by Yuval Levin
At Slate, Matthew Yglesias kindly takes note of the article by Ramesh and me in the current NR, though he objects to the alternative to Obamacare toward which we point in the piece.
To our proposal that the tax break for employer-provided health coverage be capped, flattened, and extended to people who don’t have employer coverage, he responds:
The problem with this approach is simple and well-known. The core of the insurance concept is to create a risk pool. By offering a tax subsidy to employers that encourages them to compensate employees in part through health insurance, the tax code encourages employment sites to serve as risk pools. Removing that subsidy destroys the risk pools. The result is a health insurance system that only works for people who don’t have substantial health care needs.
I think this is a misunderstanding both of “the core of the insurance concept” and of what we’re proposing. Most employers don’t really serve as risk pools in our system, their insurance companies do. Only the largest employers are large enough to have their own employee populations function as meaningful risk pools. (Mark Pauly at Wharton has done some great work on this over the years.) But more important, Ramesh and I are not proposing to eliminate the subsidy for employer-provided coverage—we’re proposing to cap it and to make an equal subsidy available to people without employer coverage through a refundable tax credit (as we laid out here back in 2011, and elsewhere). I wouldn’t speak for Ramesh here, but I would personally also support extending that credit to employees of small businesses (as Jim Capretta has proposed). In any case, I don’t think Yglesias’s critique really has much to do with our proposal. He argues that what we propose would “destroy the health insurance that insured people have,” but I don’t see why he thinks so. It would cap today’s tax subsidy and extend a subsidy to people who don’t now have one, but would do so in a way far better suited than Obamacare to preserve our health-care system while improving the financing system and vastly extending access to coverage.
To our proposal to help people with pre-existing conditions get affordable coverage while the system we describe takes shape (once it’s in place people with continuous coverage would be protected from pre-existing condition exclusions, as most people already have been for years under federal law), Yglesias responds:
If high-risk pools could solve these problems so simply, you might ask why it’s not already been done. It turns out to be really expensive. $200 billion over ten years to cover about 4 million people.
The link in that quote leads (after passing through a column by Josh Barro) to an estimate by Jim Capretta and Tom Miller in this National Affairs essay, which I very highly recommend. I think it’s fair to say that Ramesh and I agree entirely with Capretta and Miller’s proposal on high-risk pools, and I think their estimate of costs certainly makes sense. As we said in our piece, it’s a whole lot less than Obamacare would cost, and it stands a far better chance of helping to solve the problem and of making the scope (and therefore cost) of the problem smaller over time. We wrote that “conservatives should commit to funding well-designed high-risk pools” and are glad to repeat that.
Finally, Yglesias objects to our argument that under the system we support, people would have a strong incentive to buy at least catastrophic coverage. He writes:
But the real core of the idea here is “cheap, renewable catastrophic policies.” These policies are not cheap through some feat of magic, they’re cheap because they’re stingy. Which is fine. If your priority is to minimize federal expenditures, then obviously giving everyone very low-quality health care is better than giving high-quality health care. But it’s like saying that your affordable housing policy is to hand out tents so people can sleep in the park.
I would argue it’s more like saying that your idea of homeowner’s insurance is coverage that pays a benefit in the event of a major catastrophic event like a fire, rather than coverage that pays for routine services like cleaning the gutters. Catastrophic coverage is not properly described as stingy: it pays all costs above a certain level. But it doesn’t start paying until that level is reached, so that people purchasing routine care behave more like consumers do in other arenas. And it doesn’t appear to result in lower quality care.
Some people have proposed replacing Obamacare with universal catastrophic coverage (here’s a fairly detailed proposal along those lines, for instance), and while I think that would certainly be better than Obamacare, it’s not what Ramesh and I are proposing. We have in mind a system in which everyone has access to at least catastrophic coverage (because the availability of a standard refundable tax credit that can only be used to purchase insurance would create an enormous incentive for insurers to offer coverage with a premium equal to the credit, and therefore with high deductibles and co-payments but no out of pocket costs for the coverage itself, and an enormous incentive for people who would otherwise choose to be uninsured to use that credit rather than have it go to waste) but also to more comprehensive coverage available in a competitive and regulated market. Again, I wouldn’t speak for Ramesh on this front, but I would wholeheartedly endorse Jim Capretta’s detailed replacement proposal here and I think it is the direction a Republican Obamacare replacement would very likely take.
I’d summarize the case for the approach we’re proposing in terms borrowed from John Goodman, who has probably argued for this way of thinking longer than anyone. Simply put, people who are not on Medicare or Medicaid today purchase their insurance with money from a combination of three sources: their own pockets, employer funds (which come out of their pay), and a federal tax subsidy. The third of these today offers benefits in an arbitrary way (based on your tax bracket, employer decisions, state and local taxes, and other factors) that in practice helps the rich much more than the middle class, and the combination of the three has to be spent in a horribly distorted insurance system where costs are inflated by (among other things) the absence of transparency and consumer choice. Obamacare would make these problems worse. We propose to make the third source—the subsidy—the same for everyone, and therefore to make it available to people who don’t have it now and put at least catastrophic coverage within the reach of all. And we propose to enable the development of a competitive insurance market in which to purchase coverage. That would actually address the sources of the key problems with today’s system, rather than move even further in the direction of an inefficient and economically irrational health-care system that pulls off the extraordinary feat of being simultaneously open-ended and over-managed.