil­ing,” says James Mor­one, a polit­ic­al-sci­ence pro­fess­or at Brown Uni­versity.

Sup­port­ers of the pro­gram ar­gue that the act ul­ti­mately will make wide swaths of Amer­ic­ans win­ners, be­cause over­all health care costs will be re­duced. The growth of health care spend­ing is, in fact, slow­ing, but it’s not clear wheth­er that can be cred­ited to the new law. More wor­ri­some is the pro­spect that a new class of con­sumers, those who are eli­gible for the gov­ern­ment sub­sidies avail­able un­der the ACA, will be­come hooked in­to a private-in­sur­ance-driv­en sys­tem in which costs con­tin­ue to es­cal­ate and which then would re­quire great­er and great­er con­tri­bu­tions from busi­ness and gov­ern­ment alike to keep the sys­tem afloat. Again, however, the ad­min­is­tra­tion in­sists this won’t hap­pen once the new in­sur­ance mar­kets ma­ture.

The ACA design un­der­scores the polit­ic­al chal­lenge that con­tin­ues to plague the Obama ad­min­is­tra­tion and may help ex­plain why Amer­ic­ans are so sharply di­vided on the ques­tion of wheth­er the pro­gram is a be­ne­fit or a bur­den. Ac­cord­ing to polls, low- and middle-in­come whites see the act as something that helps oth­ers, not them. The con­fla­tion of the new ex­changes and the ex­pan­sion of Medi­caid cov­er­age has ce­men­ted that con­vic­tion.

A United Tech­no­lo­gies/Na­tion­al Journ­al Con­gres­sion­al Con­nec­tion Poll taken this month found that only 25 per­cent of whites said the law would be­ne­fit “people like you and your fam­ily.” The share of minor­it­ies who viewed the law that way was double that — at 51 per­cent. Part of that dis­crep­ancy may be ex­plained by the fact that, ac­cord­ing to the Census Bur­eau, Afric­an-Amer­ic­ans and His­pan­ics are nearly twice and three times, re­spect­ively, as likely as whites to lack health in­sur­ance.

Mark Knapp, who owns a tool­mak­ing and sharpen­ing busi­ness in Fairb­anks, Alaska, is one of those white Amer­ic­ans who has al­ways held a jaun­diced view of Obama­care — but he re­cently has been giv­en good reas­on bey­ond ideo­logy. He and his wife re­ceived a can­cel­la­tion no­tice from their in­surer, Prem­era Blue Cross, that in­formed them the new policy would cost them $1,214 a month, a 62 per­cent in­crease from what they were pay­ing. Prem­era ex­pli­citly blamed the Af­ford­able Care Act for the change.

Knapp says the two policies are al­most identic­al in terms of be­ne­fits, and both keep the yearly de­duct­ible at close to $5,000. “It wasn’t a junk plan,” he says. The mar­gins for his busi­ness are such that he may have to con­sider tak­ing sub­sidies — which he and his wife may qual­i­fy for — to af­ford the in­sur­ance hike. That doesn’t feel like a vic­tory to him. “Nev­er in our adult lives have we re­quired as­sist­ance from the gov­ern­ment,” says Knapp, who is 52, adding that the sub­sidy will mask what, to him, is truly oc­cur­ring. “Everything is go­ing up,” he says. “Some­body is pay­ing the $13,000 [a year] for me if I’m not. It’s not get­ting more af­ford­able; it’s get­ting more ex­pens­ive.”

Roy, the former Rom­ney ad­viser, is a fel­low at the right-lean­ing Man­hat­tan In­sti­tute, which re­cently re­leased a state-by-state study show­ing that premi­ums in the in­di­vidu­al mar­ket na­tion­wide will rise an av­er­age of 41 per­cent as a res­ult of the ACA, with rates fall­ing in some states and rising in many oth­ers. However, much of that in­crease, Roy notes, will be mit­ig­ated by fed­er­al sub­sidies so that costs for many con­sumers will go down, not up.

FEAR OF THE UNKNOWN

The nature of the in­come re­dis­tri­bu­tion is what makes Obama­care dif­fer­ent from even the share-the-wealth philo­sophy the pres­id­ent es­poused on the cam­paign trail in 2012. “This is not about [tak­ing from] the top 1 per­cent,” says one alarmed Demo­crat­ic strategist. “These are people mak­ing 60, 70, 80 grand a year.”

The people bound to be af­fected ad­versely by the Af­ford­able Care Act’s cost-shift­ing the most are those in the in­di­vidu­al mar­kets who, un­like Mark Knapp, don’t qual­i­fy for sub­sidies, yet are by no means rich. And, adds Ed Flem­ing, an in­sur­ance con­sult­ant in Colum­bus, Ohio, “if you have chil­dren, you get in­to a real pickle. If you have two work­ing adults who to­geth­er make $70,000, that puts them out­side the range of get­ting a sub­sidy. Now their choice be­comes pay­ing $700 a month for what they have or $500 a month with a $12,700 de­duct­ible.”

