Healthcare

Republicans get it mainly right on health care reform

Republicans get it mainly right on health care reform

Let’s just state upfront that health care reform has never been Republicans’ strong suit—and that might be a compliment.  The U.S. Constitution does not empower the federal government to take over the health care system; and so not knowing much about something you have no authority to control isn’t a problem.

But Democrats, who can’t be bothered with constitutional limitations, forced Medicare and Medicaid on the country, tried to force HillaryCare and finally succeeded with ObamaCare.  And it turns out they didn’t know anything about health care either, or websites.

So now, Republicans have to propose an alternative to the Democrats’ ObamaCare rollout disaster.  And considering the Republican Study Committee’s recent proposal, they are on the right track.

The RSC plan begins changing the economic incentives.  The two biggest problems in the U.S. health care system are:

  • Economic incentives are completely convoluted — In the vast majority of cases, when a patient sees a doctor or goes to the hospital or pharmacy, someone else is paying the bill. There is little or no incentive for patients to seek value for their health care dollars—as consumers do in every other sector of the economy.
  • The U.S. created an employer-based health insurance system — The employer-based system has some benefits, but it also has a number of drawbacks: Your employer gets to decide what kind of health insurance you have and in most cases you lose the policy when you change jobs.  The primary reason it thrives is employees get a tax break for any money an employer spends on health coverage, but not if the employee buys it on his own.  (Self-employed workers get a 100 percent deduction.)

The RSC plan addresses both problems by replacing the employer-based tax break with a personal tax break: $7,500 for an individual and $20,000 for a family.  This proposal is similar to one proposed by President George W. Bush.

The other option is a refundable tax credit, which I think it’s fair to say more health policy conservatives support.  The benefit of the refundable tax credit is that it helps low-income people pay for health insurance.  A standard deduction doesn’t; the deduction only reduces one’s tax obligation.  We’ll discuss the negative side of that later.

On the second point, the RSC plan expands the use of Health Savings Accounts (HSAs), which ObamaCare scaled back.  HSAs give patients an incentive to seek value for their health care dollars, and so expanding them takes us in exactly the right direction.

ObamaCare doubled down on the current system of perverse economic incentives by expanding employer-based coverage and insulating more people from more expenses.  Or at least that was the plan.  The administration had to postpone the employer mandate for a year; and Obama’s comprehensive coverage was so expensive that many people are getting very high deductibles—creating yet another public backlash.

The RSC plan addresses the problem of the uninsurables.  A number of Republicans, including Paul Ryan, have suggested that we need to embrace the “guaranteed issue” provision in ObamaCare, which requires health insurers to accept anyone who applies regardless of a preexisting condition.  But that is precisely the reason why ObamaCare has to try to micromanage the whole health insurance system.

Not the RSC plan; it returns to the system of state-based high risk pools that provided guaranteed coverage to people in 35 states.  That system could stand a bit of tweaking, since not all of the risk pools worked well, but it’s the right solution.

It also tries to implement something the Health Insurance Portability and Accountability Act of 1996 tried to do: allow people to transition from group to individual policies as long as they have been continuously covered.  The devil is in the details, but the change is needed.

Creating a more competitive market.  The RSC plan wants to allow the purchase of health insurance across state lines.  It’s not a bad idea—I have long supported it—but it won’t solve many problems.  Nearly all health insurance plans come with a network of physicians and hospitals that have agreed to provide policyholders with a lower price.  There is no guarantee that a health insurance plan available to people in one state will have a negotiated discount with health care providers in a state where it doesn’t operate.  And that insurer will not want to go to the cost of setting up a network for one or two people who want its coverage.

Buying across state lines makes a lot of sense for states that share populations, like Kansas City, or New York and New Jersey and maybe Connecticut.  But it isn’t at all clear how well the plan will work for vastly separated states, especially where a state isn’t operating—and has no provider network—in the customer’s state.

Liability reform and respecting life.  The RSC plan is pushing for tort reform, which is a good idea, but will probably do more to defund trial lawyers than lower health care costs.  The good news is that states are moving forward without federal legislation.  Texas passed comprehensive tort reform several years ago and it seems to have had little or no impact on the cost of health care in the state.  However, it did seem to have a positive impact attracting physicians to the state, and trial lawyers complained that malpractice awards, along with their incomes from the awards, had dropped significantly.

Finally, the RSC plan does not require insurance to cover abortions and, “Prohibits federal funds authorized or appropriated by this act from covering abortion, except in the case of rape, incest, or when the life of the mother is jeopardized.”

Considerations.  There has been a long-running debate over whether a deduction or tax credit is the better way to address tax fairness in health care.  The federal government “spends” (i.e., loses) about $268 billion in tax revenue because of the current tax break for health insurance.  If that amount if is redirected, switching from an employer-based tax break to an individual one would be budget neutral.

A refundable tax credit provides money to buy coverage even if the individual doesn’t owe any taxes, which is helpful for low-income families that do not have the disposable income to buy it.  However, the tax credit is also more susceptible to fraud.

A standard deduction only reduces a person’s tax obligation, and doesn’t provide funds to help pay for the cost of a policy as a refundable tax credit would.  If Republicans take this approach, Democrats will claim that Republicans are just trying to provide another tax break for the rich without helping working families get coverage.

The fundamental difference between conservatives and liberals on health care is that liberals do not believe people can make good choices in the health care marketplace, so the government has to make those choices for them.

Conservatives, by contrast, believe that people can make good choices, as long as good economic incentives are in place.  By embracing consumer-driven health care the RSC plan seeks to instill much better incentives and so moves in exactly the right direction.

Merrill Matthews is a resident scholar at the Institute for Policy Innovation in Dallas, Texas.  Follow at http://twitter.com/MerrillMatthews.

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