Mr. Nixon came to my office looking for help to see his doctor, a doctor who could confirm his cure from a debilitating bout with depression, a doctor who could affirm his fitness to return to his old occupation.  But Mr. Nixon had another problem.  He had no health insurance and he had no money.  We couldn’t help him. Our office offered health insurance to employees, not would-be employees.

Almost a half year later he showed up again to enroll in his health insurance program.  He had his old job back after finally navigating the public welfare system to get the physician certification he needed to return to work.

A different kind of Notch

He couldn’t work because he was sick.  He couldn’t get the treatment he needed because he didn’t have health insurance.  He didn’t have health insurance because he couldn’t work.  He couldn’t work because he was sick.  Am I talking in circles?

For all of its faults, the Affordable Care Act will make it a little bit easier for people like Mr. Nixon to spend less time battling bureaucracies and more time getting cured and consequently more time as a productive, working member of society.

Professor Kessler opines

But Daniel P. Kessler, Senior Fellow at the Hoover Institution and Professor in the Graduate School of Business, Stanford University, thinks otherwise.

In Monday’s Wall Street Journal, Professor Kessler argues that the subsidies available in the Affordable Care Act (ACA) health insurance exchanges will

“introduce far-reaching negative effects on rewards to work and bizarre new inequities into American life.”

To Mr. Kessler’s credit, he calls attention to one of the peculiar incongruities of the ACA, the notch.  To again quote Mr. Kessler:

“A similar family earning $93,699 (400% of poverty) gets a subsidy of $14,799. But a family earning $1 more—$93,700—gets no subsidy”

The “notch” is the dramatic drop in subsidy when one crosses that boundary between subsidy and no subsidy.  Professor Kessler fears this “notch” will be the source of “unfairness” that will “induce sharp reductions in labor supply.”

The problem with Professor Kessler’s analysis is two fold:  his one sided presentation of the facts; and his conclusion.

First the facts

This alleged “unfairness” exists in all kinds of ways under the current system.    Professor Kessler worries that two neighbors with a dollar separating their incomes will have very different levels of government subsidies.

But subsidies exist today in the form of employer support for employment-based insurance.  That these subsidies come from employers, does not make them any less a subsidy.  Yet less than half of private sector employees get their health care coverage from their employers.  So what about the two neighbors who earn identical incomes, one whose health insurance is subsidized by his employer and the other, perhaps a self-employed entrepreneur, who cannot buy health insurance at all because of a pre-existing condition or some other reason.   Where is Professor Kessler’s concern for “fairness” in that situation?

And what is this about a “sharp reductions in labor supply”?  What about the Mr. Nixon’s of the world?  His story is far from unique. I would invite Professor Kessler to spend some time in my chair and lecture the next Mr. Nixon who comes to my office about “fairness.”

And the conclusion?

Professor Kessler suggests that “the only fix is to drastically reduce or eliminate the premium subsidies.”   Does that sound like someone with a clear understanding of what it is like to live on $30,000 or even $90,000 per year?

The notch is indeed a flaw in the law.  It is the product of an assumption that people should pay the “price” of insurance instead of sharing the cost as well as the medical risk.  If everyone pays a flat percentage of all income, there is no “notch” and there is no “unfairness”.

And there is no negative effect on the reward to work, because health insurance would be removed as factor in employment decisions.

Employers who now cannot afford health insurance cannot hire workers who need health insurance.  That concern will disappear in a single payer health care system funded by a flat percentage of all income.

We need a system that allows people to pay when they are working so they have coverage when they can’t.

Photo credit:    walknboston