States could create a default option for individuals who do not choose an insurance plan, treating them, unless they explicitly opt out, as having picked a plan with a premium equal to the tax credit (and thus costing them nothing). Almost everyone would thus have continuous coverage for at least catastrophic costs as well as better access than many people now have to more comprehensive insurance in a functional market, and everyone with such continuous coverage would be protected from pre-existing-condition exclusions. People with pre-existing conditions when these reforms take effect, who would have a hard time obtaining coverage at affordable rates to gain such protection, would be helped through high-risk pools.
The credit would also be available to Medicaid recipients, and Medicaid payments to the states would be made on a fixed per-capita formula that encouraged states to use federal and state Medicaid funds to provide an add-on credit to the poor, allowing them to participate in the same insurance system as everyone else, to receive at least minimal coverage by default even without signing up for the program, and to obtain coverage they could keep if they leave Medicaid. Because Medicaid payments to the states would be fixed on a per-capita basis (growing annually by a set rate), spending per beneficiary would not have to fall if a recession pushed more people into the program.
Medicare, meanwhile, would be transformed into a premium-support system that provides the same guaranteed, comprehensive benefit it does today. To restrain costs, the federal government would set its payment through an annual competitive-bidding process in which private insurers and a traditional federal plan seek to offer appealing comprehensive coverage at low cost.
Rather than reinforce the worst aspects of today’s system and make the economics of American health care untenable, as Obamacare would, this approach would introduce basic market principles into a regulated insurance system and would use federal dollars to drive value rather than to inflate costs. It would cover significantly more people than Obamacare (as you wouldn’t see anything like 30 million people leave the tax credit on the table) at lower cost, though it is certainly true that it would not treat third-party, first-dollar, comprehensive coverage as the only imaginable form of health insurance and would allow people to trade higher deductibles and copayments for lower premiums. And it would make for a sustainable health-financing system — which, again, we haven’t seen anyone seriously argue that Obamacare could also do.
Matthew Yglesias looked at our shorthand description of this approach and insisted it would “destroy the health insurance that insured people have,” that high-risk pools would cost too much, and that catastrophic coverage is not real coverage. For reasons already addressed here, we believe he misunderstands both today’s insurance system and our proposal (even in the brief form presented in our piece), as well as the nature of catastrophic coverage. His quip that this approach would mean stingier coverage for the poor and middle class and tax cuts for the rich gets it backwards: The rich, who benefit most from today’s open-ended tax exclusion, would get less on the whole, while middle-class workers would get better coverage they could keep and the poor would have a far better Medicaid system. The assumption that anything but comprehensive first-dollar insurance coverage is “stingy” is part of the problem with our health-care system. Coverage and care are not the same thing, after all. On that point, we recommend this recent post by Megan McArdle.
Jonathan Chait read our proposal more carefully, and we appreciate that. But we don’t agree with his analysis of some key elements of what conservatives aim to do. He faults us for saying Medicaid is crummy, but then agrees that it is (in just the sense we asserted, as far as we can tell). He says our solution to that would be to just cut Medicaid, which would only make things worse; actually we would transform Medicaid into part of the larger insurance system rather than a dysfunctional coverage ghetto, and would thus provide better coverage to more of the poor. He asks what differentiates Obamacare’s failed high-risk pools from the well-designed pools we call for. Here’s a good, detailed overview of the difference. And he, too, points out that this approach is not now the formal position of congressional Republicans. We certainly agree with that — although such reforms have been proposed by some in Congress, most have not been embraced in the way that the premium-support reform of Medicare has been. Most important, the reform of the tax treatment of health care continues to be opposed by an influential camp in the House. That should change. That is why we keep writing articles, like the one Chait and the others are critiquing, that advocate that change.
The fact is, we have yet to see defenders of Obamacare against this kind of alternative offer a real defense of Obamacare or a real critique of this alternative. This approach involves a different vision of how health-care financing should work — as John Goodman ably lays out — a vision that many liberals seek to ignore by insisting either that it does not exist or that they have already shown it doesn’t work. Nonetheless, we are encouraged that even these critics seem implicitly to accept the actual argument of our piece: that Obamacare won’t work, that its continued existence should not be taken for granted, and that we need to be debating alternatives.
— Ramesh Ponnuru is a senior editor of National Review. Yuval Levin is a contributing editor of National Review.