By Wes Edwards
This article is solely the opinion of its author. It does not express the official policy of the American Academy of Actuaries; nor does it necessarily reflect the opinions of the Academy’s individual officers, members, or staff.
The midterm elections will, among other things, deliver a referendum on the current status of the Affordable Care Act (ACA) and Americans’ increasing sense that access to quality health care is a right, not a privilege for those who can afford it.
Expectations and frustrations, fostered by big political campaign promises, contribute to the electorate’s anxiety about status and prosperity. This voter tension is a disruptive force in support of challengers of the traditional political order, such as populist alternative voices. A voter’s outlook is a function of their political and social viewpoint. Some see a lighter tax burden and reduction of guarantees to other segments (in the form of anti-affirmative action and anti-immigration policies) as a solution to national prosperity. Others see per capita economic and wage growth as a priority secondary to extending continued fairness within the country, liberal immigration policy, and more generous outreach to the world. Fundamentally, the current political divide is about how to split the fiscal pie and meet the obligations of government to citizens and resident noncitizens.
Leading up to today’s sociopolitical climate, there was a historic trend of steady increases to social insurance programs. The first such program was to provide Social Security benefits to “retirees” in the 1930s and then successively expand to include their dependents and their medical care. Next, programs were introduced to support the medical care of the poor, and just a decade ago we saw the addition of outpatient prescription drug benefits. After each expansion in eligibility or coverage in these programs, hand-wringing about program costs led to efforts to rein in, redesign, or limit eligibility. However, the social insurance programs have largely withstood attempts to constrain them.
The Congressional Budget Office and other economic forecasts of federal deficit adjusted for the 2018 Tax Cuts and Jobs Act raise the specter of a government that, in coming decades, will be less able to address projected shortfalls in existing social insurance programs. At the same time, the U.S. today spends a higher share of gross domestic product on national health expenditure than any other society in modern history. Due to the successful marketing by drug industry and hospital systems, the expectation of good health, quality of life, and longevity for all of society is higher than it has ever been.
Will these two forces (tax-cut-driven fiscal handcuffs and frustrated health quality expectations) result in a social splintering—the demand to meet this need versus the absolute indebtedness and impoverishment that having it entails for so many? The answer lies in which path the government takes to address this impending conflict. The options, in order of increasing likelihood as I see them, are:
- Wealth redistribution via tax reforms that are highly progressive. This seems unlikely given the popularity of the Trump tax reform, even among those who gain the least from it.
- Increasing access to health care coverage, at least for those on the margins. This might mean those on the economic margins (similarly defined by ACA as a function of the federal poverty level [FPL]) or the demographic margins [60-64] or the physical health margins [genetic markers, pre-existing conditions, etc.]).
- Procrastination by legislative and executive branches. Effectively, this means continuing to beggar the socioeconomic majority with the most basic of health care needs in the absence of comprehensive access—including those working in hospitality, retail, and related sectors that provide the livelihood for more than 20 percent of Americans. However, the deprivation of what is increasingly viewed as an “inalienable right” is a political issue that may be picking up steam again. Like the historic sociopolitical powder keg of 1776, from a distance this issue seems minor but it may suddenly and explosively turn the existing political order on its head.
If taking steps to avoid the most likely path of inaction is desirable, then what would a palatable alternative look like, in my opinion?
Balancing Need With Cost and Structural Hurdles
Answering the question of who is most needy and deserving is an important part of building consensus for a path forward, because such a consensus could provide a framework for eligibility expansion. Factors like citizenship, income below the poverty level, and asset requirements for Medicaid and SSI seem less settled than the age and quarters-paid service requirement for OASDHI, though in truth both are likely to be revisited in the future. Still, if public opinion coalesces around support for meeting the needs of defined groups, and criteria for those groups can be agreed upon, then political action could be taken in bipartisan fashion.
The projected OASDHI Trust Fund revenue and expense imbalances, and their impact on ability to protect the benefits currently in place, is a hurdle to any benefit expansion. Actuaries have long discussed the need to increase revenue, restrict OASDHI eligibility, or reduce health care spending to bring the programs back toward fiscal balance. In the face of health cost trends and increased longevity, some have pointed toward reducing eligibility to maintain the “original intent” of the program to provide benefits only for those at an age where they are truly no longer able to contribute to the economy. Addressing this balance is likely to be a necessary part of any expansion.
The fact that there are income-based, sliding scale features in Social Security (e.g. tax based on earned vs. unearned income) and Medicare (e.g. “hold harmless” features on Part B premium increases for those with low OAS benefits) provides precedent, so that additional modification of some aspects of the Medicare program could be optimized using similar need criteria.
Finally, the repeal of major provisions of the ACA would increase need by limiting access to coverage as well as increasing the share of citizens that are uninsured and underinsured. For 50 years, lack of access to health care has been a source of political agitation—and it can be expected to return to the political agenda. While some provisions may well remain (for example, dependent eligibility to age 26), the ebb and flow of the political discussion should be expected to include more calls for “Medicare for all” and program eligibility expansion.[1] The history of two-party politics points to the likelihood, in my estimation, that after some ebbing of efforts to repeal various provisions of the ACA and restrict eligibility for Medicaid and SSI (via work requirements, etc.) the ACA will be deemed to have failed, I believe, and the evidence showing resurgent shares of uninsured and underinsured are likely to support that assessment.
The Case for Inevitability of Expansion
Even before the ACA is proclaimed dead, calls for solutions can again be expected. The course of U.S. political history shows that the next attempt to address the deficiency of health care access by those calling for expansion of benefits for a broader segment of residents will be less nuanced than the Affordable Care Act, and could include simple attempts to expand eligibility for existing statutory coverage. In fact, these calls have been heard since before the last election cycle.
