March 4, 2016
Last year, Philip Klein of the Washington Examiner published an e-book, “Overcoming Obamacare: Three Approaches to Reversing the Government Takeover of Health Care,” that sheds some light on what conservatives are thinking about how to replace Obamacare. In his book, Klein argues that the main difference between the most common Obamacare alternatives is how much their proponents favor the government’s role in providing health insurance.
He’s right, and I think it’s unfortunate. For years, the only approach Republicans have been pursuing is how to address the goal – set by Democrats – that everyone in America be insured (please, do take a moment to enjoy the irony here since even the rosiest projections show that under Obamacare 30 million people will remain uninsured). The result is a unique and misguided focus on finding more or less free-market ways to provide Americans with a third-party payer system to pay for their health care bills.
But health-care coverage is different from health care, something Republicans have been told before but seem to refuse to hear. When someone else – whether the government or an insurer – pays for your doctors’ visits or drug consumption, you tend to demand more of it, and this added demand is often for services and treatments that are less medically beneficial or altogether unneeded. Moreover, third-party payment systems generate massive costs because of all of the bureaucratic overhead involved – many doctors’ offices have more employees dealing with billing then with providing care!
Instead of trying to push people into third-party payer systems, conservatives need a plan to: (1) get Americans to pay more of their health care costs directly instead of insulating them from the real cost of their medical care, and; (2) knock down the multiple barriers to innovation that exist in the health care industry to allow the kind of revolutionary innovation, and the subsequent collapse in prices that usually follow, that we have seen in other fields such as information technology.
But you won’t find any of these ideas in the candidates’ plans. Gov. John Kasich, for instance, has talked about better management of government health care spending with a system of reward and punishment for providers, which can be characterized as the “No-Child-Left-Behind + end waste, fraud and abuse” health care reform plan. Basically the plan is based on the idea that bureaucrats simply need to develop better price controls for medical care. Needless to say, this simply builds on Obamacare and allows for more government meddling into the health care industry and the patient-doctor relationship.
Then we have the Donald Trump health care reform plan, about which he recently provided more detail. Unfortunately, most of the detail simply shows that he isn’t very familiar with health care policy, such as his proposal to “allow” health savings accounts. This is all good and well other than the fact that they have been around for more than a decade.
Beyond that, as far as I can tell Trump’s has five parts: (1) Get rid of the Obamacare “individual mandate” (maybe); (2) maintain Obamacare’s protection for people with pre-existing conditions; (3) force insurers to compete across state lines; (4) allow for importation of prescription medicines sold overseas; and (5) mandate price transparency.
Trump’s first two policy reforms contradict each other, since forcing people to buy insurance by threatening them with a tax penalty is what allows the protection of people with pre-existing condition without destroying the whole insurance market. There’s an excellent book that was published by The Heartland Institute in 2005, “Destroying Insurance Markets,” that explains exactly how the pre-existing conditions mandate Trump favors would drive every insurer in the country bankrupt without a mandate. Trump apparently hasn’t read it.
His third policy proposal, while being a favorite of many free-market pundits, would not in and of itself deliver the payoff he expects it to deliver, and certainly not in the near future. That is, among other things, because it would take time to establish a national market and because serious federal reforms would be required for it. Also there’s the inconvenient fact that until indemnity-style health insurance makes a comeback, an insurance policy bought from an Idaho insurer by someone living in New York would be mostly useless because the out-of-state insurer is unlikely to have a provider network in the Empire State.
As for importing prescription drugs from overseas, the reason they are less expensive in foreign countries is that those other nations effectively impose price controls. Trump is right that this is a problem, but the only thing his solution would do is import those price controls to the U.S. and deprive drug makers of the profits they need to invest in finding newer and better treatments.
Price transparency sounds good in principle, but there’s a catch – most health care prices today are meaningless gibberish thanks to a third-party payer system that has most providers jacking up their list prices to wildly improbable levels so they can then offer big discounts to insurers. Most doctors and hospitals have multiple prices for the same treatment, and little idea what the real price is or ought to be – mandating price transparency would simply drag the government further into the health care system as it would have to determine what the disclosed price is. Another word for this is price controls, which haven’t worked out well anywhere, in any market.
And then, of course, there is the small matter of Trump’s idea that the government would negotiate with hospitals and other health care providers because, as he explained, “We've got to do something. You can't have a — a small percentage of our economy, because they're down and out, have absolutely no protection so they end up dying from, you know, what you could have a simple procedure or even a pill. You can't do that. We'll work something out.”
Leaving aside the whole nonsense of people dying in the streets of one of the richest countries in the world, “a system in which government negotiated with doctors and hospitals is in fact the vision for a government-run system,” as Klein aptly puts it. He adds, “His vision for healthcare isn't the same as Obamacare. In fact, it would require drastically more government.”
Sen. Marco Rubio of Florida agrees with Trump that more competition between insurers would be a good idea, but he would add much more to it. While he doesn’t have a detailed plan yet, he has done the most to outline an agenda for reform. At the heart of his reform is the provision of a tax credit that people could use to purchase at least catastrophic coverage for themselves. This system would also change the tax break for employer-provided insurance so it wouldn’t continue to reward the most expensive employer plans.
While I know that this is a fairly well-accepted policy reform from Republican pundits and candidates, I find it problematic. For one thing, it continues the government involvement in the health care industry. But more importantly, such a tax credit is effectively a government-created incentive to buy insurance.
The incentive is done through a reduction of one’s tax bill if, and only if, one buys insurance. Under this scheme, all those who may choose to not buy insurance would face a higher tax burden. Michael Cannon of the Cato Institute calls this a mandate to purchase insurance because government is once again trying to dictate how we live our lives by trying to tilt the scale in favor of more health insurance consumption. In that sense, the Rubio plan, while better than Obamacare, is probably best describe as Obamacare Light.
Rather than obsess over how to best offer health insurance, Republicans should start thinking about how to produce better health care for more people at a lower cost, year after year. A 2014 book called “The Self-Pay Patient” describes the variety of ways in which getting health care away from third-party payers and paying directly for health care reduces costs and actually expands access to care, and Republicans ought to be looking at ways to make this a more common practice.
Bringing revolutionary innovation and consumer choice to health care would break the health care cost curve to bits—making the need for health insurance much less important or moot in many cases. None of the candidates appear to have plans that would do this, and both patients and taxpayers will lose out as a result.