Unlocked Repost: Curing U.S. Health Care, Part II

How we got to Obamacare

Taking today off, mostly. Taking this out from behind the paywall.

On March 23, 2010 President Barack Obama signed the Patient Protection and Affordable Care Act — usually referred to either as the Affordable Care Act or as Obamacare — into law. Joe Biden, then the vice president, could be overheard whispering “This is a big fucking deal.” And it was.

The ACA, which went into full effect in 2014, created a system of subsidies and regulations designed to make health insurance available to many Americans who had previously been left out. It worked: In 2010 there were 47 million uninsured people in America, but by 2016 this number had dropped to 27 million. This still fell short of the universal health insurance that every other advanced nation has, but it was real progress.

In 2017, during his first term, Donald Trump tried to destroy the ACA, replacing it with the American Health Care Act — legislation that would have eliminated most of the provisions that expanded health insurance under Obama.

At the time the Congressional Budget Office projected that the G.O.P.’s replacement bill would nearly double the number of Americans without health insurance, increasing the total uninsured population by 23 million and undoing all of the progress achieved under the ACA.

However, the attack on Obamacare failed by one vote in the Senate, and the ensuing public backlash against the G.O.P. delivered a large victory in the 2018 midterms to the Democrats. After these developments many observers assumed that the ACA had become a more or less permanent feature of American life.

Such assessments, however, failed to take into account the deep hostility of the U.S. right toward policies that expand access to healthcare. As we’ll see, this hostility goes back generations. And the second Trump administration has taken actions that the CBO projects will add 16 million people to the rolls of the uninsured by 2034.

How did we get here? And now what? Today’s primer will analyze the political economy of U.S. healthcare since the 1940s and the combination of danger and opportunity created by the current crisis.

Below I will discuss the following:

1. US health care on the eve of Trump II

2. 80 years of US health politics

3. The Obamacare story

4. The new assault on healthcare

U.S. health care on the eve of Trump II

In my previous primer I explained that access to modern healthcare depends crucially on having health insurance. I also explained that there are three ways nations can guarantee more or less universal health insurance: insurance that covers major healthcare costs for every citizen.

1. The government can provide care directly, as it does most famously in the UK.

2. It can act as the universal insurer, as it does in Canada.

3. It can use regulations and subsidies to corral private insurers into covering everyone, as it does in the Netherlands.

All of these methods can work and do work in some nations.

By contrast, the U.S. healthcare system is a patchwork of different programs that falls short of universal coverage yet achieves a relatively high level of coverage using versions of all three approaches. In the U.S. the private sector plays a larger role in healthcare than in any other advanced country. However, we are far from having a free-market healthcare system.

To illustrate the patchwork nature of the U.S. healthcare system, here is a breakdown of how the U.S. population was covered in 2024:

A majority of Americans are covered by private insurers through employer-provided insurance and, to a limited extent, through individual plans that people have purchased themselves. However, more than a third of the U.S. population is covered through government programs: Medicare and Medicaid, which are government insurance programs, or military programs including the VA system of hospitals and clinics.

Furthermore, the US system looks less private and more public if we look at the dollars spent rather than enrollment. Seniors, whose healthcare costs are much higher than those of younger Americans, are covered by Medicare. As a result, the government pays a substantially higher percentage of total healthcare costs than private insurers pay:

Source

Moreover, private health insurance is regulated and subsidized by the federal government to a greater extent than is generally realized. Notably, the tax code provides an effective subsidy for employment-based insurance: health insurancebenefits provided by your employer aren’t considered taxable income, giving employers an incentive to offer health insurance benefits rather than paying higher salaries and letting employees buy their own insurance. This tax break, however, is only available, roughly speaking, to companies that offer the same plan to all of their workers, regardless of their medical history or rank in the corporate hierarchy. That is, companies that offer healthcare as a non-taxable benefit can’t deny coverage to employees with preexisting conditions or limit the plan to their top executives.

The great majority of individual policies are purchased via the “exchanges” which were set up by the Affordable Care Act. Companies selling individual policies are also prohibited from discriminating on the basis of medical history. And around 80 percent of those covered by individual private insurance receive government subsidies to help pay for their premiums.

So U.S. healthcare is, as I said, a patchwork — but one in which the government plays a crucial role in promoting health insurance coverage, even in the seemingly privatized parts of the system.

