The Agenda

Ezra Klein on How to Think About PPACA and Rivlin-Ryan

I think Ezra Klein has done a good job of summarizing why one might embrace Rivlin-Ryan and not PPACA, though of course we have different points of emphasis:

In the absence of an explanation from Ryan, Reihan is left generating possible explanations on his behalf. Perhaps, he says, the difference is that the Affordable Care Act doesn’t do enough to change the tax treatment of health-care insurance (though, through the excise tax, it does more on this front than has ever been done before). But Ryan-Rivlin has nothing to do with the tax treatment of health-care insurance. 

That doesn’t change the fact that it is a perfectly good reason to be for Rivlin-Ryan and not PPACA. At present, Medicare grants a defined benefit to retirees. For under-65s, we channel a tax benefit that is meant to achieve a similar goal. Rivlin-Ryan aims to move from a defined benefit to a limited defined contribution. The McCain health plan and Ryan-Coburn aimed to transform the tax treatment of health insurance into a limited defined contribution. The analogy isn’t perfect, but the animating spirit is the same, i.e., the goal is to limit taxpayer exposure to rising health costs, and to encourage cost-consciousness among the insured. I should have been clearer about this, and I’m grateful for Ezra for bringing this to the attention of his readers. 

Perhaps, he says, it’s that the Affordable Care Act relies on Medicaid for about half its coverage expansion. That’s more plausible, but no conservative legislators have proposed fixing the Affordable Care Act by folding Medicaid into the exchanges.

It’s true that no conservative legislators have proposed fixing the Affordable Care Act by folding Medicaid into the exchanges, but I think that is mostly because conservative legislators are united in backing repeal-and-replace. One of the goals of Ryan-Coburn was to fold Medicaid into a unified system for under-65s, and I think a lot of conservatives would agree that this is a good idea as a general matter. But is it reason enough to try to fix PPACA? That’s a separate question entirely.  

Perhaps it has to do with other differences with universal exchange programs like Emanuel-Fuchs and Wyden-Bennet. But neither Ryan nor the GOP embraced the Wyden-Bennet or the Emanuel-Fuchs models. Conversely, Zeke Emanuel, the principle architect of Emanuel-Fuchs, helped design the Affordable Care Act, and Ron Wyden, the principle author of Wyden-Bennet, voted for it. Perhaps it’s because the Affordable Care Act is different from a previous health-care reform bill Ryan sponsored. It’s true that Ryan-Coburn was different than Ryan-Rivlin and than the Affordable Care Act, but it’s irrelevant to the claims Ryan is making on behalf of Ryan-Rivlin, which is the plan he is sponsoring and pushing now.

I really don’t see how this last part is true. Ryan-Coburn was perfectly compatible with Rivlin-Ryan. Rep. Ryan favors Ryan-Coburn (not surprisingly, perhaps) and he doesn’t favor PPACA, for many of the reasons Ezra considers ancillary. 

And all of these arguments stray from the question at hand. Ryan-Rivlin is only good policy if the competition generated by the subsidized-exchange model radically controls cost growth. If it does, then there is no reason it will not also do so in the Affordable Care Act. If it doesn’t, then the policy will fall apart. That doesn’t mean conservatives who support Ryan-Rivlin need to support the Affordable Care Act. Just as many liberals refused to support the bill unless it included a public option, conservatives could choose to oppose the bill unless it privatizes Medicaid. There’d be nothing inconsistent about that.

This really clarifies matters, though I’d add in a few other things, e.g., conservatives could choose to oppose the bill unless it privatizes Medicaid, reforms the tax treatment of health insurance to make it more transparent and consistent, offers far more flexibility to state governments, etc. My impression — my mistaken impression — is that Ezra was suggesting that Rep. Paul Ryan was being hypocritical for supporting Rivlin-Ryan and not PPACA. 

But it does mean that they need to either upgrade their estimation of its savings or downgrade their estimation of Ryan-Rivlin’s savings. As it happens, I think it makes more sense to do the latter than the former, but I could make the case the other way, too.

I think the problem is that the co-existence of the subsidized-exchange model with ESI creates marked inconsistencies in the subsidies offering to many low and middle-income households. We’ve argued this point back and forth, but the basic argument is that this unevenness will make PPACA more expensive than appears to be the case under the CBO model because many people will flock to the exchanges. James Capretta and Yuval Levin made this case in August of 2009:

The centerpiece of Obamacare is a new premium subsidy program. In the House bill, families with incomes up to four times the poverty level would get a fixed cap on their insurance premiums, tied to their incomes. For instance, a family whose income is twice the poverty level would pay no more than 5 percent of its total income for insurance. But providing that guarantee to all such households in America would cost far more than even the Democrats are willing to propose. The plan therefore would make subsidies available only to households getting insurance through the new “exchanges,” insurance pools set up in each state as a parallel system to job-based coverage. And full-time workers in all but the smallest firms would be barred from entering the exchanges, at least for a time, so they wouldn’t have access to the new entitlement.

This means that two households, identical in all respects including income, would be treated very differently depending on whether they got their insurance through the exchange or through their employer. At twice thepoverty level, a family of four today makes $44,000. Such a family insured through an exchange would pay no more than $2,200 for a policy that could cost $12,000, so it would receive a federal subsidy totaling nearly $10,000. The family next door, meanwhile, with the same income but with health insurance provided through the workplace, would receive an implicit tax break for the $12,000 in employer paid premiums worth only $3,600. That’s a bonus of more than $6,000 for being in the exchange–or a penalty of $6,000 for having employer coverage. This disparate treatment would be widespread. The Census Bureau counts 102 million people under age 65 in households with incomes between 150 and 400 percent of the poverty level, but the Congressional Budget Office (CBO) estimates that only 20 million of them would receive insurance through the exchanges in 2014.

Such disparate treatment of lower income workers would create a powerful incentive to flee employer coverage for the exchanges. And there would at the same time be pressure to extend the subsidy to workers generally satisfied with the plans provided at work but displeased about paying so much more for them than other similarly situated people. This would vastly increase the cost of the plan, since Congress is not known for resisting constituent pressure. 

Now, Capretta and Levin were not dealing with the final version of the law, but this is a big reason why Ryan-Coburn was structured so differently. It proposed a wholesale shift for how the federal government approaches health insurance for under-65s, which was one of the reasons the proposal was so politically controversial. And this is why I keep insisting that the difference between PPACA and Emanuel-Fuchs and Wyden-Bennett are so important. Yes, of course, Republicans weren’t flocked to those plans, but those plans were consistent about the real transition that is necessary. Republicans could still oppose them in consistent fashion, as Ezra allows, but they represent better analogues for Rivlin-Ryan because they bake in the assumption of a complete transition to subsidized exchanges.

To be very direct, the case for hypocrisy is a heck of a lot stronger if we ask why Rep. Ryan thinks Rivlin-Ryan will save lots of money but that Emanuel-Fuchs won’t than if we ask why he thinks Rivlin-Ryan will save lots of money but that PPACA won’t. 

 

Reihan Salam is president of the Manhattan Institute and a contributing editor of National Review.

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