Reforming the ACA: Losing the Forest for the Trees

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Christopher Thornberg, PhD
Christopher Thornberg founded Beacon Economics LLC in 2006. Under his leadership the firm has become one of the most respected research organizations in California serving public and private sector clients across the United States.

Californians are correct to be worried about the future of the Affordable Care Act (ACA) now that the Republicans control both branches of Congress and the White House. But they should be more worried about a looming crisis that neither presidential candidate addressed during the contentious election season — the coming fiscal calamity being driven by spiking Medicare costs.

During President Obama’s administration, the Republican controlled congress voted well over 50 times to repeal the ACA, his signature healthcare law, with the President faithfully vetoing their efforts every time. But now with the new Trump administration in place, and success in repealing the law largely assured, suddenly the rush to end the ACA has slowed sharply. As it turns out, political grandstanding is much easier than finding solutions to very real and very complicated problems in the nation’s health system.

The ACA largely focused on the problem of the uninsured. In 2009, 15% of Americans were medically uninsured, including one out of five working age people (see Table 1). The ripple effects of this pool of uninsured people created crises in many corners of the economy. The ACA used a combination of subsidies and fines to encourage individuals to buy healthcare—and while at it, they also changed some of the rules about how and what kind of insurance could be sold. 

The program has had some success, although not to the extent that was initially hoped. The uninsured rate in the United States fell to 9.4% in 2015. That’s a drop of only about two-fifths, and among working age people, a drop of only about one-third. Moreover, a significant portion of these gains were not driven directly by the ACA but rather by the business cycle, where improvements in the labor markets imply that more people are working for firms where they are being insured.

California was one of the more aggressive states in enacting the ACA, and the average results were better in the state than the nation. California’s rate of uninsured dropped by over half, falling from 18% to 8.6%, and from 24.4% to 12.1% among working age people. The state did better—but still not good enough. The reality is that the carrot was a little too small and the stick not quite large enough to get a better response. This is one reason why the exchange premiums have been going up recently—too many healthy people in both California and that nation remain uninsured. The ACA system needs to be tweaked to achieve better success, an action that has been impossible over the past 6 years.

While the immediate fear has been that the law will be quickly reversed, the Republicans have now started to move very slowly on this. While the ACA system has not gone far enough in addressing the nation’s health care problems, there are still huge political and economic ramifications to simply throwing it out. Consider that a recent report from the Congressional Budget Office (CBO) estimates that simply repealing the ACA would cause 18 million people to lose their insurance, and many more would see their coverage reduced, including losing new popular benefits (“How Repealing Portions of the Affordable Care Act Would Affect Health Insurance Coverage and Premiums” January 17, 2017,

The social impact would be substantial. The economic impact would be very real as well. For all the focus on manufacturing jobs by President Trump’s administration, over the past two decades, the nation has added over 1.4 healthcare jobs for each manufacturing job it has lost. The health care system embraced the ACA, and rebuilt their systems around it. It would cause many substantial problems to try and go back now—with possible job impacts.

Throwing out the ACA in a vacuum is a potential political catastrophe for the Republicans, as cooler heads in that camp have realized. Ultimately, Republican leaders may find that they need to keep the many popular provisions of the ACA and focus their efforts on finding ways to improve the law rather than tearing it down wholesale.

The debate over the ACA will be ferocious, wherever it ultimately takes us. And unfortunately, within this turmoil we are being distracted from the true crisis that is bearing down on the nation’s economy—the wave of baby boomer retirees pouring into Medicare—something that has nothing to do with the ACA.

Today there are 46 million seniors living in the United States and the vast majority are insured under public healthcare insurance, as they were at the start of the ACA debate. The financial pressures here are just starting to mount. According to the U.S. Census, there will be 77 million seniors living in the nation in 20 years as a result of increased longevity and the baby boomer crest hitting the 65 plus age range.

In 2015 the U.S. government spent $13,500 per senior on healthcare—roughly 3.6% of the nation’s GDP and 18.7% of Federal budget revenues. Because of increases in public health care costs, and the changing demographic base, a conservative forecast suggests that in the next 20 years public spending on health care for seniors will expand to 8% of national GDP and eat up over 41% of Federal tax revenues. 

This is simply not sustainable. The Federal budget has many competing demands from defense, to education, to R&D and infrastructure, to the competing needs of seniors regarding Social Security. It also includes increasing health care support for non-seniors through Medicaid per the ACA.

Moreover, we call these conservative figures because they do not consider the current administration’s hostility towards immigration or the promise to cut Federal tax rates. Both of these actions will cause the situation to become proportionally worse by reducing revenues for the government, even as they slow labor force growth, and thus, economic output growth.

The United States is hardly unique in dealing with this problem. Europe, Japan, and even China are facing similar demographic crises. And like the United States, political leaders in those nations seem little inclined to take on the political heat that will be involved with reforming health systems for seniors. Yet, in reality the crisis will not be diminished by ignoring it. Expect the healthcare debate/crisis to stay with us for a long time after the ACA situation is behind us.

The following two tabs change content below.
Christopher Thornberg, PhD
Christopher Thornberg founded Beacon Economics LLC in 2006. Under his leadership the firm has become one of the most respected research organizations in California serving public and private sector clients across the United States.

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