Such calls for reforms in the labor/social contract are most likely to result in change following a period of high income inequality, as in the late 19th and early 20th centuries. Income inequality is now at the same level as the period ending with the Great Depression, which contributed to the social and political upheaval that led to the creation of U.S. Social Security.[2]
There is strong evidence that in today’s economy the value and power of capital is strong, while the value per unit of labor is comparatively weak.[3] This is not surprising as an outcome of globalization and the worldwide glut of unskilled labor (and skilled labor in emerging economies) it has created. Such a decline in the value of labor is strongly correlated with income inequality,[4] and brings to mindthe negative social implications of the Gilded Age and its robber barons.[5] Doubts about the Phillips Curve expectation of higher wages as a result of low unemployment, developed during the stagflation of the late 1970s, continue to be reinforced by unemployment of 3.7% (U.S. September 2018) and studies showing real wages unchanged over the last half century.[6] In short, the free market is not resolving the imbalance itself.
Studies have documented that being without insurance coverage is a function of poverty.[7] Therefore, it is not much of a stretch to extrapolate that “health care inequality” (or lack of insurance for certain segments of the population) is a risk measure of discontent that could threaten the social order in the same way as other forms of income inequality.
Why Health Care and Why Now?
In addition to historical precedent, the recent left-of-center populist rhetoric around “Medicare for All” (expansion of health care access via OASDHI and/or Medicaid/SSI) has resonated with much of the younger electorate. The success of this plank, despite the inability of the progressive wing of the Democratic Party to gain much traction in 2016, gives it legs for the future. Furthermore, given the lack of debate and the public’s outright indifference to news of deficit implications after the 2018 Tax Cuts and Jobs Act, it seems likely that deficit implications of expanded social insurance and welfare programs will be easily parried politically. Therefore, the stage seems to be set for continuing the march toward expanding eligibility for these programs.
The focus for fiscal hawks defending the majority should no longer be on whether there will be expansion, it should be on how to manage the inevitable expansion of eligibility to accomplish fairness objectives and simultaneously minimize exacerbation of the Trust Fund and federal deficit growth. Managing a modest expansion would diffuse the political power of the “Medicare for All” plank and allow pressure to be released from the growing—and potentially explosive—sociopolitical health care inequality crisis.
What Might Such an Expansion Look Like?
Earnest efforts to alleviate demands for access to health care for the working poor (above 100 percent of the federal poverty level) were core to the ACA Medicaid expansion. The politicized nature of the legislation has contributed to only 34 states having adopted the expansion as of this writing.[8] The states adopting the expansion (of eligibility up to 138 percent FPL) have been predominantly in more liberal areas of the country. However, a number of senior White House officials and Republican state governors are now considering expansion of Medicaid in additional states to satisfy “political demands.”[9] This is a clear indication of the power of expectations of the electorate for health care among the economically needy. There is no reason to believe there will be any easing of pressure in this area as other states make gradual, incremental concessions while attempting to “hold the line” for fiscal or other reasons. Such concessions expand access at the “bottom” and can be expected to help address overall health care inequality.
Potential scenarios for expanding Medicare in other areas should consider demographics, health, education level and possibly urban/rural factors. The benefits provided could include benefits less comprehensive than traditional Medicare, contributions greater than Part B/D premiums, and cost features that are a function of expanded eligibility qualifications (age, service, health, etc.).
Taking age first, there is a strong decline in labor force participation after age 59.[10] This could be the basis for adding an additional early eligibility, one-time entry access to Medicare for an otherwise eligible person at a politically appropriate contribution level. From a health standpoint, eligibility for some level of Medicare benefit and at some premium by persons with certain health care conditions not already addressed in OASDI program should also be considered. Conditions which require catastrophically expensive therapies or specialty prescription drugs should be considered following the same logic used for end-stage renal disease (ESRD). Finally, persons with limited education and/or living in geographies where there is limited ability to find employment and employment-based access to health care should be considered for eligibility. Such persons may not meet the existing poverty level eligibility requirements for ACA-expanded Medicaid but should be allowed access at contributions consistent with those for ACA subsidies on the public exchange coverage.
Conclusion
In good conscience, where does our individual and collective professional conscience dictate we should stand on health care inequality? We may find that the need for a feasible middle path depends less and less on our view of the sociopolitical ideal and increasingly on a historical perspective on the stability of our democracy and the social order.
No one has yet called health care inequality an economic apartheid, but it’s not an unfathomable accusation. If we don’t like the extremes and find ourselves running out of options, it might be best to support some kind of middle—be it “Medicare for More” or something similar—than to do nothing and wait for the powder keg to blow.
WES EDWARDS, MAAA, FSA, is a principal at Mercer based in Louisville, Ky.
Endnotes
[1] Ambiguity and feasibility questions around this political plank statement have not stopped the swelling popularity of the idea, which could manifest in modifications to both Medicare and Medicaid.
[2] Thomas Piketty and Emmanuel Saez; “Inequality in the long run”; Science; May 23, 2014.
[3] https://www.nytimes.com/interactive/2018/05/21/upshot/marx-ratio-median-pay.html
[4] https://www.nytimes.com/2018/07/06/business/labor-unions-income-inequality.html
[5] Beatty, Jack, Age of Betrayal, Knopf, 2007.
[6] http://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/
[7] https://www.kff.org/uninsured/fact-sheet/key-facts-about-the-uninsured-population/
[8] https://www.kff.org/health-reform/state-indicator/state-activity-around-expanding-medicaid-under-the-affordable-care-act/
[9] https://www.nytimes.com/2018/07/30/us/politics/trump-medicaid-partial-expansion.html
[10] https://www.bls.gov/emp/tables/civilian-labor-force-participation-rate.htm
