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

How Disruptive Are GOP-Backed Health Reforms Really?



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Brian Beutler of Salon resents the fact that conservatives are seeking to profit politically from what he calls “the great health insurance cancellation row of 2013,” as they are actually profiting from the fact that they have failed to coalesce around a substantive alternative to Obamacare. He’s largely drawing on Jonathan Cohn’s analysis of the Ryan budget, which tightly caps the growth of federal Medicaid expenditures, and of conservative proposals to equalize the tax treatment of employer-sponsored insurance and individual insurance. And because Cohn sees the individual insurance market as a nightmarish landscape, his conclusion is that Republican policies would lead us to a health insurance dystopia in which Medicaid beneficiaries lose their coverage, the unraveling of employer-sponsored insurance accelerates, and more and more Americans are forced to turn to “junk policies.”

Before I turn to the details of Beutler’s piece, let me say that he’s definitely right about one thing. It really is easier for congressional Republicans to attack Obamacare when they don’t have a proposal of their own to defend. It is also true, however, that congressional Democrats never really united around a comprehensive proposal to overhaul the U.S. health system between 1993 and 2009, though there was a broad Democratic consensus around the need to expand Medicaid and CHIP and other public insurance programs. When you don’t have a president of your party to serve as a focal point, it’s very difficult to unite around a proposal that could prove politically costly.

That said, I think Beutler gets a few important things wrong, or at least he’s not giving his opposite numbers their due:

The National Review’s Ramesh Ponnuru’s solution to this problem is to rip the band-aid off slowly. Whereas Obamacare creates an immediate disruption for a relatively small group of individual policyholders, Republicans should create a slow, steady disruption for tens of millions more.

This doesn’t strike me as an entirely accurate characterization of the state of play. Per Avik Roy, the relevant contrast is not between an immediate disruption for a relatively small group under Obamacare and a slow, steady disruption for a relatively large group under Ramesh’s approach. The reason is that over time, new Obamacare insurance regulations will disrupt employer-sponsored insurance coverage as well as the individual insurance market. One assumes that many of these plans would be phased out due to the natural churn of the insurance market. But as Chris Pope has observed in National Affairs, ERISA gives self-insured employer plans a great deal of freedom from regulation. Obamacare imposes new coverage mandates on ERISA plans. Though these mandates are less burdensome than those imposed on exchange plans, it is not unreasonable to expect that they will cause some degree of disruption over time.

Moreover, the conservative proposal Beutler claims with “create a slow, steady disruption” is functionally quite similar to the excise tax on high-cost employer-sponsored insurance plans established under Obamacare. Ramesh and Yuval Levin have called for replacing the tax exclusion for employer-sponsored insurance with a flat credit. Yet their proposal “would let people use that credit to buy their own insurance only if they do not have access to a company plan,” and company plans would continue to be regulated under ERISA. The goal of the excise tax is to make the tax subsidy for employer-sponsored insurance somewhat less regressive and to impose some cost discipline. The goal of Ramesh and Yuval’s proposal is essentially the same, though it goes a bit further in limiting the value of the tax subsidy for high-earners. The difference is that Ramesh and Yuval’s proposal allows ERISA self-insured plans to continue operating as they have in the past, so it is hard to see how it is more disruptive for the employer-sponsored insurance market than Obamacare.

Other smart conservatives — which is to say, policy wonks without much cachet on Capitol Hill — would replace all insurance with subsidized catastrophic coverage and tax-preferred health savings accounts. Nobody with private insurance or Medicaid would get to keep what they have, no matter how much they like it.

I’m not sure which smart conservatives have in mind. But Beutler isn’t correctly describing the ideas advanced by people like Ramesh, Yuval, Avik, and others who write about health policy from time to time, myself included. Rather, many conservatives have embraced James Capretta’s idea of a fixed tax credit which would be used as a foundation for coverage. That is, everyone gets the credit. Employers who provide employer-sponsored coverage would top up the credit as part of the compensation they provide their employees. Middle- and high-income individuals would top up the credit with their own money — by a little if they want low-cost catastrophic plans, by a lot if they want high-cost comprehensive plans. Medicaid-eligible individuals would top up the credit with a premium subsidy that would vary according to need, and that would be designed to limit out-of-pocket costs. (Keep in mind that the current tax exclusion subsidizes the cost of employer-sponsored insurance. It doesn’t cover the entire cost of comprehensive plans.) What is true is that young, healthy, non-Medicaid-eligible individuals who don’t consider comprehensive insurance coverage a good deal would be nudged towards catastrophic coverage under this approach. But this is a far cry from replacing “all insurance with subsidized catastrophic coverage and tax-preferred health savings accounts.”

