The Agenda

Gene Steuerle on All or Nothing Health Reform

Gene Steuerle of the Urban Institute has written a wonderful op-ed for the Fiscal Times outlining a way forward on health reform. He begins with the simple observation that the health system is always evolving, and that the new health law has many discrete pieces, some better than others. All or nothing is a false choice. As congressional Republicans have made clear, there are aspects of the new health law that they intend to retain or recreate. The trouble is that some legislators and activists on the other side have been offering a somewhat misleading narrative:

Democrats said it would be difficult for Republicans to pick and choose among provisions of the law because the popular and unpopular parts were locked together.

Consumers like the assurance that they can obtain coverage regardless of any pre-existing condition, but dislike the requirement to carry insurance. Without such a requirement, insurers say, people could go without coverage until they needed care, driving up costs for everyone else.

As Paul Starr has argued, however, there are other ways to manage the free-rider problem. We’ve been discussing other alternatives to the mandate in this space. Moreover, James Capretta and Thomas Miller, the leading health reform advocates on the right, have offered their own promising framework for covering pre-existing conditions that would involve far smaller subsidies than PPACA. Picking and choosing does appear to be an option, provided there are structures in place to help keep people in continuous coverage.

Steuerle offers a number of cautionary notes about the new health law:

Recent health reform did introduce some interesting experiments and new models. But, here again, these initiatives — like weight-control experiments on the value of exercise without limiting dietary intake — are unlikely to reduce cost growth if budget constraints aren’t in effect. Resisting normal budget constraints while insisting on conflicting standards of perfection puts Republicans and Democrats in a mutual bind. Relative to today’s mostly open-ended system, any cost-saving reform will necessarily generate some losers — somebody who has to get less or pay more, or some provider who has to accept less. Each political party always wants the other to pick the losers.

If simple budget principles guided policy, politics would adhere to a rule that each health program had to operate within a budget — one that would not grow automatically simply because private actors decided they wanted more services or private providers decided they wanted more money. That means that each health program must empower somebody — individuals, intermediaries or government itself — to say “No” to some prices and procedures to stay within budget. The legitimate debates — that really will never end in an evolving system — would then turn to the size of the budget and who should say “No,” to what and when.     

This is the logic behind the Rivlin-Ryan shift towards a defined contribution approach to Medicare: create a hard constraint, and give providers the flexibility to offer lower-cost approaches to offering high-quality medical care.

And Steuerle also offers a challenge to critics of PPACA:

* Do we really want to go back to having more than 50 million nonelderly people uninsured (old law)? On the other hand, shouldn’t we address the inconsistencies and sometimes perverse incentives in our four-tranche, almost-universal subsidy system of Medicare, Medicaid, insurance exchange subsidies and subsidies for employer-provided insurance (new law)?

* Do we really want to return to providing higher subsidies through the tax code for only the richest employees with the most expensive employer plans (old law)? Or give far higher subsidies to many employees simply because they join employer-employee groups that don’t provide insurance (new law)?

* Do we really want to continue encouraging employers to drop health insurance because it has become so expensive (old law)? Or encourage employers to segregate lower-income employees into firms without employer insurance so they can get higher subsidies from the exchanges (new law)?

Realistically, it is hard to see PPACA vanishing from the face of the earth. This means that Republicans and Democrats will have to work to fix the subsidy regime, to replace community rating with a cheaper form of risk adjustment, and return to the drawing board on Medicaid. The one silver lining is that PPACA did secure a notional commitment to reducing Medicare expenditures, though it didn’t provide a reliable mechanism for doing so. An optimist could say that while the last Congress did a great deal of damage, it did take a serious political hit that might make it easier for future legislators to put Medicare on a sustainable footing. That is where something like Rivlin-Ryan comes in.

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

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