What Will Health Care Look Like in 2020?

Health care reform is the law of the land. But that doesn't mean it's time to stop paying attention. This is a fluid piece of legislation, not only because the law is going back through reconciliation, but also because reconciliation would make two very important changes:

(1) The subsidies will become more generous, but they grow more slowly until they eventually fall back to the levels that existed in the House bill pre-reconciliation.

(2) The excise tax on expensive employer insurance plans (note: all employer-provided insurance plans are currently tax free) is delayed until 2018 and hits fewer Americans in the first few years, but it is indexed to grow faster than in the Senate or House plan.

Notice what happens here. Federal subsidies for lower-income and jobless Americans on the regulated exchanges fail to keep pace with medical inflation in the second decade. At the same time, insurance taxes creep into the workplace, forcing employers to switch to cheaper, simpler plans and possibly encouraging workers to switch their coverage to the exchanges. Matt Yglesias acknowledges, "by design the country will shift from a mixed employer/exchange system to an exclusively exchange-based one." But it will also, by design, shift from a subsidized market to a market where consumers have considerably more "skin" in the game, as Ross Douthat puts it.

Let's turn this into a thought experiment. The exchange system will grow while federal subsidies fall. Without federal assistance, families won't be able to afford their old health care plans. So they'll be forced to buy cheaper plans, which will mean less comprehensive plans. Meanwhile, Medicare and Medicaid will continue to grow considerably with the baby boomer generation in retirement. With families squeezed on private insurance while the government's share of health care grows, you can imagine the feds might step in to create a public option for catastrophic care that covers the expenses that cheap insurance options on the exchanges will not. You can further imagine that this supplementary public option could grow to become a national public option once Americans of all ages feel more comfortable with government insurance.

Back to the present. That thought experiment is my way of building a bridge between the long-term health projections of Ross Douthat and Tim Noah. You should take a look at their arguments because crystal balls are fun to peer through, but the picture is cloudy and dark. In the short term, the significance of this funky indexing with federal subsidies and the excise tax means one thing: that the administration needed to set certain rates to guarantee that health care reform would save a politically acceptable sum of money. In the long term, the significance of these rates is close to nil. If they cause politically unpalatable pain, we'll fix them.