By Jonathan Gruber, a professor of economics at the Massachusetts Institute of Technology
The Affordable Care Act (ACA) represents the most fundamental reform of the U.S. health care system of the past 50 years. Such an important social policy change should be widely understood by our citizens so that it can be most effectively implemented. Yet the ACA is sufficiently ambitious and complicated that understanding of the law is quite poor. This is one of the reasons I chose a graphic format for my book, Health Care Reform: What It Is, Why It's Necessary, How It Works.
You can’t understand the need for, and the accomplishments of, health care reform without appreciating the fundamental failure in health insurance markets today. Unless you are offered insurance by your employer, or by the government, there is effectively no meaningful insurance in America. Individuals subject to the harsh “non-group” market face exclusions from pre-existing illness or can be dropped as soon as they become ill. And the key to solving this problem is the individual mandate, which can end insurance market discrimination by promoting broad insurance participation.
At the heart of this reform is what I like to think of as a “three legged stool” designed to solve this problem and, as a byproduct, cover most of our nation’s uninsured. The first leg is insurance market reform which will end the ability of insurance companies to discriminate against the sick; no longer will we be one bad gene or one bad traffic accident away from bankruptcy. The second is the individual mandate, which requires insurance coverage so long as that coverage is affordable (costs less than 8% of income). This mandate is critical; without it, insurers will react to insurance market reform by raising prices because they are afraid only the sick will buy insurance. But you can’t mandate insurance coverage unless it is affordable, which it is not for low income Americans. That’s why we need the third leg of the stool: extensive subsidies that will make health insurance affordable for those living below median income.