Health Care

To Stop Socialized Medicine, Expand Individual Choice

(Pixabay)
The old “repeal and replace” mantra is no longer sufficient.

Republicans and conservatives have repeatedly complained that Obamacare amounts to the “government takeover of the U.S. health-care system.” The only problem is it isn’t true.

It’s fair to say that Obamacare was a meaningful expansion of the role of the federal government in health care. But the real government takeover of U.S. health care took place in 1965, when LBJ signed into law the amendments to the Social Security Act, enacted by bipartisan majorities in Congress, that created Medicare and Medicaid.

Today, more than 115 million Americans — one-third of the population — are enrolled in socialized, single-payer, government-run health insurance. In America, de facto single-payer programs include Medicare (38 million enrollees in its single-payer form), Medicaid (62 million enrollees), the Children’s Health Insurance Program (7 million), the Veterans Health Administration (9 million), and other programs. Of that 115 million, Obamacare has contributed only 12 million, through its expansion of Medicaid. (About 8 million people receive subsidies to participate in Obamacare’s private insurance exchanges, which, for all their flaws, are not single-payer systems.)

All this to say that socialized medicine — and single-payer health insurance — are hardly as foreign to America as conservatives tend to believe. “I’m not going to cut Medicare,” Donald Trump promised when campaigning for president. It’s not an accident that Bernie Sanders and his compatriots call their plan “Medicare for All” — they do so because Medicare is the most popular single-payer health-care program in the country.

Without Reform, Single-Payer Will Only Become More Popular

Conservatives and Republicans are eager to talk about the push for single-payer because it represents favorable political ground. Obviously, “If you like your plan, screw you” is a sub-optimal strategy for Democrats in 2020.

It would be, however, a colossal mistake for conservatives to kick up their heels and enjoy this moment. If they embrace the status quo — and do nothing to address the real problems with the high and rising cost of American health care — the popularity of socialized health insurance will only grow stronger.

Nowhere is this more apparent than among the 159 million Americans who get their health insurance through their employers. While the employer-based system deploys private insurers, it is far removed from an actual market for health insurance, because few workers have the opportunity to choose their own coverage with their own money. Employers enjoy controlling their workers’ health benefits, because doing so makes it harder for employees to take their coverage with them if they leave.

Because of this desire by employers to use health benefits as a retention tool, and because workers lack a clear picture of how much is coming out of their paycheck to pay for health coverage, the cost of employer-sponsored insurance is rising faster than the cost of other U.S. health-insurance programs.

Hospitals, for example, take advantage of their regional monopoly power to charge those with employer-based coverage 2.4 times more than what they charge those on Medicare for the same services. Deductibles for employer-based coverage have tripled in the last ten years, increasing the frustration that workers have with private insurers.

That’s why polls are showing increasing support for government-run health insurance — among Republicans. An April poll for the Associated Press asked 1,108 Americans whether they would favor the creation of a “new government health insurance plan” that they could buy instead of private coverage. Republicans favored the idea 44–32. (Voters overall supported the proposal 53–17, with Democrats in support by a margin of 65–8.)

If Republicans stick their heads in the sand, over time, socialized health insurance will become more popular, not less. Pragmatic Democrats have developed alternatives to Berniecare that deploy “public options,” such as the one described in the AP poll, that offer workers a lower-cost alternative to private employer-based coverage. “Public option” government-run insurance has lower premiums than employer-based coverage, because it pays Medicare or Medicaid reimbursement rates to hospitals instead of the wildly inflated employer-based rates.

In 2010, Democrats tried to enact a public option through regular order, requiring 60 votes in the Senate. They won only 58. Next time around, they will try enacting a public option through reconciliation, which will require only a simple 50-vote majority. The Congressional Budget Office will score public option-based plans, unlike Berniecare, as reducing the deficit, because their lower premiums will lead to lower levels of tax subsidies for employer-based coverage and Obamacare-based private insurance.

Conservative Misconceptions about Health Reform

The good news is that there are ways to roll back the socialist tide. But first, conservatives have to overcome three misconceptions they have about the state of health-care policy in America.

The first is that Obamacare is the most important component of government-run health care. As we discussed above, it’s at best a distant third, far behind Medicare and Medicaid.

The second is that there is no legitimate role for the federal government in helping Americans afford health insurance. In fact, it’s the federal government that created the problem of runaway health-care inflation, by preserving World War II–era wage controls in the form of excluding employer-sponsored coverage from taxation, and later by building Medicare on top of the employer system. The federal government made this mess, and the federal government is the only institution with the power to fix it.

