Guest post from Victor Matheson (referee, economist and snarling jackel from the comments)
Now that the imminent threat to the ACA has passed, I would like to thank David/Mayhew for handing over the keys for a guest post about the difficulties in dealing with cases of medical malpractice and personal injury within the ACA.
Suppose David is hit by a negligent bus driver on the way home from refereeing a soccer match, and his injuries will require major surgery at some point in the future. David hires a lawyer, sues the bus company, and the lawyer hires an economist and person called a “life care planner” to figure out how much his injuries will cost him. Let’s assume the damages are limited to a single future $100,000 surgery.
Prior to the ACA, it would have been reasonable to presume that he would have had to pay for that surgery out-of-pocket. He couldn’t be guaranteed to be eligible for public insurance; the accident that caused the injuries may have forced him out of work and ended his employer-based insurance; and his pre-existing condition would have prevented him from buying individual insurance on the private markets. Thus, he should get awarded $100,000. Easy.
With the ACA, however, the story is different. David can now buy insurance despite his pre-existing condition. He can go out and purchase a Bronze plan during the enrollment period for the year he expects to need the surgery for a few thousand bucks. This will pay for the surgery and limit him to a maximum out-of-pocket cost. (The limit is $7,150 for 2017.) All in all, his surgery might cost him a maximum of $12,000. So, what should he be awarded?
If you give him $12,000, David gets his surgery at a huge discount, but the bus company gets to pass the costs of their negligence on to everyone else in the insurance pool, raising premiums for every other member. (This is actually what happens in Ohio and California under current court rulings.)
If you give him $100,000, the bus company pays the full cost for their negligence, but David still goes out and buys the ACA plan and pockets the extra $88,000. So, he gets a huge windfall, and premiums still go up. (This is the law of the land in most other states.)
In places with single-payer, like Ontario or cases in the US involving persons over age 65 utilizing Medicare, you can use what is called “subrogation.” Here David would get $100,000 from the bus company but would have to turn over everything but his out-of-pocket costs to the insurer. So, the bus company pays for their full damages, but David doesn’t end up with a windfall.
Subrogation doesn’t work for future medical bills, however, unless you know exactly who will be paying for the medical care at the time of trial or settlement. With the ACA, at the time David sues, he has no idea who his insurer might be when the time comes for his surgery. Thus, the insurer can’t subrogate the money at the time of the payout, and they can’t try to charge him more when the time comes for the surgery, because that violates the ban on discrimination based on pre-existing conditions.
Fixing this inefficiency is tricky, but it is worthwhile public policy goal considering the billions of dollars in medical malpractice and personal injury payouts for future medical care that occur each year. Bonus points for any Juicers who can solve this problem other than the obvious cure of single-payer (and not hitting David with a bus!)