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Thursday, February 24, 2011

Lessons for Health Care from the UI Experience

When I started out in my efforts to alleviate sleep-debt across the blog-reading world, I promised that my boring unemployment posts would have an exciting payoff in lessons for the affordable care act.  Well, get your lunesta, my friends.  Because one lesson from UI is that the ACA is obviously constitutional.  When the UI system of taxing employers to twist the arms of their local state officials was challenged in 1937, Cardozo, famously, responded that to condemn conditional taxation as "coercive" would be to plunge law into "endless difficulties."  

That was a typically glib Cardozoism, but there was a more substantive analysis, too.  Cardozo argued that, left on their own, states could never implement UI because of the threat of competition with neighboring states.  So the court ultimately held that, even if there were some limits on what the federal government could do with its conditional taxing power, enacting UI surely fell within them: without federal action, the race to the bottom would cripple state efforts, and ultimately the economy.  Swap some letters around -- say, "ACA" for "UI," and you're describing the federal tax on folks who don't buy insurance, as I've argued

After the jump, lessons for the relationship between the states and the feds in administering the new health care system.        

For obscure reasons that probably have something to do with making the legislation look somewhat more centrist, the core of the ACA is a cooperative venture between states and the federal government.  States continue to regulate health insurance and insurance providers, and administer "exchanges" where those who do not have other forms of insurance can purchase at a group rate.  Folks who can't afford that rate, either, will get subsidies from the federal government. 

It's hard to see anywhere in this system where states have incentives to hold down costs.  As with UI, states have federal insurance against rising costs associated with their other policy choices.   The legislation contains a basket of great experiments to lower costs (as Atul Gawande and more recently Krugman have written about), but it looks for now like we shouldn't expect states to jump on board. 

Arguably, that incentive structure is the price to be paid for higher enrollment: if states bore some of the costs of paying for new enrollees, they might be disinclined to push to sign up people who are now uninsured.  But that's a false choice, I think.  There are ways to get states to internalize insurance costs without deterring enrollment.  For example, why not increase the federal subsidy for other state health costs for Medicaid families (the "FMAP") in states that reduce costs per patient in the exchange? 

States can be important experimental partners, but the UI story tells us that gains from experimentation can be swamped by other factors if we're not careful.

Posted by BDG on February 24, 2011 at 08:11 PM in Tax | Permalink

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