Unlike ObamaCare, the Republican Plan Will Work

Unlike ObamaCare, the Republican Plan Will Work

By Ben Domenech - April 4, 2013

Ezra Klein has a lengthy piece taking apart my post from last July concerning the media’s oft-repeated “Republicans Have No Obamacare Replacement” myth.

I’m glad he’s engaged on this point, because I think it’s a sign of seriousness and a positive development to have debates about what comes after Obamacare – because make no mistake, something will come after it – and the discussion has been a long time coming.

The essential premise of Ezra’s piece is that Republicans have no plan for replacing Obamacare because none of the Republican plans does the same things Obamacare does, at least on paper. In other words, to qualify as an Obamacare replacement, your plan has to accomplish pretty much the same thing, with pretty much the same methods. This strikes me as a bit of a game, especially given the conflation of ends and means: if I replace my Ford with a Honda, do I still have a car? Or my desktop with my laptop – do I have a computer? Or sugar with Splenda… you get the idea. But then Ezra goes on to spend 2400+ words criticizing Republican plans. This itself is a welcome acknowledgement that these Republican plans must in fact exist, which was the whole point of my original post. Ezra’s real contention is not "You have no plan", but "Your plan is all wrong." Good! Now, four years later, we can have a debate.

The eight points that I noted as principles shared by the overwhelming majority of Republicans approach health care from a different perspective than Ezra and the Democrats. The accusation on Ezra’s part is that Republicans think we have too much insurance. He’s basically right – but there is a difference between saying “we have too much insurance” and saying “we have too many people insured”. It’s important to be careful here, because we’re judging how a Republican plan would work against how Obamacare’s supporters claim it would work, or ought to work. Democrats see getting insured as an end; but for Republicans, more healthy people is the end.

What most of the conservative health policy experts on the Right want is greater access to quality, affordable care. They understand health insurance does not guarantee quality health care any more than car insurance guarantees you a mechanic who fixes what's actually wrong with your car without overcharging you. They want people getting insured because insurance is more affordable, competing in a marketplace to provide people with what they want – and thus Republicans are focused on cost, while Democrats are focused on coverage.

Ezra argued recently that it’s okay that we’re seeing premium hikes, because people are paying for better insurance. But that's a bait and switch. Obama didn't promise that Obamacare would have people paying more for a better product – he promised premiums would go down $2500 and that most people would keep the same insurance and the same doctor they had before. Affordability was how he led with it – it’s right there in the title: the Affordable Care Act! Yeah, about that. And it’s an open question, I think, about whether these plans are really any better. For those getting regular email updates from their insurer about the subtle tightening of the reins on access to certain procedures, it looks more like insurance is getting more expensive while covering things Washington deems more important than what they covered before – which may or may not be what you need at an individual level.

Republicans are in this cost-focused position in part for populist reasons: cost is what most Americans care about. According to a March 2009 report released by Health and Human Services, a majority of Americans identified cost as their top concern with American health care – not coverage. See U.S. Department of Health and Human Services, “America Speaks on Health Reform: Report on Health Care Community Discussions,” page 101. It used to be online here, but HHS has taken it down for some odd reason.

Unfortunately, today we have an insurance system that doesn't work like an insurance system. Megan McArdle just had a great post on this the other day, following up on Kathleen Sebelius’s criticism of catastrophic coverage as “not real insurance”:

“It's why high deductibles are a good idea—for small expenses, it's better to self insure. And it's why "catastrophic" health plans, which only cover the sort of extremely expensive events that most people would have difficulty financing, are a much better deal than the soup-to-nuts plans that most people get through their employers. Those plans are expensive, both because they're paying for a higher percentage of your expenses, and because they drive up utilization--which means that they drive up next year's premiums even more. Imagine what your car insurance would cost if it covered gasoline, routine maintenance, and those little air freshener trees you hang from the rearview mirror. Then stop asking why health insurance costs so much… Sebelius' response is apparently that catastrophic insurance isn't really insurance at all—which is exactly backwards. Catastrophic coverage is "true insurance". Coverage of routine, predictable services is not insurance at all; it's a spectacularly inefficient prepayment plan.”

I typically use the example of your homeowner’s insurance policy being used every time a lightbulb busts. Imagine if you had to go to a housing clinic that was in your plan, wait for an advisor to tell you the proper lightbulb which you already know you need, go to another hardware store to pick up the lightbulb, pay a copay for the lightbulb, etc. Who would do that? And yet we do it all the time in the health care space. Most spending is on the broken lightbulb equivalent of chronic diseases, and that's exactly where things like Ken Thorpe's work come in. 

The point is that insurance is one way to pay for health care services, but it is not the only way, and very often not the best way. It adds massive administrative costs to every transaction. These are costs not solely born by the insurance company (or the employer), but includes costs on providers imposed by insurance companies. It is far more efficient to pay directly for a service received whenever it is possible to do so (and as consumer driven coverage evolves and expands, the optimal cut-off line will become more apparent). The presence of third-party payment always leads to overutilization, mistrust, and lack of accountability. Who is your doctor working for, you or the payer? Who cares what something costs if someone else is paying for it?

