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Essay Against Healthcare Reform

by Naoki Aizawa, University of Pennsylvania

In 2010, the United States passed the comprehensive health insurance reform legislation, known as the Affordable Care Acts (hereafter, ACA). The major goal of the ACA is to expand coverage through a variety of tools. It creates a regulated health insurance market called insurance exchange, provides subsidies to participants in insurance exchange, expands Medicaid, imposes a health insurance mandate, and others.

The purpose of my dissertation is to predict the impact of the ACA on health insurance coverage, health, and labor market outcomes based on a structural estimation of an equilibrium model of labor and health insurance markets. Below, I explain the first chapter of my dissertation, which is the most relevant to the fellowship priority areas.

In the first chapter, I investigate the effect of ACA on the health insurance coverage, health outcome, health care spending, and employment and how it differs across individuals within a life-cycle framework. I also investigate whether there exists a welfare enhancing alternative system.

I develop an equilibrium life-cycle labor search model, where worker’s health care choice and employer’s health insurance provision are endogenously determined, that can match the most salient features of the labor market and health care in the data. In the model, each individual possesses health capital and its dynamics is affected by health care choice. Each employer makes a decision to offer health insurance
by aggregating preference of employees. The cost of providing health insurance, determined through an insurance market, depends on a health composition of employees of the employer. Endogenous determination of health insurance provision and insurance premium creates interactions between labor and health insurance markets, which are necessary to predict the general equilibrium effect of the ACA.

I estimate the model by using three data sources: 1996 Survey of Income and Program Participation, 1996-1999 Medical Expenditure Panel Survey, and 1997 Robert Wood Johnson Employer Health Insurance Survey. Estimation is by simulated method of moments.

By using the parameter estimates, I conduct counterfactual policy experiments to evaluate the heterogeneous impact of the ACA across individuals, including its effect on older worker’s labor supply and health outcome. Because the ACA creates insurance exchange and thus improves the access of health insurance outside employment, one may expect that it increases early retirement. However, such an effect depends on how the premium in insurance exchange will be in equilibrium and employer’s endogenous response with respect to health insurance provision. The model developed here captures these equilibrium effects and helps us to understand the effect of the ACA to older workers.

Back to 2012 Dissertation Fellowship Recipients

There is no doubt that the American health care system has a history of being in disarray. Despite the introduction of the managed care, which was intended to help bring costs down, the cost of health care continues to rise. In addition to the spiraling costs of the health care system, millions of Americans still could not afford any form of health care insurance. The question is what can be done about it? The answer is neither easy nor clear cut. In 2010, the Patient Protection and Affordable Care Act (PPACA) of 2010—commonly called the Affordable Care Act (ACA) or Obamacare, after its major backer, US president Barack Obama—sought to reform a number of aspects of the US health insurance industry, as well as improve the access to and quality of health care services.

Keywords Americans with Disabilities Act; Best Practice Protocols; Fee for Service System; Grassroots Activism; Gross Domestic Product; Industrial Democracy; Managed Care; Medicaid; Medicare; Single-payer System; The Pepper Commission; The Rehabilitation Act - Bill 504

Health Care Reform in the U.S.


Health care is very much on the minds of Americans. Former presidential candidate Hillary Rodham Clinton made health care her platform and insisted that universal health care is achievable. Although affordable health care for everyone sounds like a positive step forward, the American public was not sure enough of that statement to support her election as president. The American health care system is bound to the insurance industry and has always been a fee for service system. To add to the dilemma, universal health care does not have universal support of the American people or the medical profession.

Further Insights

Managed Care

Managed care was an initiative in the private sector to address the spiraling costs of medical care, created to "manage health care costs." Managed care has become an integral part of the American health care system. It rose to some prominence during the presidency of Ronald Reagan and began as a way to control the amount of money being paid out by Medicare. Managed care was considered an excellent way of combining two important aspects of health care—funding and providing referrals. At the time, managed care was seen as a way of bringing down the costs of health care in the United States. Managed care generally will not cover services that are experimental in nature, cosmetic, or for which there is no standard of medical practice. There are also limitations to services that managed care will cover.

Fee for Service

The fee-for-service system has been difficult to overcome. Skeen (2003) writes, "Dr Alan Stone, a US doctor, says this: 'When you introduced the profit motive into health care, the whole industry became permeated with greed…" (p. 523). Inherent in a fee-for-service system is that some people will be able to afford the fee but others will not. As Marmor notes, "In comparison with other industrial democracies, Americans are less insured for the costs of health care, and the care we receive is costlier. Yet, serious reform of American medicine has been enormously difficult to achieve and comprehensive reform impossible"(Marmor, 2006, p. 1500).


