A Discussion with Mark Duggan about Obamacare

The Affordable Care Act (ACA), nicknamed as Obamacare, was the largest overhaul of the US healthcare system since the 1960s. Since its enactment back in 2010, the legislation has sparked serious political debate that persists to this day. The current administration has embarked on a multi-pronged mission to repeal the law. In December, I had the opportunity to have a conversation with Professor Mark Duggan to discuss the key achievements and limitations of the ACA in greater detail.

In addition to being the Wayne and Jodi Cooperman Professor of Economics at Stanford University, Mark Duggan is the Trione Director of the Stanford Institute for Economic Policy Research. His research focuses on the health care sector and has been featured in many leading academic and media outlets, such as the American Economics Review, the Journal of Political Economy, the Quarterly Journal of Economics, The Economist, the New York Times, and the Wall Street Journal. He served from 2009 to 2010 as the Senior Economist for Health Care Policy at the White House Council of Economic Adviser, and worked on developing the Affordable Care Act.

Below is a transcript of my conversation with Mark Duggan, edited for clarity and length.

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Melda Alaluf: You worked in the Obama administration on the Affordable Care Act. As someone who was involved in developing this legislation, what do you consider to be its most significant strengths?

Mark Duggan: One of the primary goals of Obamacare was to expand the number of people with health insurance coverage. It is unambiguously clear that the number of people in the United States with health insurance has increased substantially over the last few years. There is data from Gallup, from the National Center for Health Statistics, and other sources that convincingly demonstrate a very significant increase in the number of people with health insurance on the order of about twenty million people with those increases larger in some places than in others. The exact numbers differ, depending on what exact population age group you focus on, but if you look just prior to the implementation of the key features of the ACA, the fraction of adults uninsured was around 18% and that fell to about 11% over a three year period.

Why does it matter if people have health insurance? One reason is that it protects them against major financial hardship. If you do not have health insurance and you experience an adverse health event, you run the risk of being hit very hard economically. There is also evidence suggesting that people’s credit scores have started to get better. People’s financial well being has just gotten better as a result of having health insurance, and the ACA has differentially been helping lower and middle income people. High-income people have not benefitted from it because they had coverage before ACA and they have coverage today.

A second big achievement is that the growth rate in health care costs has slowed down. If you consider the ten years before the ACA was passed, from 2000 to 2010, health care as a share of GDP rose from 13.4% to 17.4%. That’s a big increase in a relatively short period of time. There was 4 percentage points of GDP increase because spending per person was going up a lot during that time period. At the time, you heard a lot of talk about how much difficulty this was posing for government budgets, for employers, and for individuals. The growth in health care costs has slowed down substantially. From 2010 to 2015, which is the most recent year for which we have complete data, it grew from just 17.4% to 17.8%. So, while it was growing at .4% per year before the enactment of the ACA, within the last five years post-ACA, it grew .08% per year. That is an 80% lower growth rate over that period. Obviously, there are lots of other accomplishments as well but I think I would put those two, the expansion of health insurance coverage and slowing the growth rate of healthcare costs, at the top of the list in terms of accomplishments.

MA: What are some of the legislation’s main limitations?

MD: One limitation has been that geography is destiny with respect to someone’s benefits from the ACA. If you happen to be low-income in a state that chose not to expand Medicaid, you may not have benefitted from that. California did decide to expand Medicaid, and the fraction of Californians without health insurance plummeted from around 22% down to about 11%. Other states, like Florida, Georgia, Texas, and so forth, elected not to expand Medicaid, and they saw smaller reductions in the fraction of people without health insurance. I believe that the ACA has not realized its full potential because there are eighteen states that have still decided not to expand Medicaid.In addition to the economic effects, there are also health effects. By having health insurance, people potentially get access to hospitals and physicians they otherwise might not. There is even plenty of evidence indicating that when people have health insurance, they get better care than they would without having health insurance. 

Another big challenge is that there has not been adequate competition in these exchanges. Most people get their health insurance through a big employer, like Stanford, or through a program like Medicare or Medicaid, but there are a number of people who work at smaller companies or maybe who are not working at a point in time, without access to health insurance in that kind of way. Prior to the ACA, it was difficult for individuals working at small companies to get decent offers of health insurance, and they tended to pay more for the same coverage that their counterparts at large employers would get. So, one idea for the ACA was to give that group more options. We wanted to give them a place where hopefully five or six insurers would compete for their business by competing on price and on quality. For various reasons, the number of insurers participating in these exchanges has not been as high as people hoped, at least not everywhere. As for why there is little competition in that, I think that partly that it is a function of uncertainty about whether the ACA was going to stick around. There was all this talk about repealing the ACA. Also, I do generally believe those exchanges could be enhanced. In “How to Heal Obamacare”, I go through more ways to make that better.

