Forty-eight economic scholars explain the role of exchange subsidies

Our amicus brief for Halbig v. Sebelius* is here. By a long way, I’m the least distinguished signatory. The list begins on the second page of the PDF (marked “i”) and includes more than the usual suspects. I’d be lying if I didn’t say I am impressed. Take a look!

The document itself is a clinic on the role of subsidies for the proper functioning of exchanges. This is not a legal argument, as we are not legal scholars. It’s an economic argument. Even many who oppose the Affordable Care Act cannot deny its logic, as it’s the foundation of every health reform proposal, conservative and liberal alike: it’s impossible to substantially expand coverage—and especially to poor Americans—without subsidies.

Without premium subsidies, millions of people will be exempt from the mandate altogether or will choose to pay the tax penalty rather than purchase unaffordable insurance. Yet the sickest people will continue to sign up for insurance and insurers will have to cover them. The resulting higher premiums will threaten an adverse selection “death spiral”: as premiums increase, more and more healthy people will be exempt from the mandate or will choose to pay the tax penalty rather than buy insurance, leaving sicker people an ever greater portion of the risk pool, leading to escalating premiums, and even fewer enrollees.

The amicus brief substantiates these assertions and is worth a read if you’re not familiar with the relevant, scholarly work.

There’s one thing written in the brief I find slightly bothersome, even though it’s accurate. The argument begins, “A central aim of the Affordable Care Act (‘ACA’) is to ‘achieve near universal coverage.'” Though that is certainly true—so there is nothing wrong with the brief as written—I think it’s an overly ambitious aim, and will not be fulfilled, or not soon anyway. A more realistic aim, and one I prefer, is universal access to affordable coverage. All I would ask of my government is that it provide means by which everyone can afford basic health insurance, if they wish to purchase it.

For those who do not wish to purchase it, I would also ask that they compensate society for the social burden (externality) of their choice, provided they have sufficient means to do so. That is, everyone who forgoes coverage but who is still entitled to emergency care (per the Emergency Medical Treatment and Active Labor Act or EMTALA) should pay a small tax to compensate society for the expected cost of that care. (I don’t believe permitting people to opt out of EMTALA benefits to be feasible. Few would deny aid to someone in acute medical distress, or should be expected to take the time to assess whether they desired it. (End of life care planning and respect thereof is different.))

But, I digress. Point being, read the brief.

* Halbig v. Sebelius is the case to decide whether subsidies can be offered on exchanges not directly established by states


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