Yuval Levin offers an elegant explanation of the flaws and vulnerabilities of Obamacare’s “profoundly prescriptive approach” to expanding insurance coverage, and why conservatives ought to favor repeal-and-replace. With Ramesh Ponnuru, he recently published the outline of a conservative alternative to Obamacare:
The first step of a plan to replace ObamaCare should be a flat and universal tax benefit for coverage. Today’s tax exclusion for employer-provided health coverage should be capped so that people would not get a bigger tax break by buying more extensive and expensive insurance. The result would be to make employees more cost-conscious; and competition for their favor would make insurance cheaper.
That tax break would also be available—ideally as a refundable credit sufficient at least for the purchase of catastrophic coverage—to people who do not have access to employer coverage. This would enable people who now choose not to buy insurance to get catastrophic coverage with no premium costs. It also would give those who want more-comprehensive coverage in the individual market the same advantage that people with employer plans get.
Medicaid could be converted into a means-based addition to that credit, allowing the poor to buy into the same insurance market as more affluent people—and so give them access to better health care than they can get now.
All those with continuous coverage, which everyone could afford thanks to the new tax treatment, would be protected from price spikes or plan cancellations if they got sick. This guarantee would provide a strong incentive to buy coverage, without the coercion of the individual mandate. People who have pre-existing conditions when the new rules take effect would be able to buy coverage through subsidized, high-risk pools.
By making at least catastrophic coverage available to all, and by giving people such incentives to obtain it, this approach could cover more people than ObamaCare was ever projected to reach, and at a significantly lower cost.
The new alternative would not require the mandates, taxes and heavy-handed regulations of ObamaCare. It would turn more people into shoppers for health care instead of passive recipients of it—and encourage the kind of insurance design, consumer behavior and intense competition that could help keep health costs down. Redesigned and directed this way, the flow of federal dollars and tax subsidies would do much less to distort health markets than it has for the last several decades, while getting far more people insured.
Yuval and Ramesh offer an attractive alternative, albeit one that would entail significant change and that would likely meet with significant resistance, e.g., from people who currently enjoy “gold-plated” employer-sponsored insurance and from state officials who’ve chosen to embrace the Obamacare Medicaid expansion. David Frum suggests that the Medicaid expansion might make repeal-and-replace impossible to achieve: since the start of the Obamacare rollout, as the exchanges have sputtered, 400,000 Americans have enrolled in Medicaid and S-CHIP, and that number is expected to increase:
If a “repeal ACA” president takes office in 2017, he or she will face a reality in which repeal means stripping millions of people—potentially up to 10 million—of a government benefit they will by then have enjoyed for more than three years. Such a move would be the most radical reduction in social coverage ever seen in a democratic country. Ronald Reagan never tried anything even close to that.
Having recognized the challenges facing any repeal-and-replace effort, Paul Howard and Yevgeniy Feyman of the Manhattan Institute propose making Obamacare “a Trojan horse for conservative health-care reform.” They point to early indications that the Obamacare exchanges might be less prescriptive than some conservative critics had initially feared — specifically, they might be fairly friendly to HSA-qualified plans:
Shortly after the law passed, it looked like the administration would use regulatory rule-making to kill health savings accounts. But subsequent rules clarified that HSA-qualified plans were actually the default structure for bronze plans on the exchanges. (Some silver plans qualify, too.)
Far from being driven to extinction, high-deductible, HSA-eligible plans have an opportunity to capture significant new market share on the exchanges.
Howard and Feyman go on to offer a broader Obamacare reform agenda:
First, encourage more competition between insurance plans by repealing Obamacare’s community rating provisions (which were designed to make insurance less expensive for the sick and elderly) -– or at least expanding the age rating bands (limits on how much more insurers can charge the elderly than the young -– this raises costs for the young and reduces them for the elderly) from 3-1 to 5-1. Then, high-risk pools for the uninsured with costly medical conditions should be fully funded, capping premiums at 150 percent to 200 percent of standard premiums, with means-tested federal subsidies for low-income Americans. This would ensure coverage for uninsured Americans with pre-existing conditions, without driving up prices for younger and healthier applicants.
Next, offer true consumer choice in terms of benefits and coverage. Obamacare requires coverage of several essential health benefits that drive up cost. Instead, basic coverage should focus on core health benefits such as wellness and prevention, physician care, hospital coverage and prescription drugs. Plans should also be allowed to offer higher deductibles to anyone younger than 35 or even 40.
Last but not least, catastrophic plans should also be eligible for subsidies. The savings accrued from picking plans that are cheaper than the silver benchmark should be funneled into HSAs to offset future health expenses. This would provide a powerful incentive for Americans to gravitate into catastrophic plans, slow health-care inflation and encourage providers to become more transparent in pricing their services.
Conservatives aren’t going to repeal or replace Obamacare anytime soon. But they can propose smart fixes that build on the HSA-friendly exchange architecture to make the law more consumer- and patient-friendly. Reform from the inside can set the stage for even bigger changes in the not-too-distant future.
Ultimately, all of the aforementioned right-of-center advocates of health-system reform favor a coverage expansion model that allows for business model innovation that can reduce the cost and improve the quality of medical care. What differentiates them are (a) varying assessments of the political prospects for repeal-and-replace and (b) of the extent to which the Obamacare insurance exchanges are salvageable.
The Upton bill represents a curveball. Essentially, the Upton bill allows for a private individual insurance market that operates in parallel to Obamacare and its stringent insurance regulations. The political impetus for the Upton bill is the recent wave of cancellations of nongroup health insurance policies prompted by the new insurance market reforms. Yet it goes beyond addressing the concerns of those who’ve been directly impacted by cancellations by allowing insurance firms to sell policies under pre-Obamacare state insurance rules to all comers. James Capretta elaborates in the Weekly Standard:
As a practical matter, that means these insurance plans will be able to offer coverage at far lower premiums than the Obamacare-compliant plans will charge because the plans made viable by the Upton bill will not be forced to subsidize the less healthy risk pool that is likely to show up in the Obamacare exchanges. Further, the Upton bill would allow individuals to stay in these reopened insurance plans without fear of being penalized for not enrolling in Obamacare-compliant products.
Critics of the Upton bill warn that it would sow chaos, as it would undermine the viability of the insurance exchanges by attracting the young and the healthy. Recently, a friend suggested an interesting possibility — if the Upton bill did become law, perhaps we’d see the emergence of a bifurcated insurance market, in which the exchanges serve in effect as fully-funded high-risk pools while lightly-regulated, low-cost options will remain for those who choose to take them. This wouldn’t be a very well-tailored approach to financing medical care for high risks. It would be extremely expensive, for one thing. But it’s just the kind of kludgy policy settlement that flows from our dysfunctional politics.
It could be that the Howard and Feyman approach, which Avik Roy, Douglas Holtz-Eakin, and David Frum have also championed, is best understood as a bridge to something like the vision of Yuval, Ramesh, and Jim Capretta. Or perhaps repeal-and-replace is closer at hand than those who would reform the law think, and the reform effort just gives cover to what is a fundamentally broken approach to the health system. The answer will depend to a great degree on how congressional Republicans and GOP candidates approach the issue over the next year.