There are other limitations, too. The ACA is not perfect. It is pretty incredible, though. There is a piece of legislation that expanded the number of people with health insurance by 20 million and that actually lowered the budget deficit. There was a question about that at the time. The Congressional Budget Office (CBO), the same CBO that is now estimating the effects of tax reform, estimated that the ACA would slightly lower the federal deficit over some period. This is somehow controversial. The fact that many states have not expanded means that it has definitely lowered the deficit. It is amazing to have enacted a piece of legislation that simultaneously helped twenty million people but also put the federal fiscal situation on a better path. It is not like I think Obamacare is perfect but I think it has the made the system better and less harsh than it otherwise would be.

MA: In your policy brief, entitled “How to Heal Obamacare”, you discussed some arguments made by critics against Obamacare. You state, “At least one loud criticism of the law — that it was killing jobs — was discredited by research that I recently conducted with colleagues at Stanford.” Could you speak briefly about that research and what it indicates?

MD:  Opponents of the ACA predicted that the economic effects of the legislation were going to be quite negative for the economy. For example, they predicted it would increase the incentive for people in their early sixties to retire, or it would reduce the incentive for someone to work full-time because if they worked a little less, they could qualify for a higher subsidy since the subsidies phase-out as incomes rise. For the past four years, however, the economy has done pretty well in the US. The plummet rate has continued to come down. The stock market has grown a lot. Additionally, there is no evidence that there was a surge in retirements among near-elderly people or in people moving to part-time from full-time. Of course, those are just national numbers; so, we wanted to study this at a more rigorous level by exploiting geographic variation and the effect of the ACA. If Obamacare was a net negative for the economy, employment in a place like California that really embraced the ACA and expanded Medicaid should tank relative to a place like Texas that did not expand Medicaid and where the increase in health insurance was not that much. So, that is kind of the rationale. I am simplifying a bunch because we looked not just at the state-level but also at a much finer geographic level. Essentially, since it was a federal policy change, one approach would be to simply look before and after the legislation was enacted but other things may have changed. It is not enough to just consider it at a national level. That is why we tried to exploit the variation geographically.

I will say that proponents thought that the ACA was going to encourage more people to start their own businesses. They believed that the old health insurance system was a tax on entrepreneurship because it was so difficult to get health insurance as a single individual. We do not see this surge in positive economic activity either. In other words, there is just not much of an effect either way. I think that this is an important input in thinking about whether a policy is good or bad, in terms of strengthening the economy. In terms of employment, there was really no effect.

MA: Why is health care in the United States so expensive in the first place, especially in comparison to other developed countries?

MD:  There are three main reasons. First, in general, prices for a specific healthcare service or product in the US are higher than they are elsewhere in the world. That is probably most easily seen for pharmaceutical treatments.

Second is that people here are treated much more intensively. If a person comes into a hospital with chest pain, there are a lot of different treatments that are possible. One approach would be to give them some prescription drugs and monitor them closely. Another approach might be to immediately do surgery. We tend to do somewhat more the latter here than elsewhere in the world, and that ends up being really expensive. It is hard to come up with a precise estimate of this but a lot of the medical care that is provided has low value, no value or even sometimes negative value to patients.

Third, administrative costs here are huge. If you go into a doctor’s office and look around, there are tons of administrative people who are supporting physicians. I have seen some scary statistics about how many administrators we have per physician and nurse in the health care sector. Think of any given physician. Probably within a course of a week with their patients, they are dealing with fifteen different health insurers. It is also not seamless and smooth or easy. There is a lot of back and forth that goes on with the health insurance firms.

It is kind of incredible when you think about the fact that we spend much more than any other country as a share of our economy on healthcare, and yet, our life expectancy is lower and our infant mortality is higher. I think we should be aiming to be not only the gold medal on spending but the gold medal on outcomes, too.

MA: It has been stated that the recent tax bill passed by the senate on Saturday, December 2nd will undermine the Affordable Care Act’s health insurance markets and, over time, add to the financial squeeze on Medicare.  What do you think the effects of the tax bill will be?

MD: There are many provisions in the tax bill, and one of those provisions is to repeal the mandate that requires people to get health insurance coverage. As a result of that change, fewer people will get health insurance. That lowers the deficit because then the government is spending for health insurance for fewer people. I am worried about it because I think that many of the people who will respond to it will tend to be on the fence. Think of it this way. When you buy something, sometimes you are on the bubble. If the price were 10% higher, you would not get it. There are other times when you buy something and you think that even if the price doubled or tripled, you would still buy it. If we make it a little less financially attractive to buy health insurance, who will that knock out? When you think about people who are on the bubble for buying health insurance, often it is going to be people who are in better health. Who will remain in the exchanges and get subsidies? Companies have to pay their employees and pay their bills. They will have to raise prices to make it work. As a result, premiums will go up.