The third misconception is the most important: that the only way to achieve universal health-insurance coverage is by further expanding the role of government in health care.

Americans enjoy universal smartphones, universal cable TV, and, today, nearly universal employment for those who seek it. Conservatives understand that each of these achievements took place not because of an expansion of government, but because of a reduction of it. Free-enterprise innovation is the reason that so many things are universal in our economy and scarce in socialist ones.

So why is it that so many of us have accepted the left-wing narrative that the only path to universal health insurance is through more government, when we would never accept that narrative about any other sector of the economy?

In The Art of War, Sun-Tzu famously observed that “every battle is won or lost before it is ever fought.” Conservatives have preemptively lost the war on health care, because they are fighting on the terrain of the Left: that the only way to universally affordable coverage is through government control. Since the public is understandably concerned with the affordability of health insurance and health care, conservatives who equate “affordability” with “big government” are destined to lose on policy, politics, or both.

Affordable Health Care for Every Generation

There is a different way forward for conservatives, one that embraces the goal of ensuring that health insurance is affordable for every American — and not just those living today, but also those from the generations to come, the ones who will inherit our health-care-entitlement-fueled $21 trillion federal debt.

The first thing to understand about American health care is that almost every American with health insurance gets some sort of federal subsidy. The poorest of the poor get subsidized coverage through Medicaid. The disabled get subsidized coverage through Medicaid and Medicare. Everyone with employer-based coverage gets a subsidy through the tax code: a benefit that is far more generous to wealthy bankers and law-firm partners than it is to cashiers or truck drivers. Warren Buffett, who is worth $84 billion, gets taxpayer-subsidized health insurance, because he is over 65 and eligible for Medicare.

Basically, the federal government subsidizes coverage for everyone except for a category of the working poor: those who don’t get insurance through their employer but earn too much to benefit from Obamacare’s subsidies. In a sense, this is the opposite of the system we ought to have, one in which those who work hard and play by the rules — but still struggle to afford coverage — are the ones we strive most to help.

Imagine an America in which the only people whose health insurance we subsidized were those who could otherwise not afford it: the poor, the sick, the vulnerable, and working Americans in lower tax brackets. Not only would such a system be fairer, but it would be far less expensive. Even if we did nothing else to improve our health-care system, a rebalancing of insurance subsidies could reduce the federal deficit by hundreds of billions of dollars a year.

Of course, such a transition could not be achieved overnight, for political and other reasons. But we can move substantially in that direction, by introducing gradual reforms whose value compounds over time.

Contrary to conventional wisdom, many luminaries of the conservative movement have embraced universal coverage. Ronald Reagan, in the 1964 Republican National Convention speech that launched him to stardom, said that “no one in this country should be denied medical care for lack of funds.” In another contemporaneous speech, he said that “any person in the United States who requires medical attention and cannot provide for himself should have it provided for him.” Milton Friedman, in a 2001 essay for The Public Interest, endorsed “providing every family in the United States with catastrophic insurance (i.e., a major medical policy with a high deductible).” Friedrich Hayek, in The Road to Serfdom, wrote:

Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision . . . in the case of sickness and accident . . . where, in short, we deal with genuinely insurable risks. . . . There is no incompatibility in principle between the state providing greater security in this way and the preservation of individual freedom.

While Reagan supported universal coverage, he opposed Medicare, because it was “compulsory health insurance through a government bureau for people who don’t need it or who have . . . even a few million dollars tucked away.” On the Reagan model, we can gradually introduce more means-testing into Medicare, so that middle-class taxpayers are not forced to subsidize coverage for the wealthiest Americans, people who should have saved enough on their own to buy insurance in their golden years.

Reducing how much we subsidize health insurance — especially for the wealthy — will not only balance the budget. It will also slow the growth of health care inflation, because 75 years of massive government subsidies are the biggest driver of higher health-care prices, much as federal subsidies for mortgage interest have artificially driven up the price of housing.

Choice and Competition Will Lower Health-Care Prices

And that gets us to the fundamental problem with American health care: It is far too expensive. Despite Obamacare — and, in many cases, because of it — 25 million legal U.S. residents remain uninsured. Tens of millions more have private coverage but struggle to afford it and find that rising health-insurance premiums are reducing their disposable income.

Here again, just as choice and competition make products and services less expensive in the rest of the economy, they can do so in health care. We must substantially expand Americans’ freedom to choose their own health insurance — both in public and private programs.

The freedom to choose is not just a fundamental economic principle. It is also the strongest moral argument against single-payer health care, which would abolish private health-care choices and replace them with a bureaucratically determined, one-size-fits-all government-run insurance agency.

