The window Republicans have won’t reappear anytime soon.
The window Republicans have won’t reappear anytime soon.
O n a recent episode of The Editors podcast, Rich Lowry and the crew discussed the question of how Republicans should best address the problem of Obamacare’s rising premiums and the upcoming vote, at Democrats’ behest, to permanently extend Biden-era enhanced subsidies for those premiums. While this may seem like a short-term policy quibble, it’s actually a unique and significant opportunity to advance a free-market health-care agenda: specifically, by deregulating Obamacare in exchange for a one-to-two-year phaseout of the enhanced subsidies.
Obamacare premiums have nearly tripled since 2013, and Obamacare’s deductibles have more than doubled over the same time span. The driver of these higher costs isn’t the health law’s subsidies. It’s the law’s insurance regulations, which, under the Senate’s rules, require a filibuster-proof 60-vote majority to roll back. Hence, if Republicans want to make health insurance affordable again, they need a strategy to gain 60 votes in the Senate for Obamacare deregulation: a minimum of eight Democrats to go along with 52 Republicans. In this article, I articulate a path for them to get there.
Why Republicans Struggle on Health Care
Republicans have long struggled to articulate an alternative to Obamacare, single payer, and other left-oriented approaches to health reform. Republicans usually nibble around the edges, with small-ball ideas that message well, but don’t address America’s structural health-care flaws.
The biggest structural flaw of them all — the original sin of America’s health-care system — is that we don’t purchase health insurance for ourselves, and instead depend on employers or the government to buy it for us. That policy — an unintentional byproduct of World War II wage controls — is the single biggest reason why American health care is the costliest in the world. Few of us have visibility into how much is being taken out of our paychecks to buy health insurance, and we have little incentive to shop for the lowest-cost, highest-value health-care products and services.
Individually Purchased Health Insurance Is the Key to Free-Market Reform
The only way off the train track to single-payer health care is to repair and rebuild the market for individually purchased private health insurance. Individually purchased health insurance — that is to say, insurance you buy for yourself independent of your employer or the government — is the sine qua non of free-market health reform. Health Savings Accounts are great, but if you get cancer, or get hit by a bus, or have a stroke, and end up with a $100,000 hospital bill, your HSA isn’t going to save you. You still need insurance for those big catastrophic bills.
Single-payer health care is not the only possible endpoint for the United States. As my FREOPP colleague Gregg Girvan has shown, Switzerland, Ireland, Germany, and the Netherlands all have universal health-care systems using private health insurance. Libertarian purists will have their quibbles with each, but when you look at these other systems holistically, they do a far better job than the U.S. does in achieving consumer choice, high quality, affordability, and fiscal sustainability.
In the U.S., Medicare Advantage works similarly to these European models. In Medicare Advantage — a reform enacted by congressional Republicans in 1997 and enhanced in 2003 — private insurers compete with each other to deliver the Medicare benefit to seniors. The program has been a massive success, in spite of Democratic hostility, to the point where today, a majority of Medicare enrollees have signed up for private coverage instead of the Bernie Sanders-style single-payer version of Medicare.
Fix Obamacare’s Worst Regulations
If we ever want there to be a free-market health-care system for the non-elderly in the U.S., we must start by fixing the market for individually purchased health insurance. This is the market that Obamacare blew up in 2014, by tripling or quadrupling premiums for younger and healthier uninsured people in order to — in theory — subsidize the cost of sicker and older people. (In reality, younger and healthier people boycotted the market, leading to higher premiums for everyone.)
The Affordable Care Act imposed a blizzard of regulations upon the individual market for health insurance. The most damaging related to community rating: banning insurers from charging lower premiums to the healthy vs. the sick, and dramatically narrowing the difference between what insurers could charge the young vs. the old. If you fix these two problems with Obamacare, you can fix 80 percent of what has driven Obamacare’s premiums skyward.
The good news is that there are ways to do this while still protecting those with preexisting conditions. As I explained recently in the Washington Post, you can directly subsidize sick patients through an invisible high risk pool, known to insurance pros as reinsurance; and widen Obamacare’s “age bands” to 5:1 to allow young people to pay one-fifth the premium that older enrollees pay. Congressional Republicans are familiar with both reforms, having attempted to pass them in 2017 during the repeal and replace effort.
So, that’s the good news: that there are credible policy solutions to the worst of Obamacare’s flaws. The bad news: It takes 60 votes in the Senate to enact these reforms. You can’t fix community rating through reconciliation, because such a reform is not strictly budgetary in nature.
So how do we get 60 votes in the Senate to deregulate Obamacare?
A Bipartisan Deal
The answer: Trade a permanent reform of community rating, via reinsurance and 5:1 age bands, for a short-term, one-to-two-year extension of the Biden-era enhanced Obamacare subsidies.
Some conservatives have raised the legitimate concern that a short-term extension of the enhanced subsidies will lead to an endless train of short-term extensions down the road. There’s a solution for this.
The extension should apply solely to existing ACA enrollees, and not to new enrollees. Because most people sign up for Obamacare when they’re in between jobs, there is enormous churn in the individual market. Over time, this will lead to a gradual phase-out of the subsidies. Republicans could adjust the enhanced subsidy formula downward to assist with this phase-out, if they think they can get Democratic votes for that.
Rich Lowry, in his syndicated column, wrote favorably about this approach to Obamacare deregulation. But on the Editors podcast, Phil Klein expressed opposition, arguing that if a deal like this were to pass, “You [would] enshrine the higher subsidies and then they add back the regulations when [Democrats] are in power.” I disagree. Democrats would not be able to reimpose Obamacare regulations without 60 votes in the Senate, so long as the filibuster remains in place.
“But Democrats could get rid of the filibuster!” you might respond. Yes, they could, but then Republicans could enact even more far-reaching deregulation when they are back in power.
The Alternative Is More Government Intervention
Opportunities like this one — to enact free-market health reforms requiring 60 votes in the Senate to pass — don’t come around every day. There are plenty of ways for Republicans to blow the opportunity by failing to enact premium-reducing reforms.
Some Republicans, including President Trump, have suggested replacing the Biden-era enhanced subsidies in the form of Health Savings Accounts contributions. While HSAs are great, and an important component of consumer-driven health reform, deploying them in this instance would forego the opportunity to deregulate Obamacare, which is a far more critical strategic goal. Neither traditional Obamacare subsidies nor HSA subsidies reduce the underlying cost of Obamacare-based health insurance.
A narrative that has taken hold among some Republicans is that extending the enhanced subsidies is a giveaway to insurance companies. That’s not exactly correct; under Obamacare, insurers are able to keep no more than 15 percent of premiums for overhead; the rest has to be used to pay health-care claims for patients. (This is also a dumb Obamacare rule that inflates premiums.) Nonetheless, the truth is that the vast majority of Obamacare subsidies go to hospitals, doctors, and drug companies — not to insurers.
The best way to reduce the cost of Obamacare subsidies is to reduce the cost of Obamacare insurance. And the best way to reduce the cost of Obamacare insurance is to deregulate the ACA’s insurance market.
The NR editors concluded their discussion of health care by unanimously agreeing that Republicans would lose the messaging war on health care to Democrats. This needn’t be the case. But the GOP will deserve to lose the messaging war if they can’t reduce the cost of individually purchased health insurance through free-market reforms. The window they have now won’t reappear anytime soon.
On the flip side, by seizing today’s opportunity to deregulate Obamacare and reduce premiums, they can start to increase voters’ confidence in their broader philosophy of health reform.