About 92 percent of the U.S. population, and a somewhat higher percentage of legal residents, has health insurance, but the gaps in the system and its complexity still leave millions without coverage. And the persistence of widespread uninsurance has large costs, even to those with insurance. For example, U.S. hospitals spend tens of billions a year on uncompensated care, costs that must be passed on to other patients. And lack of health insurance leads many Americans to forego preventive care, which ultimately both raises costs and causes long-term health problems that are a drag on productivity and the economy as a whole.

Why, then, doesn’t the U.S. government eliminate the patchwork and achieve universal healthcare by paying healthcare bills directly, Canada-style, or by implementing a comprehensive system regulating and subsidizing private insurers so that everyone is covered, Netherlands-style?

The answer to those questions lies in the special history of U.S. health policy, which has been strongly shaped by two forms of American exceptionalism: The power of big money and racial antagonism.

80 years of U.S. health politics

Efforts to move the United States to universal health coverage go all the way back to the New Deal: FDR considered including health insurance as part of Social Security, introduced in 1935, but backed off because he considered it too heavy a political lift.

Harry Truman made a serious push for national health insurance in 1947. However, this push ran aground in the face of fierce opposition from the American Medical Association, which denounced his plan as “socialized medicine.” The AMA feared that a national health system would hurt doctors’ incomes. Crucially, southern Democrats, a key part of Truman’s coalition, turned against his proposals because they feared that national health insurance would force the desegregation of southern hospitals.

Over time, private health insurance grew in order to fill the void. However, private insurers avoided covering senior citizens because of their higher costs. Yet when the idea of Medicare – single-payer universal health insurance limited to senior citizens – was floated, fierce opposition persisted. Notably, in 1961 the AMA launched Operation Coffee Cup, in which doctors’ wives were urged to host gatherings of their friends in which they could listen to an LP of Ronald Reagan warning that socialized medicine would destroy American freedom:

Nonetheless, Lyndon Johnson managed to push Medicare through, along with Medicaid — also single-payer health insurance, but only for the poor. Notably, segregationist concerns about national health insurance weren’t wrong. When Medicare was introduced in 1965, administrators made great efforts to ensure that hospitals benefiting from federal funds were desegregated.

The next major push for health reform came in 1993, under Bill Clinton. Unlike earlier efforts, Clinton’s push was as much about cost control as about universal coverage. Health spending grew much faster than GDP between 1960 and 1990, largely because medical innovation greatly expanded the range of conditions that could be treated:

While making more conditions treatable is a good thing in itself, the rising cost of healthcare threatened both to become a growing economic burden and to undermine the private health insurance that covered large numbers of Americans. In an effort to contain these costs, Clinton’s health proposal involved corralling Americans into what were basically HMOs, still a novelty at the time. Unfortunately, the perception that this would limit individual choice left the plan vulnerable to attack from special interests, especially the insurance industry, which ran many attack ads:

Like Truman’s effort in 1947, Clinton’s health reform ran aground. This failure weighed strongly on Democrats. By the time they were willing to try again, after Barack Obama’s 2008 election victory, they had settled on an incremental, less ambitious strategy that for the most part supplemented the existing healthcare system rather than changing what was already in place.

The Obamacare story

After their big victory in the 2008 elections, Democrats were ready to try again. The Affordable Care Act was enacted in 2010, although most of its provisions didn’t take effect until 2014. Compared with the Clinton effort, it was notable for what it didn’t do. Specifically, it made no significant changes to employment-based health insurance, which covers almost half the population. Nor did it change Medicare, which, contra Ronald Reagan, didn’t end freedom but had become immensely popular.

Instead, the ACA sought to expand health insurance coverage in two ways.

First, it made the individual market, in which individuals without employer-provided coverage buy their own health insurance, viable. It did so through a combination of regulation — prohibiting insurers from discriminating against people with preexisting conditions — and subsidies — the government subsidizes much of the cost of premiums on a sliding scale that depends on one’s income. There was a third component, a penalty for Americans who didn’t have health insurance – essentially forcing healthy people to buy health insurance in order to lower premium costs for everyone. But this leg of the “three-legged stool” was sawed off during the first Trump administration. The result was that some healthy people dropped out, which led in turn to higher premiums. However, subsides kept enough healthy Americans in the insurance market that the nation avoided a “death spiral” of rising premiums and falling enrollment.

In its initial years, the ACA subsides for individual health insurance, while literally lifesaving for many Americans, were generally considered inadequate. As I’ll show in a moment, enrollment faltered for a few years after 2016, largely due to Trump administration policies. However, in 2021 the Biden administration enhanced the subsidies, especially for middle-income individuals, and enrollment recovered.