But this doesn’t mean that America’s private health-insurance system lives up to that principle. Today, few workers with employer-sponsored insurance are able to choose their own plans. Instead, those plans are foisted upon them by corporate bureaucrats whose interests do not always align with those of their workers. The Trump administration is finalizing a rule enabling forward-thinking companies to change this, by allowing them to fund tax-advantaged Health Reimbursement Accounts that workers can use to buy the coverage they want on the open market. We can build on that rule by requiring that newly incorporated businesses use that approach to sponsor coverage. In that way, we preserve traditional arrangements for existing employers, but modernize employer-sponsored coverage for the workers of the future.

Similarly, we should gradually convert the Medicaid program from its current single-payer form into one in which enrollees receive tax credits to buy private insurance. And we should strengthen Medicare Advantage, the market-based form of Medicare whose consumer-driven structure has incentivized insurers to offer broader benefits, lower out-of-pocket costs, and better health outcomes than traditional Medicare does. On average, Medicare Advantage HMOs deliver the traditional Medicare benefit for 93 cents on the dollar, leaving plans room to offer seniors these additional benefits at a still-competitive price. It’s not uncommon at left-leaning health-policy conferences to hear experts softly complain that single-payer Medicare is no longer “competitive” with Medicare Advantage. Naturally, Senator Sanders and his friends are offended by this.

When Obamacare was enacted, the Medicare actuary predicted that MA enrollment would get cut in half, because Obamacare partly paid for its subsidies to the uninsured by cutting payments to Medicare Advantage plans. Instead, enrollment in Medicare Advantage has more than doubled. Within ten years, under current law, it’s possible that there will be more people enrolled in Medicare Advantage than in single-payer Medicare, even if we do nothing.

But we can do more. Today, Americans who turn 65 and don’t choose their own Medicare plan are defaulted into Medicare’s single-payer program. Instead, their default enrollment should be into a private Medicare Advantage plan, with the ability to opt out into the single-payer program if they want it. Other subtle tweaks such as competitive bidding can accelerate price competition among private plans in Medicare, lowering costs for seniors and taxpayers alike.

Finally, freedom of choice doesn’t just apply to insurance. It also applies to health-care goods and services. As we discussed above, throughout the U.S. health-care system, government has incentivized the rise of monopolies that exploit their market power to charge egregious prices to patients and taxpayers. This is especially true in two of the largest components of U.S. health-care spending: hospitals and pharmaceuticals.

President Trump has exhibited genuine leadership in tackling monopoly power among drug companies; he and congressional Republicans need to do the same for hospitals. More competition will lead to lower health-care prices, which in turn will make both private health insurance and public insurance programs more affordable.

The New Conservative Health-Care Leaders

So, to sum up: We can make health care affordable for every generation — both those living today and those yet to come — if we do three things.

First, we have to end welfare for the rich, and refocus health-care subsidies on those who truly need the help.

Second, we have to expand the freedom to choose customized, private health-insurance plans: both in the employer-sponsored system and in public programs like Medicare and Medicaid.

Third, we have restore competition to the provision of health care, so that hospital monopolies, drug monopolies, and the like have an incentive to reduce prices and improve quality.

More competition, lower costs, and fewer subsidies: This is the only market-based approach to health reform that can gain broad public support and get enacted by Congress.

The good news is that a number of young, enterprising congressional Republicans have taken up that mantle. Representative Jim Banks of Indiana has introduced the Hospital Competition Act of 2019, which would restore competition to highly consolidated hospital markets. Representative Mark Meadows (N.C.), chairman of the House Freedom Caucus, has introduced an antitrust exemption for insurers, leveling the playing field between monopoly drug manufacturers and fragmented health insurers.

Most impressively, Representative Bruce Westerman (Ark.), a third-term congressman, has produced the Fair Care Act of 2019, which is designed to increase the number of Americans with health insurance while lowering federal spending.

All three of these bills draw from work we’ve done at my think tank, the Foundation for Research on Equal Opportunity. More bills are coming. They won’t be reheated leftovers of the old repeal-and-replace effort, because our health-care problems are far bigger than Obamacare.

In health care, we will win the fight against socialist health care if we believe in our own principles, if we believe that free enterprise can do for health insurance what it has done for smartphones, automobiles, and wheat. As Friedrich Hayek observed so many years ago, there is no conflict between universal coverage and free enterprise. There’s only a conflict between those who don’t know what free enterprise can achieve — and those who do.

Avik Roy is the President of the Foundation for Research on Equal Opportunity (FREOPP.org), a non-partisan, non-profit think tank.

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