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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Post-Ryan Health Care Riffs



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Under the possibly very ingenuous assumption that the advent of the Ryan budget will lead to a mutual process of putting-up-or-shutting-up (Megan McArdle has thoughts on why this really has to happen), let me offer a few thoughts on what an acceptable left-right compromise might look like:

(1) The Bipartisan Policy Center’s Debt Reduction Task Force report deserves a second look. The core of its Medicare reform proposal is as follows:

Transition Medicare, starting in 2018, to a “premium support” program that limits growth in per-beneficiary federal support (to GDP-plus-1 percent, as compared to current projections of GDP-plus-1.7 percent).  The new system maintains traditional Medicare as the default, but will charge higher premiums if costs rise faster than the established limits.  Alternatively, beneficiaries can opt to purchase a private plan on a health insurance exchange.  Competition among plans will improve the quality of care and increase efficiency.   

A true level playing field might lead, as Austin Frakt suggests, to a rump Medicare FFS program largely limited to rural areas where competition across provider networks is less viable.

(2) Eugene Steuerle gets at the essential problem with our emerging “four-tranche universal health system,” namely concerns about horizontal equity:

The fundamental dilemma for both liberals and conservatives is that we simply can’t achieve a more universal health system without charging people for it, enforcing it, admitting to the explicit or implicit tax rates involved, and avoiding very large incentives (for individuals, employers, and state governments) to shift from one tranche of the system to another. Once both sides accept these basic facts and the fundamental arithmetic that drives them, they must turn to the types of amendments suggested here. Neither side is served well by the wishful thinking that pervades the debate over simply maintaining or abandoning the new health care legislation.

Steuerle sketches out an alternative that bears a family resemblance to the defined contribution model applied to tax subsidies for the purchase of health insurance:

Clearly, to create an administrable system, we need some certainty about the size of the subsidy; to be fair, we need to make the subsidy about the same for all those with equal incomes. This suggests that we must give households throughout the middle-income range (and perhaps those in some Medicaid and higher-income ranges too) about the same level of premium support, while eliminating discrimination against workers with employer-provided insurance. Rather than clawing back the subsidy indirectly with a new, hard-to-administer tax, we must use the current tax system to provide fewer subsidies, on net, to those with higher incomes.

I imagine that Steuerle and I might disagree about the appropriate level of premium support, and on how tightly we should regulate exchanges or providers, etc., but this is a useful framework.

(3) In January, Donald H. Taylor Jr. wrote an excellent post on other compromise measures, including

(a) a system of universal catastrophic coverage:

Replace the individual mandate to purchase insurance with guaranteed catastrophic coverage that is universal. I suggest individual caps of $10,000/family $15,000. I would do this via Medicare because it is simple, and could be implemented quickly. Others have suggested new federal initiatives that would provide catastrophic coverage; it is surprising to me that conservatives would want a new federal apparatus to implement this, but I follow the logic of their wanting to focus on catastrophic coverage. I would gladly trade true universal, catastrophic coverage for slowly creeping up on universal coverage with more comprehensive benefits. This allows progressives and conservatives to get what they most want: universal coverage and catastrophic, instead of first dollar coverage, respectively.

(b) ending the tax exclusion (politically near-impossible but a substantive no-brainer)

(c) and a number of other ideas, including exchanges for supplementary coverage under the cap. 

As much as I like the universal catastrophic coverage concept, an interesting version of which was hinted at by Harold Luft in Total Cure, it’s not obvious to me that the Medicare system is the right vehicle. Regardless, Taylor has given us plenty of food for thought.



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