The law’s sup­port­ers ar­gue that be­cause the in­di­vidu­al mar­ket ac­counts for just 5 per­cent of Amer­ic­ans — 15 mil­lion people — the bur­den falls on a se­lect few. (By con­trast, 12 mil­lion people who are cur­rently un­in­sured are ex­pec­ted to se­cure cov­er­age through the ex­changes.) But that 5 per­cent isn’t a stable group of in­di­vidu­als; con­sumers enter and exit that mar­ket all the time as they gain and lose jobs, start or aban­don busi­nesses, or gain or lose con­tract work. In ad­di­tion, there re­mains the very real pro­spect that the slice of the mar­ket will grow if small busi­nesses stop provid­ing health in­sur­ance in the group mar­ket and in­stead pay sub­sidies to help their em­ploy­ees pur­chase in­di­vidu­al plans.

“It will be­come a lar­ger pop­u­la­tion that is shop­ping on the ex­change,” says Frakt, the Bo­ston eco­nom­ist. “That status quo is go­ing to change. We’ll be hav­ing a dif­fer­ent con­ver­sa­tion in a year.”

In­deed, tre­mend­ous cost pres­sures are already af­fect­ing the small-busi­ness mar­ket, Flem­ing says. Em­ploy­ers are rush­ing to re­new their group policies for 2014 just to lock in their rates, even though many re-upped their plan earli­er this year — each time ac­com­pan­ied by a rate hike. “You’ve taken two in­creases in your cal­en­dar year,” he says. But such is the fear of full im­ple­ment­a­tion of the ACA. The more com­pre­hens­ive be­ne­fit plans, the pre­vent­ive-care re­quire­ments — all of it, he says — “is mak­ing premi­ums go through the roof.”

“Any­body who said they had a good handle on this was ly­ing,” Flem­ing says.

Ad­mit­tedly, it’s an open ques­tion wheth­er health in­surers are us­ing the act as an ex­cuse for big rate hikes, as some Demo­crats have charged. But the in­creases il­lus­trate an­oth­er re­dis­tributive as­pect of the ACA: The gov­ern­ment has as­sessed fees on in­surers as an­oth­er means to fin­ance ex­change sub­sidies, which places the in­dustry in the po­s­i­tion of help­ing con­sumers buy its own product. At the same time, those costs will be passed along to oth­er poli­cy­hold­ers who don’t re­ceive sub­sidies, such as, again, small em­ploy­ers. “All the taxes that are levied on in­sur­ance com­pan­ies are go­ing to fil­ter down to the price of their products,” says Holly Wade, an ana­lyst with the Na­tion­al Fed­er­a­tion of In­de­pend­ent Busi­ness.

The un­der­pin­nings of Obama­care could crumble in a num­ber of ways.

And there is the more clas­sic means of re­dis­tri­bu­tion: the fed­er­al tax rev­en­ue used to fund the Medi­caid ex­pan­sion called for by the ACA. That will help fund cov­er­age for an es­tim­ated 13 mil­lion Amer­ic­ans na­tion­wide, which sup­port­ers ar­gue will pro­duce both so­ci­et­al and eco­nom­ic be­ne­fits. At present, that’s the largest straight com­mit­ment of fed­er­al tax dol­lars, but con­ser­vat­ive crit­ics worry that if oth­er ACA fund­ing mech­an­isms fall short, the gov­ern­ment could end up bear­ing more of the load.

“The whole fin­an­cing struc­ture for the law is a house of cards,” says Charles Blahous, a fel­low at the Mer­catus Cen­ter at George Ma­son Uni­versity and a pub­lic trust­ee of So­cial Se­cur­ity and Medi­care. “Un­like a web­site, it’s not so eas­ily fixed.”

The un­der­pin­nings of Obama­care could crumble in a num­ber of ways: if young people fail to sign up for in­sur­ance in the droves needed to make the num­bers work (and, giv­en the mea­ger pen­alty for fail­ing to do so, that re­mains a def­in­ite pos­sib­il­ity); or if the so-called Ca­dillac tax on high-dol­lar health plans sched­uled for 2018 nev­er hap­pens (labor uni­ons, among oth­er in­terests, hate it); or if Con­gress, at the be­hest of the in­dustry, fol­lows through on its threat to elim­in­ate the tax on med­ic­al devices; or if the long-prom­ised sav­ings in Medi­care fail to come to fruition; or if, down the road, a cash-strapped fed­er­al gov­ern­ment aban­dons its Medi­caid com­mit­ments to states.

While de­scrib­ing Obama­care as a house of cards falls squarely with­in the lex­icon of con­ser­vat­ive hy­per­bole, the simple truth is that the Af­ford­able Care Act is, from a cer­tain point of view, either a finely tuned ma­chine whose parts have to work in an al­most or­ches­tral fash­ion for it to pro­duce the well­spring of res­ults that have been prom­ised, or an in­fernal, jury-rigged con­trap­tion that could col­lapse from the smal­lest series of stresses.

In light of the prob­lems the ad­min­is­tra­tion has had over the past sev­en weeks, it is tempt­ing for fair-minded people of any polit­ic­al stripe to see it as the lat­ter. Right now, that, more than any­thing, is Obama­care’s heav­iest bur­den.

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