[WARNING, WONK LANGUAGE:] What’s more, if you favor global budgets and capitated payments to providers (as most on the left do), it really amounts to a defined contribution by another name. [/WONK] What’s the difference between that, conceptually, and premium assistance? The level of who receives the payment – be it government entities, providers, or the individual. Don’t we trust Americans to act more in their self-interest than people farther away from it?

Republicans calculate that most people would rather have less insurance plus more freedom, with prices driven down by market forces, over more insurance and government-run health care with its attendant access problems, rationing, care denials, higher taxes, regulatory burden, etc. Having access to affordable health care is not the same as having comprehensive health insurance, and in fact the latter has undermined the former. Price transparency is key here (why do most Democrats want to bully health plans on their rate increases but don't seem to think hospitals should have to publish prices for services?). CMS’ national health expenditure data over the last 30 years illustrates this: premiums go up as out of pocket costs plummet. Quality is important too, and we ultimately need both. But we have to start with something and everyone understands price.

In part, Ezra acknowledges this. He never really challenges the view that having patients share more of the cost of health care leads to lower costs (and higher coverage). He implicitly endorses it when he opines that a $10,000 deductible is sufficient. Great! Now we can just negotiate over the amount of the appropriate deductible.

While Ezra’s right that there will be lower-cost options in the exchanges that have high deductibles at first, these lower-cost options are almost assuredly going to be eliminated over time. Since my original post was from July, if I was writing it today I’d add a modifier that Republicans will likely push hard to exempt HSAs/HDHPs from Obamacare – preserve them, expand them, and make them available to everyone, including seniors. Obamacare’s regulations are already wrecking the individual market, and I expect future regs to limit these plans even further given the left’s natural dislike for them (despite their increasing popularity, or perhaps because of it).

Now, for the safety net: Republicans acknowledge the poor will always need to be subsidized. We can subsidize them inefficiently by buying first dollar coverage, or we can subsidize them more efficiently through funded HSAs or direct delivery of services. For the truly miserable – those functionally illiterate, drug addicted, mentally ill, etc. – the obsession with universal health insurance does absolutely nothing. They need direct delivery.

Medicaid is simply not a good program, as it currently functions. Its outcomes range from the subpar to the atrocious; it is rife with access problems and there’s a reason why so many of the uninsured who are currently eligible for it simply don’t enroll. Yes, Medicaid block grants as currently proposed will reduce the number of people covered by the program… but Republicans think that’s a good thing, because it would be a step toward returning Medicaid to the role it was intended to have from the beginning: a program for the poorest of the poor and the sickest of the sick. Fewer people means fewer access problems. But again, we can negotiate here: just increase the amount of the block grant. Structure is more important than the dollar figure here.

I disagree that Republicans think Medicare is the driver of all that's bad in our health system. They just believe that bureaucrats in Baltimore aren’t smart enough to run 1/6th of the economy – I mean, we are talking about a program that will pay for penis pumps but not eye glasses. Because commercial health plans benchmark payments for good and services to some percentage of Medicare, all the price distortions get imported into the system, even if tweaked a bit. This leads to overpaying for some things, and underpaying for others. Because the nature of this fee for service + third party payer system has the incentives all wrong, we end up with incredible fragmentation, waste, and even worse problems.

Somewhat counterintuitively, Democrats also give every indication of believing that Medicare is a problem. They always say that “Medicare can be the model” of the direction toward a utopia of lower costs and coordinated care. But wait: If they say Medicare will be the driver of future improvement, aren’t they implying that it hasn't been in the past – that Medicare has helped lead our system to its current dysfunctional state. When then-CMS head Donald Berwick was on C-SPAN's Newsmakers a few years back, he was asked if Medicare was going to become so good at reducing costs, why hasn’t it done so over the past half century? Here was his answer. 

For my part, the tax subsidies for employer-based care are a bigger part of the problem. Republicans are divided about how to deal with this issue: some want 100% deductibility of medical expenses, others are in favor of a refundable tax credit (either flat or based on need). Either way, this is one of the most regressive tax policies on the books, and reforming it has got to be one of the primary goals of post-Obamacare policy. No, there isn’t Republican unanimity on the best approach, but there is unanimity on it needing to be fixed – and of course there wasn’t Democrat unanimity on health reform in the 2008 primaries, either, or even during the 2009 process of passing the bill.

So what do we have, at the end of the day? We have the major points of a replacement for Obamacare which looks to solve different problems, using different mechanisms, and bending responsibility and authority toward the individual, not the state. These proposals have the advantage of working piecemeal towards these goals, rather than being lashed together into a single unified Rube Goldberg machine that only works if you’ve properly balanced all the pieces at once – an impossibility in a system this big, complex and bureaucratic. Yes, these points aren’t aimed at accomplishing the same goals as Obamacare. So that is a difference. There is another one, I suspect: unlike Obamacare, I think a replacement built on these principles will actually work. 

Benjamin Domenech is editor of The Transom. Click here to subscribe.

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