Would an ObamaCare 'Housing Exchange' Improve it?
A short new paper by Mackinac Center Adjunct Scholar John Graham explains “Why Health Exchanges Don’t Work.” It was released this week by the Pacific Research Institute.
State health insurance “exchanges” are one of the linchpins of ObamaCare. They are loosely modeled after the health insurance “Connector” in the Massachusetts “RomneyCare” system of state-subsidized health coverage. But even the leading defender of the exchange concept, the Heritage Foundation’s Ed Haislmaier, has condemned the “ObamaCare” version as a corruption of the idea. In a recent report he said:
The first point to understand is that the entire design for health insurance exchanges in the PPACA is a perversion of the core concept of what is an otherwise sound approach to improving health insurance markets . . . Congress has perverted the exchange concept into a bureaucratic tool for federal subsidization, standardization, and micromanagement of health insurance coverage by the Department of Health and Human Services.
Former Massachusetts Gov. Mitt Romney has indicated what he thinks of the federal version of the concept he pioneered; he has called for the repeal of ObamaCare.
But as Graham explains, it is inevitable that even a “clean” exchange — one that is not merely a vehicle for imposing federal mandates and distributing middle-class welfare — will be compromised (if not wholly corrupted) by political surrenders to special interests that profit from its creation. He illustrates this by comparing the residential housing market to our health care system. The context is the role of the federal tax code in causing our health care system's problems.
At the root of most of the current system’s dysfunctions are the perverse effects of a tax code that allows employers to deduct the cost of health coverage they provide to employees, but requires an individual who buys his own insurance to pay the bills from after-tax disposable income. Exchanges are an attempt to mitigate the negative consequences of this. ObamaCare doesn’t fix this problem, but instead doubles-down on it.
Graham’s example imagines what would happen if employers also received tax breaks for providing housing to their employees. He observes, “Most employed people would live in homes arranged and paid for by their employers. The situation would clearly be overly bureaucratized and ineffective at satisfying people’s residential needs, but we would suffer it nevertheless, because of the tax benefit.”
So wouldn’t a state housing exchange “into which employers made fixed contributions that allowed employees to choose their own homes” be a big improvement? The answer is no. Certain political realities, plus tax-code complexities, would still increase the costs.
First, the exchange would threaten the livelihoods of the realtors and other intermediaries who profit from employer-based housing. Why would they want people living in their own homes for years, maybe decades, instead of relying on housing chosen by their employers via arrangements negotiated annually with high friction costs? Therefore, to minimize political resistance, the state would have to satisfy the income needs of the intermediaries, by ensuring that the exchange pays their commissions and other fees.
Second, the federal law would not be as simple as described above. Thousands of pages of regulations would be emitted by the U.S. Department of Labor, the U.S. Department of Housing and Urban Development, the Internal Revenue Service, etc., and the state’s exchange would not be able to indemnify employers from these regulations — which are in constant flux. So, employers would still have to pay some species of consultant (either directly or indirectly) to ensure compliance with federal laws and regulations.
Graham tests these conclusions against the record of a “clean,” unsubsidized (and non-ObamaCare compliant) exchange created by Utah. “In summary,” he observes, “the Utah Exchange almost certainly adds administrative costs to small businesses’ decisions to offer health benefits, without subtracting administrative costs from the old way of doing business.”
Graham’s brief paper provides a creative and useful way of examining the “exchange” concept, recognizing it as merely a cumbersome and inefficient work-around for the original source of our health care system’s dysfunctions: the federal tax code.*
*Actually, the tax code is one of two primary sources of our system's problems. The other is the price controlled “fee-for-service” model used by Medicare, and the fact that employer-subsidized private health insurance reimbursements are essentially based on Medicare's bureaucratically imposed prices.