The House Republican Caucus has passed a budget resolution to roll back major portions of ObamaCare. What should have been a moment of success and optimism in working toward desperately needed healthcare reform has been much diminished by the absence of specific replacement policy.
Just as discouraging are the murmurings of so-called “moderate” (fearful) Republicans who want to “replace” with an ObamaCare lite, keeping the “good provisions”. In particular, maintaining the ACA’s solution for pre-existing medical conditions would continue to further drive up health insurance premiums for all.
The good news for our country, including those anxious Republicans: There is a good and viable path forward.
The repeal and replace discussion has to begin with remembering that there was a healthcare problem before ObamaCare. Reform was needed to address inadequate medical access for the poor and those with pre-existing medical conditions, and the even more critical problem of uncontrolled healthcare cost growth that has increasingly threatened the financial well-being of individuals and families, small and large businesses, and our government at all levels.
The drivers of this unsustainable growth include a 3rd party payment system that is not insurance – protecting one from an unexpected event – but rather a prepayment scheme that disconnects payment for care from consumption of care, thereby encouraging overutilization on the demand side of the market and discouraging transparency and innovation on the supply side.
Government regulation of the insurance market significantly contributes to unsustainable cost growth. Mandated benefit coverages, restriction of insurance sales across state lines, and restriction of group associations have stifled beneficial competitive forces and increased costs.
Employer provision of healthcare – a consequence of an FDR-era government labor market price controls – involves only a single market interaction for purchasing insurance for all the employees of a given company. Fewer market interactions mean less competition and therefore higher costs. Further, employees are obliged to accept coverage that most likely doesn’t best meet their individual situations. Employer provision diverts capital from growing the business, employment, and the economy more generally. Finally, the tax exemption for employer provided insurance encourages buying more coverage than one would otherwise, and provides the biggest tax advantage to those in the highest tax brackets.
ObamaCare was not reform but rather made a bad situation worse. Expanding 3rd party payment, increasing regulation and mandates in the insurance markets, and failing to address the employer provision of healthcare resulted in skyrocketing premiums. ObamaCare’s “solution” for pre-existing medical conditions – guaranteed issue of insurance with no increased premium cost – has resulted in skyrocketing insurance costs for everyone else. We are witnessing the predicted premium death spiral. As older and sicker persons have bought government price-controlled insurance, the younger and healthier have elected not to buy that expensive coverage, leaving behind more high cost persons in the insured pool, further driving up premiums, and the spiral continues. Further, those who have bought insurance – many benefiting from generous tax payer subsidies – have found that they can’t afford the copays and deductibles.
The high cost of ObamaCare’s mandated extensive benefits coverage has consumed more of companies’ revenues, stifling their growth and the economy more generally. Further, as premiums have gone up, wages have stagnated with more of total compensation going to pay for the healthcare benefit. ObamaCare’s employer mandate that penalizes companies with more than 50 employees, and that incentivizes part-time rather that full-time employment has been particularly damaging to medium sized companies and their employees.
Nothing less than complete repeal of these ObamaCare provisions can be the foundation for true reform. However, repeal alone does not repair the unsustainable healthcare market that pre-existed ObamaCare. Real reform must be implemented with repeal.
The first component of replacement should be regulatory reform, or more accurately, reducing government interference in the private insurance market. Limiting the number of mandated coverages would allow individuals and families to buy the policies that best fit their medical and financial situations, and would allow insurance companies to sell policies that consumers want to buy. Insurance companies must be allowed to price premiums so that they reflect the actuarial risk. This would make the popular ObamaCare coverage of dependents up to the age of 26 years a non-issue. In an authentic insurance market, healthy young people would be charged appropriately low premiums. In conjunction with allowing sales of insurance across state lines, these provisions would spontaneously spawn a vibrant private sector national insurance exchange.
Deregulation would also encourage supply side innovation. As an example, companies could and would develop and sell policies that protect individuals from premium increases associated with developing an expensive medical condition. Such a policy in combination with extending the HIPPA protection – preventing loss of insurance for those who have continuously maintained their insurance coverage if they were to develop an expensive medical condition – to the individual market would be a significant step to fully addressing the pre-existing medical illness problem.
Replacement’s second component should promote Health Savings Accounts (HSAs) by making them tax advantaged and allowing them to be passed on to heirs. The combination of the availability of high deductible/catastrophic policies with HSAs would begin the beneficial shift away from 3rd party payment.
The final component of replacement would promote individual purchase of healthcare insurance – moving away from employer provision – by providing a refundable tax credit for individuals/families to put toward buying the policy that best fits their individual situations. This could be done in a revenue neutral way by shifting the foregone tax revenues from employer provided insurance to this new benefit.
These reforms will repair and transform the private insurance market. Individuals choosing and buying, insurers innovating, competing, and selling will drive down costs and elevate service and quality. As reform corrects the government created perverse incentives in the private healthcare market, hundreds of billions of dollars of the current $3.2 trillion US annual healthcare expenditure will flow back into the private economy – growing businesses, increasing employment, raising wages, and making American companies more competitive in the global economy.
The replacement components are clear but the political path forward, problematic. The opportunity to repair the harm done to the private healthcare market by government regulation must not be lost. While it may be tempting to also pass reforms that would put Medicare and Medicaid on sustainable paths, and to practicably address unaffordable premiums for those with expensive pre-existing medical conditions, it is a bridge too far. And “compromise” ½ measures on everything would be no reform at all.
The Republicans should neutralize any demagoguery from the left that “conservatives” don’t care about the poor and sick by putting forward provisions allowing those newly qualified for Medicaid to keep that coverage, and for those with pre-existing conditions who can’t afford their premiums to enroll in Medicare, Medicaid, or an income-based federal premium subsidy program.
While there are better and more viable free market solutions for these 2 problems, such provisions would provide unassailable political cover to get the critical deregulation of the private insurance market done. Better to fix the private markets now, and to later take on Medicare and Medicaid reform.
A few words on the deficit: Fiscal conservatives rightly worry over deficits but the bigger immediate problem is taxes and regulation that confiscate capital that would be most productively allocated in the private sector, rather than less effectively if not out and out wastefully spent by the government. That bleeding of the private economy throttles economic growth. The long-term solution to the deficit is certainly not higher taxes, and further, not necessarily less government spending per se, but rather tax/regulatory/fiscal policy resulting in the economy growing faster than government spending. If that happens, the deficit problem slowly, steadily, and unfailingly resolves.
Transformational reform of the private insurance market will bring healthcare insurance and healthcare costs down, grow the economy and employment, and increase tax revenues as the economy grows.