The Pledge’s Health-Care Critics

by Avik Roy

The Republicans’ Pledge to America has come under a fair amount of criticism from both the left and the right. (On Wednesday night, I gave its health-care provisions a 7 out of 10.) Some of these criticisms are fair, some are unfair, and some are based on a faulty understanding of what the Republicans are proposing. Let’s go through the criticisms.

First, let’s swing our eyes to port. Igor Volsky of the Center for American Progress put out a detailed post arguing that “the document provides almost no specifics about what the party would do to control health care spending, improve quality, or pay for its reforms. And at least 7 of the GOP’s ideas on health care are already included in the health care law.” I disagree with him on both counts.

As to the first point, the Pledge does propose measures that would curb health-care spending and improve quality. Malpractice reform would curb defensive medicine and reduce wasteful health spending. Legalizing the purchase of health insurance across state lines would dramatically reduce the cost of insurance. Expanding health savings accounts will incentivize more people to migrate to consumer-driven health plans, which will also lower costs and improve quality. Of these measures, the first two would cost the government zero; HSA expansion might reduce tax revenues somewhat (because HSAs are tax-free), but not by much given their currently low penetration.

Ezra Klein advances the argument (as does Igor) that repealing Obamacare will increase the deficit, since the CBO scored PPACA as reducing the deficit by $143 billion. Even if you believe in the omniscience of the CBO (I do not), we all know that CBO scores are heavily gamed by legislators. It is far from clear that a Republican Congress in 2013 trying to repeal the law would garner the same score from the CBO as the Democratic Congress did in 2009. Remember also that the CBO, in its scoring of PPACA, did not have time to consider the costs of most of the new discretionary spending that the law requires. Suffice it to say that deficit hawks are the ones who most dearly desire the repeal of Obamacare.

Returning to Igor, there are superficial similarities, but serious substantive differences, between the Pledge’s health-care proposals and those of PPACA. Let’s take them one by one:

  1. Insurance across state lines. Republicans advocate the full liberalization of health-insurance consumption: just as I can order a laptop from California, even though I live in New York, so too can I buy health insurance. PPACA “allows” state governments to do something they could pretty much do already: enter into compacts with each other to allow for cross-border insurance sales. These compacts aren’t going to happen, especially between states with significantly different regulatory structures. The whole point of buying insurance across state lines is to liberate insurance from the lobbyist-driven mandates that drive insurance costs skyward.
  2. High-risk insurance pools. The PPACA-sponsored high-risk pools are seriously underfunded and have essentially no chance of succeeding. In addition, for PPACA, they are temporary measures meant to tide patients over until the guaranteed-issue mandate (requiring coverage of preexisting conditions) goes into effect. For Republicans, high-risk pools are an alternative to guaranteed issue.
  3. Pre-existing conditions. PPACA requires that insurers accept everyone who applies, regardless of preexisting conditions. This is a recipe for skyrocketing health costs, because it encourages people to wait until they are sick before buying insurance. (PPACA’s individual mandate, even if it manages to pass constitutional muster, doesn’t go into full effect until 2018.) The Republican proposal echoes pre-PPACA law: requiring insurers to cover those with prior coverage and a preexisting condition. (Jonathan Cohn objects to the Pledge because he doesn’t believe high-risk pools work: but that’s more of a philosophical objection.)
  4. Lifetime and annual caps. This is the one area where PPACA and the Pledge are basically identical. This aspect of the law will increase the cost of insurance, but not by much: my actuarially knowledgeable colleagues put the cost increase at 1-2 percent.
  5. Rescissions. The rescission provisions in both PPACA and the Pledge are mostly symbolic. It is already illegal for insurers to dump patients simply because they get sick: it is a violation of the insurance contract. If applicants for insurance knowingly misrepresent their health status, however, it is the beneficiary who has violated the contract. There is only a small bit of room in between these two situations for tweaking regulations.
  6. State innovation. PPACA allows states to receive waivers, if the HHS secretary is so kind as to grant them, to slightly stray from PPACA’s blizzard of unfunded state mandates. Republicans favor a far more decentralized approach. PPACA clearly constrains the latitude of states to cover the uninsured; this is indeed an area in which the Republican and Democratic approaches are diametrically opposed.
  7. Abortion. It is the consensus of abortion activists on both sides of the aisle that PPACA allows federal funds to pay for abortion. Republicans seek to restore the Hyde Amendment principle that taxpayer money can’t be used to fund abortions.

I should here mention that there is some confusion about exactly what Republicans are proposing. Peter Suderman, in an otherwise excellent piece, is worried that the Pledge’s promise to require insurers to cover those with preexisting conditions will lead to the famed “adverse selection death spiral.” But as I explained above, the Pledge only requires coverage for those with prior insurance, preventing healthy people from gaming the system, and thereby avoiding the death spiral. Moreover, what the Pledge is advocating has been a part of federal law since the passage of the Health Insurance Portability and Accountability Act in 1996. (For a thorough treatment of this topic, see Jim Capretta and Tom Miller’s piece in the Summer 2010 issue of National Affairs.)

Now, let’s turn to the Right. Conservative critics of the pledge are disappointed that the Pledge didn’t do more to tackle entitlement reform. Philip Klein describes the document as “reinforcing [Republicans’] timidity.” Erick Erickson calls it “perhaps the most ridiculous thing to come out of Washington since George McClellan.” Et cetera.

I share their basic disappointment that the Pledge doesn’t say much about entitlement reform. However, the news isn’t all bad. If National Review’s editors are right, that a “full accounting of Social Security, Medicare, and Medicaid” means “putting their long-term unfunded liabilities on budget,” this would be a huge breakthrough in honest fiscal accounting, and help build popular support for broader entitlement reform. Today, the deficits run by the big entitlements are not counted toward our official deficit and debt totals, even though we have to pay them off with the same borrowed taxpayer dollars.

And another of my NR colleagues, Kevin Williamson, is an actual fan of the Pledge: “You guys do appreciate that this would be more than President Reagan managed on the spending front, right?” Kevin is the fiercest deficit hawk I know — his blog, Exchequer, is singularly devoted to the subject — and his words should be weighed accordingly. “As a matter of politics,” writes Kevin, “entitlement reform is going to be a long and complex fight, and difficult to summarize in a short campaign document.”

Let’s remember that, even if Republicans take the House, they are facing a likely Democratic Senate and certain Democratic White House. There is only so much they can get done. Their approach, it would seem, is to bite off today what they can chew, regain the trust of the electorate, and build upon their successes in 2012. We’ll find out soon enough if that was a wise strategy — but it can certainly be called a plausible one.

Avik Roy is an equity research analyst at Monness, Crespi, Hardt & Co., and blogs on health-care policy at The Apothecary.