According to Skeen (2003), one of the biggest problems of the pre-ACA system is the high rate of fraud. He blames this squarely on the structure of the fee-for-service system. Physicians and other providers are allowed to bill for their services but the ways they code (label and categorize) these services are up to them. So, some providers are accused of padding the bill by changing a patient's diagnosis to something far more serious and order tests (or say they have ordered tests) for which they're also able to bill.

Another part of the fraud and abuse problem surely lies with the insurance industry with its built-in, relatively low risk to increase costs. Skeen explains that private insurance companies also contribute to the problem.

Though insurance companies would prefer to avoid the uncertainty that rising prices create, they have generally been able to pass along the costs to their subscribers, and their profits increase with the total volume of expenditures (Skeen, 2003, p. 520).

Under managed care it is no longer the case that insurers pay all or some percentage of the usual and customary fees for a service as is done in retrospective (sometimes called "fee for service") systems. More likely they pit providers against one another to see who will bid the lowest prices for an acceptable level of service (Lawlor, 2002, p. 455).

History of Reform Efforts

While one can easily become cynical over the state of American health care, it is important to present a balanced picture. Prior to the Affordable Care Act of 2010, there have been notable efforts to try and change or reform the system. During his two-term presidency (1993–2001), former president Bill Clinton and his wife Hillary Rodham Clinton worked to bring universal health care to the United States. Even before this, there were significant attempts to try and reform the system.

During the first two decades of the twentieth century, labor unions attempted to reform the American health care. Since there was no requirement for employers to provide health care to their workers, workers would lose wages if they missed work due to illness and would have to pay for medical care out of pocket. This dual problem often left workers with huge debts. According to Hoffman (2003), "In 1915, progressive reformers proposed a system of compulsory health insurance to protect workers against both wage loss and medical costs during sickness" (p. 76).

In the 1960s, President Lyndon Johnson attempted reform by enacting Medicare, which is a federal program that provides health insurance coverage to qualifying very low-income Americans, particularly among those over age sixty-five and children under eighteen. By creating Medicare, the most vulnerable in society would be provided for. Medicare is the program that provides people over sixty-five with medical care. It also provides support for persons with certain disabilities and people of all ages who have end-stage renal disease (kidney failure). Medicare has become far more complicated than it was in its original form. There are four sections to Medicare: A, B, C, and D. Respectively, they cover hospital insurance, medical insurance, advantage plans, and prescription drug coverage. One of the ongoing problems for the Medicare program has been to continue to provide the health insurance required by seniors and persons with disabilities at the same time as trying to contain costs. However, today, Medicare has become another huge bureaucratic structure which only adds to the complexity of the current problems facing the health care system.

Throughout the 1960s and 1970s, Massachusetts Senator Edward Kennedy (1932–2009) was at the forefront of trying to create universal health care in America. He is famous for being a health care advocate and many believe this was his greatest legacy as a politician. Yet, despite his best efforts, and his popularity in the Senate, he was unable to provide a bill that would truly reform American health care (Hoffman, 2003).

The history of health care reform would be incomplete without mentioning grassroots movements. In the 1970s, returning war veterans from the Vietnam came home with permanent disabilities. They lobbied hard and long for their own needs and for health care reform. Their demonstrations and constant efforts were rewarded with the development of The Rehabilitation Act of 1974 - Bill 504. Disabled Rights Activists worked together again and pushed President George H. W. Bush to gain passage of the Americans with Disabilities Act in 1990.

Yet even before then, groups of Americans were fighting for their health care rights. For example, "The women's health movement has greatly influenced campaigns for national health care. In the early 1970s, the labor-led Committee for National Health Insurance held the first conference on women and universal health care" (Hoffman, 2003, p. 81).

In 1991, Representative Marty Russo of Illinois and Senate Majority Leader George Mitchell of Maine sponsored the Universal Health Care Act of 1991. This was a follow-up to the Pepper Commission Report on Access to Health Care and Long-Term Care for All Americans in 1990 (Scuka, 1994). The Pepper Commission and the Universal Health Care Act of 1991 differed in their approaches, but they both attempted to bring long-term reform to health care. The Russo Bill, as it was also called, went the furthest by recommending an end to co-payments, deductibles, and annual out-of-pocket payments (Scuka, 1994).

When President Bill Clinton was elected in 1992 the time seemed right for health care reform. He appointed his wife Hillary as the head of the Clinton Health Care Task Force. During the debates among the Democratic contenders for the 2008 presidential nomination, Senator Clinton admitted that despite her best effort, she could not bring about universal health care. According to Hoffman, "Clinton, fearful of business and insurance company opposition, proposed a dauntingly complex system of ‘health alliances’ that would preserve both employer-based coverage and the commercial insurance industry" (2003, p. 78).

No group in American history has possibly fought as long and hard for health care reform than have HIV/AIDS activists. Since the early 1980s, these activists have been organized and determined. They have advocated for research, proper care, medication trials, and insurance reform for people living with HIV and AIDS. "The activism of people with AIDS and HIV fighting for their very lives led to...

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