To be sure, there are some people who think that government policy should lean against comprehensive insurance. David Goldhill, author of Catastrophic Care, favors something like single-payer catastrophic coverage. Brad DeLong has floated the idea as well. The conservatives I think Beutler has in mind certainly like the idea of catastrophic insurance. It’s just that they have no problem with allowing people to buy comprehensive insurance if that’s what they’d like to do with their money, and they recognize that low-income and disabled individuals will need larger subsidies than other people.

I’d add another. Nearly all Republicans support eliminating traditional Medicare for future retirees, and replacing it with a plan that looks (ironically) a lot like Obamacare. The sales pitch version of the plan is that Republicans want to keep the promise the country made to current retirees and people nearing retirement, but radically overhaul it for the young and middle-aged. Over time, single-payer Medicare would be phased out.

But as nearly every healthcare expert will tell you, the phase-out would be massively disruptive. As the program’s beneficiaries aged and dwindled in number, it would become unsustainable very quickly. Without scale, the government would lose its purchasing power, and would either have to fork over tons of money to motivate providers to care for beneficiaries — a bailout — or watch providers abandon the program en masse, leaving the country’s oldest, sickest people little choice but to enter the private insurance market.

Nearly all Republicans support Wyden-Ryan, and Wyden-Ryan does not envision phasing out what some are calling the Medicare public option. Rather, it envisions a transition to Medicare competitive bidding, which Roger Feldman, Robert Coulam, and Bryan Dowd have described in greater detail.  The Medicare public option is meant to be a permanent feature of the landscape, in part because it will have a significant advantage in rural areas. I don’t doubt that some Republicans favor eventually phasing out a Medicare public option (this was Ryan’s original position), but Republican voters tend to be older and many of them find the idea of phasing out traditional Medicare extremely unattractive, hence the GOP position has shifted. What Beutler seems to be saying is that competitive bidding might undermine the Medicaid public option. But he is underestimating the advantage the Medicare option will have outside of dense regions — in dense regions, it will be much easier for private plans to create low-cost narrow networks; in rural regions, it will be difficult if not impossible, and so the Medicare public option will probably emerge as dominant in Rural America. (The most sophisticated argument against Medicare competitive bidding is that it will increase costs as private firms game risk adjustment systems. Much depends on whether you believe that risk adjustment systems can improve over time.)

One can definitely imagine alternatives to Obamacare that would be more disruptive than Obamacare. If consumers were banned from purchasing comprehensive health insurance, for example, there would definitely be a lot of disruption. But by and large, “reform conservatives” favor more modest measures that are designed to ease the transition to a more sustainable system. The big change is that tax subsidies are made more transparent and quitable. Employees offered coverage through their employers are strongly discouraged from entering the individual market, self-insured ERISA plans are left largely untouched, and states are allowed to keep their individual insurance markets lightly-regulated if they choose to do so. Republicans definitely favor overhauling Medicaid, with some favoring block grants and others favoring per capita caps. Not all Republicans consider the reductions in the growth in Medicaid spending backed by Ryan realistic — Republican governors are likely to be particularly skeptical, and one assumes that GOP lawmakers will moderate their position on Medicaid if they ever have a realistic shot at passing legislation. There is less consensus in other areas, e.g., whether state governments should designate default insurance plans, whether the federal government should encourage states to establish insurance clearinghouses or exchanges, etc.

And I should add that the pre-Obamacare status quo would see plenty of disruption of existing insurance arrangements even in the absence of Obamacare or a Republican health reform effort. The issue of the moment is that the disruptions caused by Obamacare seem to be more pervasive than many Americans had anticipated, and than many Americans had been led to expect, and that it’s not entirely clear that we couldn’t get bigger benefits at lower cost had we embraced a different approach to reform. Republicans definitely deserve some of the blame for not articulating a championing a better way forward.



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