The Agenda

Avikcare Explained

Avik Roy, a senior fellow at the Manhattan Institute and a friend of National Review, released a health-care-reform plan today that complements a range of options offered by conservatives so far to replace Obamacare. But Avik’s plan, as he explains in an NRO piece today, differs somewhat from other GOP proposals because it can leave in place some parts of Obamacare, and uses them to drive a comprehensive reform of the whole American health-care system. The American health-care system overall, he argues, was hardly a free market before Obamacare, but some aspects of the law’s exchanges, for instance, offer a way to transform the whole system into one that works for consumers and saves money.

Here’s how he proposes to do it:

Reform the exchanges to make health care consumer-driven and affordable.

Federal requirements for what plans must cover and at what cost would be significantly loosened, and a laundry list of Obamacare’s new taxes on insurance would be repealed. Roy’s plan changes the structure of Obamacare’s subsidies by benchmarking them to a high-deductible plan with a health-savings account — providing a powerful incentive for people to move into consumer-driven health plans. The HSA would be funded in part (depending on income level) by federal subsidies, which would roll over from year to year, giving consumers incentives to stay healthy and to make cost effective health-care decisions when they do need care. 

Consumer protections like guaranteed issue (people can’t be denied insurance) and lifetime and annual spending limits will remain intact. But insurers will be allowed to charge older individuals more than they do under Obamacare, and charge younger people less. Using a well-respected model from the University of Minnesota, Roy predicts this will ultimately lower the average exchange premium substantially relative to what it will be under Obamacare or the Senate GOP proposal:

Repeal the individual mandate and the employer mandate.

Because the plan should lower the cost of insurance and increase flexibility, it would make purchasing insurance attractive for healthy individuals. Thus, the individual mandate can be done away with (it’s partially replaced by a change to how open enrollment works — individuals will only have the chance to enroll in plans every two years, rather than once a year under Obamacare). Further, the proposal would eliminate the employer mandate, which will move some individuals away from employer coverage and into the exchanges in addition to freeing up the labor market. To push the health-care market further in that direction — away from employer-provided coverage toward consumer-driven options, a longtime conservative goal — Roy’s plan would also put the tax on high-cost plans (the “Cadillac tax”) into effect one year sooner.

Give most Medicaid beneficiaries private plans on the exchanges

The current Medicaid system, as Roy has long argued, produces poor outcomes relative to private insurance, so poor Americans can be helped out a lot by moving most Medicaid beneficiaries into the private insurance market. There are certain aspects of Medicaid that Roy would put entirely on the federally subsidized exchanges and parts of it (e.g., long-term care and policies for the disabled) that Roy would leave to the states. (The system is currently a mess of conflicting state and federal mandates and priorities.) 

Make Medicare a fiscally solvent and consumer-driven program.

Under the plan, the Medicare eligibility age would increase by four months every year until the program is totally phased out, to be replaced by putting seniors on the reformed exchanges. Of course, that means all current seniors can stay on Medicare, but it’s a more rapid, and actually more market-friendly, implementation of the Paul Ryan plan for Medicare.

Over 30 years, the model Roy uses estimates this change would save $5.1 trillion. The plan makes several further reforms to cut costs and to encourage seniors to seek care in the private market. Roy looks at the huge role played by Medicare as one of the fundamental problems of the American health-care system — it has tens of millions of Americans on inefficient single-payer health care already. Right now, seniors can’t even collect their Social Security benefits unless they sign up for Medicare — Avik would put them on the exchanges and encourage employers to offer consumer-driven coverage for them. This would effectively means-test Medicare, reducing spending on the entitlements that are driving the federal government bankrupt (Avik has specific ways to do this with the existing Medicare program too, making Medicare Part D less generous for prosperous seniors, for instance).

Break up hospital monopolies and increase competition among providers.

Hospitals have become increasingly consolidated over the last two decades, eliminating competition and driving up costs:

Roy’s plan would repeal rules and regulations that make building new hospitals difficult and excessively expensive. He also proposes expanding the division of the Federal Trade Commission, which litigates anti-trust suits, that deals with hospital mergers to thwart further anticompetitive activity. To encourage both local and regional competition, Roy proposes using reference pricing to make decisions more market driven and encourage medical tourism (patients seeking care in different localities, states, or countries where it may be less expensive).

Roy’s plan also calls for an end to the Veteran’s Heath Administration, a massive socialized system all its own. Roy proposes giving veterans a federal subsidy to buy care in the exchanges and opening VA hospitals to civilian patients, which would introduce much needed competition into nearby hospital systems.

Make malpractice and medical innovation laws more friendly.

Fear of malpractice suits encourages providers to perform unnecessary tests and procedures, driving up the cost of care. Roy suggests introducing caps on noneconomic and punitive damages and a “fair share” rule, which would ensure malpractice damages reflect the doctor’s share of responsibility.

The high cost of the FDA’s Phase III clinical trials keeps many new drugs, especially those to treat common ailments that will be less profitable, off the market. Roy recommends that some patients be allowed to use drugs that performed well in phases I and II while they undergo phase III testing.

With Avikcare, less is more.

Roy’s plan would significantly improve access to care for the Medicaid population and increases coverage by 12.1 million individuals by 2025 relative to Obamacare:

Even better, Roy’s model, which is similar to the ones the CBO runs, estimates that the plan will reduce the deficit by $8 trillion over the next 30 years – all while lowering private insurance premiums.


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