August 6 2013

Alternative to ObamaCare?

Hadley Heath

Introduced today at the American Enterprise Institute, a new health policy proposal titled "Best of Both Worlds" attempts to connect the goals of universal health coverage and individual choice.  I attended the lunchtime panel event where the authors of the plan explained it.

(As a disclaimer, this plan is NOT the first alternative to ObamaCare that has been offered.  If you are interested in other plans, I suggest reading here, here, here and here.  Contrary to popular opinion, conservatives have many, many policy ideas to reform health care.)

As suggested by its title, the "Best of Both Worlds" plan is not 100% conservative in its approach. Check out its main features and judge for yourself:

1. It creates a market-based national health insurance exchange in which:

  • All insurers must offer a basic standardized insurance plan.
  • Insurers price premiums for patients according to risk factors.
  • The federal government provides financial support to those who need it.

2. It removes the income tax exemption for employer-based health insurance.

3. It uses public funds to pay for emergency care at less than the current cost of uncompensated care.

The plan is intriguing, and its authors should be commended for adding to the conversation about where our health system must go from here.  There are certain aspects of their plan that strike at the heart of our health system's current woes, and would result in a freer market than ObamaCare.

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Importantly, their plan repeals community rating provisions.  ObamaCare requires community rating nationally - that is, requires that insurers disregard important risk variables like sex, sickness, and to a certain extent, age - but many states had community rating laws in place before ObamaCare.  These laws create a real headache for the insurance marketplace, because they raise premiums for the young and healthy, discouraging them from joining the pool. Get rid of 'em!

The "Best of Both Worlds" plan also accurately targets the tax advantage of employer-sponsored plans as a major market distortion.  Although it's not politically palatable, American health policy desperately needs to un-link employment and insurance. Not only does this link create problems for people who are unemployed or stuck in certain jobs simply for the benefits, but it forces us to buy health insurance as an office... not as individuals or families.  This means our current system (that could hardly be called a market, it is so overregulated) is not as responsive to competition as it should be.  How to do this is a complicated debate.  You could even argue that ObamaCare will unlink employment and insurance by making it unaffordable for employers to offer insurance anymore. But clearly, this is the wrong strategy and will leave many folks out in the cold.

The authors also stressed during today's discussion that other features of the plan include reforming Medicaid into a premium-support model by integrating Medicaid into the national exchange, and encouraging long-term insurance contracts that guarantee a certain premium level over years (to protect against a bad diagnosis).  I'm no exchange fan, but premium support in Medicare and Medicaid would be a great change that would infuse those government insurance behemoths with some individual responsibility (read: choice), and insofar as insurance companies want to offer plans with guaranteed renewability and long-term contracts, let them! Some plans have already experimented with these features in the private market.

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Why use the government to establish a national exchange, when we could remove current barriers to buying insurance across state lines?  Then we'd have a national market, not a national government-run "exchange."  We don't need government to create markets... Markets happen naturally when government steps out of the way.  This process would not be simple, given the 50 state insurance commissions that want control over the purchase and sale of plans in their state, but deregulation that could lead to more interstate trade in health insurance would open the market without a need for a national exchange.

This plan relies on a similar mechanism as ObamaCare to lower costs: subsidies. Lots of subsidies. It's raining subsidies. Subsidies don't really lower costs, though, since someone has to pay for the subsidies too.

Finally, as Nina Owcharenko (from the Heritage Foundation) pointed out on today's panel, this plan would face significant political hurdles.  Ignore for a moment that ObamaCare is law and the political exhaustion with health reform. Nina pointed out (rightly) that as soon as government establishes a "basic health plan" or requires insurers to offer one, the debate begins about what to include or exclude. The political incentives in Washington is toward more and more coverage. This makes health insurance (and care) more expensive.

Amitabh Chandra, a panelist and one of the authors of the plan, responded by saying that yes - this "basic plan" concept could become an election debate between Politician A who wants to include proton beam therapy in the basic plan and Politician B who doesn't.  Voters are more inclined to support Politician A, who promises more coverage.  Chandra seems to shrug this off, indicating that their plan would attach a political price to decisions like that. I thought, "Yeah, we saw this political price paid in the last election cycle, only instead of proton beam therapy, it was birth control."

Are These the Right Goals?

The purpose of the "Best of Both Worlds" is to unite two goals: universal coverage and personal choice.  But are these the right goals?

One attendee of today's event went so far as to ask: Does personal choice actually result in people making better decisions for themselves? Does it result in cost savings?  He emphasized that sometimes people can be overwhelmed with choices, and sometimes people fail to evaluate their options well.

I would not question whether more choice and competition is good for the health market.  People do make rational decisions for themselves, and we see this at work in other markets.  Perhaps it is harder to see in the "market" for health insurance because of other factors, like the lack of transparency or information about what plans actually cover.

I would, however, question whether universal coverage should be a goal. To some people, this is tantamount to health policy heresy.  But universal coverage cannot be achieved without some degree of coercion, since some people will always choose to go without insurance.  And usually proponents of universal coverage have made the mistake of confusing health insurance with health care. While the two are strongly linked today (people with private health insurance have access to the most timely and best quality care), I wonder what would happen if we focused on improving the quality of care available to everyone (and making it more available by allowing market forces to contain costs) rather than focusing on making sure everyone has a piece of paper that says that he or she is insured.

We Owe Thanks

No health policy proposal is going to please everyone. There is no perfect way to fix a very imperfect system. Sometimes our goals work together; sometimes they don't.  In any case, we should applaud anyone making a sincere contribution to the conversation about health policy. I believe the authors of this plan, like many on the Right and Left, are driven by a desire to help the most people get the best care. I salute the authors for offering their ideas. 

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