Passing the affordable care act: transaction costs, legerdemain, acquisition of control.

• Author: Twight, Charlotte M.
• Position: Essay

Only a decade ago, the Patient Protection and Affordable Care Act (PPACA) of 2010 would have seemed a dystopian vision, something that could not emerge in our nation as we then knew it. For the PPACA's effect on the nation is not merely evolutionary--it is institutionally revolutionary. It not only alters the organizational structure of major segments of the U.S. economy and government but also changes the behavior and intimate personal relationships of families, doctors, and patients. It alters the cost structure of businesses, government agencies, families, and individuals. It changes contractual relationships between employers and employees and between both groups and health-insurance and health-service-provider industries.

At its core, the PPACA transformed the fundamental relationship between the individual and America's national government, reducing both privacy and personal autonomy. As economist Thomas Sowell explains, "With the passage of the legislation letting the federal government take control of the country's medical care system, a major turning point has been reached in the dismantling of America's values and institutions.... With politicians now having access to our most confidential records and having the power of granting or withholding medical care needed to sustain ourselves or our loved ones, how many people will be bold enough to criticize our public servants, who will in fact have become our public masters?" (2010).

Such power to induce subservience outside the realm of medical care may become one of the act's most profound legacies. Nonetheless, despite strong opposition in Congress, widespread public opposition, and the measure's debatable constitutionality, President Barack Obama signed the PPACA into law on March 23, 2010.

This article's primary purpose is to analyze a set of key tactics government officials used to secure PPACA's passage and entrenchment--including deception, incrementalism, obscure modification of the bill, cost concealment, strategic timing, and an attempt to preclude future repeal of part of the act (1)--showing how these and related behaviors are consistent with predictions made by the economic theory of political transaction-cost manipulation (TCM). While focusing chiefly on TCM's role in securing PPACA's passage, the article also examines TCM's early use in creating legislative infrastructure upon which the PPACA would build, such as the Health Insurance Portability and Accountability Act of 1996 and the American Recovery and Reinvestment Act of 2009. I also note TCM's potential use after passage of the PPACA in fleshing out powers not fully defined in the act's text--including those of the Independent Payment Advisory Board, the Patient-Centered Outcomes Research Institute, the Center for Medicare and Medicaid Innovation, "value-based" programs, and entities related to health-information technology--as they define and expand their regulatory and implementation authority.

DNA of Power: Political Transaction-Cost Manipulation

Political transaction costs--also termed constitutional-level transaction costs- -denote costs individuals incur in perceiving the content of and taking political action to resist legislative or other proposals that alter the scope of government power. This paper shows that in designing and securing passage of the PPACA and its precursor, the American Recovery and Reinvestment Act (ARRA) of 2009, legislators and executive-branch officials relied heavily on increasing the costs to political opponents and the public of resisting the bills, using tactics predicted by the economic theory of political TCM (Twight 1983, 1988, 1992). This theory asserts that government officials have die incentives and ability to increase political transaction costs borne by others in perceiving and resisting government power-changing measures that the officials favor but affected individuals otherwise might oppose. By so doing, these officials can expand their political power, sphere of influence, and control of government. Cumulatively, such manipulation of political transaction costs can reshape societal outcomes regarding the scope and contours of government power. (2)

Political TCM theory is an overarching concept for understanding the growth of government--one that wraps around, integrates, and broadens other economic theories of institutional change. It deepens traditional public-choice concepts such as "rent seeking," viewing political TCM as a potent method of achieving rent seeking's objectives. It builds on both "fiscal illusion" literature and prior economic analyses of "cost concealment" and bureaucracy, (3) identifying key determinants of political transaction-cost-increasing behavior. In short, political TCM analysis examines the many ways in which politics shapes transaction costs and thus constrains or alters political outcomes.

Of course, some political transaction costs are unavoidable real-world constraints resulting, for example, from the large number of legislators engaged in communication and negotiation or from unavoidable costs of obtaining information. Such costs are not our concern here. Rather, we focus on "contrived" transaction costs willfully created by government decision makers to impede opposition. TCM theory predicts that a political decision maker's choice to favor a transaction-cost-increasing measure is a positive function of the measure's favorable impact on his or her political job security and perquisites, third-party payoffs, executive support for the measure, patty support for the measure, ideology, and the measure's complexity, as well as its perceived importance to constituents, the availability of appealing justifications for it, and time--but inversely related to publicity highlighting the measure's transaction-cost-increasing features. (4)

Research has shown the pivotal role of political TCM throughout the past century in passing the income-tax-withholding statute (Current Tax Payment Act of 1942), the Social Security Act (SSA) of 1935, the National Defense Education Act of 1958, Medicare (1965), and other statutes that fundamentally reshaped the role of the U.S. government. (5) Given that TCM has been a predominant factor for decades, spanning varied political administrations, in securing passage of diverse bills that expand federal authority, it seems almost a sine qua non of twentieth- and twenty-first-century government power expansion--the very "DNA" of political power. Together, the PPACA and ARRA provide an important test case.

As we explore the role that government TCM played in securing passage of and entrenching the PPACA and ARRA, we will see examples large and small--some readily understood and others complicated and inconspicuous, requiring extensive study of statutory language to understand. In the former group, government proponents of the PPACA produced a bill whose size and complexity curtailed public and congressional scrutiny, leaving much of the law's power to be determined after passage via implementing regulations. The PPACA's sheer size, some 2,700 pages in bill form, led even congressional supporters to acknowledge that it was impossible to read and that few if any legislators had done so. These and other TCM tactics culminated in the leadership's TCM-driven decision to hold the Senate's PPACA vote on the morning of Christmas Eve, December 24, 2009--deterring resistance by holiday-bound senators and a distracted public.

The bill's structure throughout entails broad power, great discretion, and little accountability, exemplified by the authority conferred on the secretary of the U.S. Department of Health and Human Services (HHS). One researcher found that the PPACA used the word secretary roughly three thousand times, usually in formulations such as "the Secretary shall," "the Secretary may," and the like (Matthews 2010). HHS Secretary Kathleen Sebelius engaged in prodigious waiver granting following the act's passage, giving more than 1,400 one-year waivers to politically influential organizations (Malkin 2011; Wolf 2011). Analysts subsequently challenged the legitimacy of these waivers, arguing that the PPACA did not authorize them. Tina Korbe, for example, cited congressional testimony that the PPACA "doesn't actually grant the Department of Health and Human Services the authority to exempt employers from the law's annual minimum health care coverage requirements." She stated that "[l]anguage granting HHS that power was never in the original law" and contended that "through new rules and regulations, HHS gave itself the power last summer using a broad interpretation of certain parts of the law" (2011).

Less obvious was that within and beyond ten mandated health-coverage categories the HHS secretary would have discretion to deem specific items "essential health benefits" that insurers must cover--implying correlative power to deem specific items not covered (PPACA 2010, [section]1302). Consistent with TCM, lawmakers' statutory language hindered public awareness of the act's true reach.

When President Obama signed PPACA into law, Americans expressed two fears:

1. Fear of government control over access to medical care

2. Fear of privacy loss resulting from medical records and health-information technology (HIT) mandates

But those ships already had sailed. In passing ARRA in 2009, Congress had employed TCM to establish government power over patient access to medical care and had increased government access to patients' health records.

Paving the Way--the Stimulus Act

On February 17, 2009, more than a year before the PPACA's passage, President Obama signed into law the American Recovery and Reinvestment Act, widely known as the "Stimulus Act." The bill's title and massive spending authorization served as TCM, focusing most public attention on the act's magnitude and stated economic objectives while deflecting attention from two other important ARRA objectives:

* "To provide...