The Irrelevance of Non-existent Alternatives

A basic tenet of economics (and logic) is that an individual will make a choice based all the possible alternatives for them, ignoring alternatives that are not available. If a person decides to drive to work rather than take a bus, that decision doesn’t change if they see people transported instantly from place to place on old episode of Star Trek. As attractive as the transporter might seem the fact that it doesn’t exist means that it doesn’t change the calculus that led the person to opt for driving.

The logic that many of the states used to justify their decision not set up exchanges or expand Medicaid under the Affordable Care Act (ACA) suggests that their choices are between implementing the ACA and some more attractive alternative. The problem is the more attractive choices either don’t exist or sound exactly like the ACA.

Under the ACA states have the option of setting up health insurance exchanges for individuals and small business. If they don’t set up the exchange the Federal Government will set them up in each state. Some states have rejected setting up health insurance exchanges under the ACA because: “At this point, based on the information we have, states do not have any flexibility to build and manage exchanges in ways that respond to unique needs of their citizens or markets” said Ohio Gov. John Kasich. Its not clear what more flexibility the Governor needs, although it may be the option to have no reform of the health insurance market.

A more attractive option would presumably give states more options as to the governance of the exchange, the regulation of health plans, and the design of the benefit packages. Yet under the ACA states have exactly those options. Mississippi for example is setting up an exchange run by a private non-for-profit entity. The insurance market will continue be regulated by the state insurance department. The state will determine the benchmark for the basic benefit plan. Maryland also creates an independent board to govern its exchange, but the board has the authority to regulate plans sold in the exchange. New York sets up the exchange within its Department of Health. All of the states have the option to choose health plans already sold in the state as the benchmark for the benefit packages.

It may be that the more flexibility the Governor really desires is the option to have no reform of the health insurance market. That option is clearly non-existent because the health insurance market is eroding. A sustainable private insurance market is possible only if adverse risk selection is managed. Try as they might nobody has offered a solution that creates a sustainable private health insurance market without a regulatory structure similar to the Affordable Care Act.

Similar non-existent alternatives are given for not expanding Medicaid eligibility under the Affordable Care Act. Governor Perry stated that he did not want to put money into a “flawed and unsustainable Medicaid program.” The Governor is apparently ready to put state money toward the alternative perfect and sustainable program.

There are many flaws in state Medicaid programs from reimbursement mechanisms and levels to quality measurement to eligibility. One of the interesting points though is that the flaws very from state to state indicating that the flaws result from the state’s implementation of the program as much as the program itself. The Medicaid program is currently on an unsustainable path as is all types of public and private health care financing.

The choices presented to the state are not between the perfect program and the current one however. The choice is between covering millions of people at a rather small cost to the state or leaving them without health insurance at a rather high cost to the state. In Texas the Governor’s office estimated it would cost the state $15 billion over a decade while it would receive almost $100 billion from the Federal government. The expansion would cover 1.8 million Texans. That means health care costs for other Texans would fall, hospitals will stay open, and over 2,000 fewer Texans would die.
These choices are being made in every state. The choices are real. They need to logically derived from analysis of actual alternatives. If state leaders opt not to drive the car it is hoped they aren’t waiting for Scotty to beam them up.

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