Why did Democrats pursue this fairly complex approach to expanding healthcare access, rather than simply going for asingle-payer system, commonly known as “Medicare for All”? By leaving employer-based insurance plans untouched, this approach reassured those satisfied with their employer-based coverage that nothing would change. Moreover, this approach headed off opposition from the insurance industry by effectively buying that industry off: private insurers were able to keep their existing business while gaining new business through the expanded market for individual policies. As a result, Obamacare didn’t face the kind of attacks that doomed the Clinton plan.

While the expansion of the individual market got much of the public’s and media’s attention, the ACA also greatly expanded Medicaid coverage.

As originally devised, Medicaid was only partly financed by the federal government; the rest of the money came from the states, which also ran the program. And while state Medicaid programs must meet basic standards to qualify for federal funds, they have substantial discretion in determining eligibility. Before the ACA blue states had relatively generous Medicaid programs, while red states typically covered only the very poor.

The ACA tried to address this disparity across states by establishing a nationwide floor on Medicaid eligibility. With this floor, anyone with income less than 133 percent of the poverty line was covered, with the federal government bearing almost all of the costs for this eligibility expansion. However, in 2013 the Supreme Court ruled that states had the right to opt out of Medicaid expansion.

At the state level, opting out of the ACA Medicaid expansion made no sense financially. By expanding Medicaidcoverage, a state could insure substantial numbers of its residents at little cost, since the federal government would cover the costs. This coverage expansion would also bring money into a state’s economy and help keep its hospitals open. Why reject these benefits?

Yet 25 states initially rejected Medicaid expansion, and 10 states, including Texas and Florida — America’s 2^nd and 3^rdmost populous states — still haven’t been willing to accept free money:

As the map above makes clear, refusal to expand Medicaid has mainly been an issue in southern states; the initial map of Medicaid expansion versus non-expansion almost precisely matched the battle lines at the start of the U.S. Civil War in 1861. To be blunt, expanding Medicaid would disproportionately help black people, and in a large part of the U.S. politicians were willing to pay a substantial fiscal and economic price to deny some of their constituents that aid.

Despite this resistance to anything that helps nonwhites, the Affordable Care Act led to a substantial expansion of health insurance coverage for Americans. Here are the changes in Medicaid enrollment and the number of people with individualinsurance policies after the ACA was fully implemented in 2014:

As beneficial as it was for Americans, the expansion of coverage under the ACA still fell short of universal healthcare. In 2024, approximately 8 percent of the U.S. population remained uninsured. The ACA did, however, move the United States much closer to universal healthcare than it had been before.

Nor was the cost excessive. Although Obamacare was mostly aimed at expanding coverage rather than reducing costs, it did include a number of provisions, such as financial incentives for integrated care, that were intended to “bend the curve” — that is, reduce the rate at which healthcare spending was rising. And in fact, as David Cutler and Lev Klarnet have documented, total U.S. healthcare spending is well below projections made before the ACA was enacted:

But many of the achievements of Obamacare will soon be destroyed unless legislation enacted under the second Trump administration is reversed.

The new assault on healthcare

Public approval of the Affordable Care Act was low before it was enacted and remained fairly low during its first few years. After Trump tried to destroy it in 2017, however, it became very popular. And conventional political logic says that this should have made Obamacare unassailable.

But the U.S. right truly hates government programs that provide widespread healthcare — and Donald Trump is especially hostile to anything that can be regarded as part of Barack Obama’s legacy. The second Trump administration and its allies in Congress have taken two actions that will, over time, almost completely undo the expansion of health insurance since the ACA was enacted.

First, they refused to renew the expanded healthcare subsidies introduced during the Biden years. This has already drastically increased insurance premiums for millions of Americans, leading many to drop coverage. Early estimatessuggest that 5 million or more people may drop out of the individual insurance market this year alone, with millions more downgrading to policies that provide inadequate coverage.

Second, the One Big Beautiful Bill Act — the combination of tax and spending cuts Republicans enacted last year — will drastically cut funding for Medicaid. CBO estimates that these cuts will cause around 10 million Americans to be kicked off Medicaid by 2034.

The combined effect of these actions, if they aren’t reversed, will be the health insurance catastrophe shown in the chart at the top of this post.

How can and should Democrats respond? And what should be the agenda for future healthcare reform?

To be continued …