Asymmetrical Information - Megan McArdle

05.10.13

How Could the GOP Have Improved Obamacare?

Is it their fault that the law wasn't more market friendly?

The past few months have been hard on Obamacare, and its supporters.  Max Baucus, one of the primary authors of the plan, suggested that it was going to be a trainwreck unless the administration got its act together on implementation.  Cost-saving improvements like Electronic Health Records turn out not to save costs. Insurers are wary about entering the exchanges, making it likely, says Reuters, that "some markets will have little or no competition next year."  A major study of a Medicaid expansion which was supposed to bolster the case for Obamacare by showing how much it improved health ended up showing no such thing.

Josh Barro, among others, has suggested that this is partly the fault of Republicans, for not being real partners in the health care debate.  Josh writes:  

Liberals are tired of being lectured by conservatives about what’s wrong with their approach to health policy because conservatives haven’t been a productive partner in seeking a fix. And they’re right to note that conservatives’ preferred alternative to Medicaid expansion (leaving tens of millions of people uninsured) would be worse for quality of life.

But the lesson of the Oregon Health Study is nonetheless that there’s cost-effectiveness information out there that Medicaid and other health insurers aren’t exploiting. And even though conservatives have generally done a terrible job of explaining why, conservative ideas about increasing consumer direction in health care could help to exploit that information and make health care more cost-effective -- without repealing Obamacare or stopping the Medicaid expansion.

Ross Douthat echoes this sentiment in a recent post:

The fact that the G.O.P. isn’t really offering such an alternative at the moment clearly makes the case for repeal weaker than it otherwise might be, and it makes the case for resistance weaker as well: If their own party can’t find a way to unite around an Obamacare replacement, the Republican governors and legislatures fighting the Medicaid expansion will, indeed, probably just end up disadvantaging their own citizens while achieving nothing except delay.

I do think it's a pity that Republicans (and conservative think tanks) haven't spent more time developing market-focused alternatives to our current system, like, (ahem), the McArdle Plan, which eliminates the tax subsidy for employer-sponsored insurance, zeros out coverage mandates, gets rid of Medicare and Medicaid, and has the government provide 100% insurance for all expenditures above 20% of income.  Simple, efficient, and keeps the incentives where they belong.  

But at the same time, I recognize a certain flaw in the McArdle Plan, which is that voters would freak the hell out if you tried to pass it, or even some variant (like keeping Medicare).  The reason that the GOP doesn't have an alternative plan is that there was no good plan which was both politically acceptable, and affordable.  That's why Obamacare is so bizarrely complicated and prone to breakdown at any of hundreds of pressure points: doing something sensible would either have caused a voter revolt, or come back with an unnacceptably high price tag.  The Democratic reasoning was that this was a great pity, because they'd have to go ahead and pass a  omplicated and unwieldy mess instead; the Republican reasoning was that this was a great pity, so they'd better say nothing and fight the complicated and unwieldy mess.  

But what if they'd "engaged", as pundits are fond of urging?  Say they'd developed a coherent alternative like the McArdle Plan, or the Goldhill Plan, or some other simple, clean, market-focused approach?  In my opinion, nothing.

For starters, there are the abovementioned political problems with these approaches: in order to make them cost-effective, you need to lift the tax subsidy for employer health insurance.  Voters like the susbidy for employer health insurance.  

But in 2009, when all this was being debated, Republicans had an even bigger political problem: Democrats controlled the presidency, the House of Representatives, and held a 60-vote majority in the Senate.  They were in no mood for a bargain.  

Oh, sure, if it would attract a few token Republican votes, they were willing to tinker with the price tag.  In exchange for broader participation, Republicans might have extracted some larger concessions. Maybe they'd have saved Medicare Advantage from cuts, gotten some sort of tort reform thrown in, or slightly changed the pay-fors.  But serious, market-based reform?  The kind that involves actually exposing consumers to more costs so that they will think about how much treatment they want to get?  Never would have happened.  Every important constituency would have opposed it.  

  • The progressive base wants massive redistribution and as little cost sharing as possible: their ideal is that you show up at the doctor and no one even mentions money.
  • The unions would have gone nuclear: tax-advantaged health benefits are one of their selling points for members.
  • The health care providers, who the adminsitration was determined to have on board, would not have liked it either.  It would have put insurers out of business.  And it would have put considerable margin pressure on doctors, hospitals, and pharmaceutical companies.  

Moreover, the administration shares many of these sentiments. Look at what Kathleen Sebelius said about the catastrophic plans that Obamacare has essentially eliminated:  

At a White House briefing Tuesday, Health and Human Services Secretary Kathleen Sebelius said some of what passes for health insurance today is so skimpy it can't be compared to the comprehensive coverage available under the law. "Some of these folks have very high catastrophic plans that don't pay for anything unless you get hit by a bus," she said. "They're really mortgage protection, not health insurance."

There wasn't any way to reconcile this vision with a more consumer-based approach.  Democrats didn't just kill HSA/Catastrophic plans because they're mean.  They killed them because they fundamentally dislike that method of delivering health insurance--and moreover, because killing catastrophic plans was necessary to keep the cost down for the generous benefits Democrats wanted to provide to older and sicker workers.

If real catastrophic coverage had been allowed, the healthy would have sorted into catastrophic care, leaving sicker people in traditional plans which would therefore have cost much more.  Putting younger workers in the same plans forces them to subsidize the sicker and older.  If they're allowed to leave, the government has to provide a bigger subsidy--which shows up in the CBO score as higher cost.

The stuff that the GOP actually could have conceivably gotten was trivial.  Tort reform is mostly a state-level issue; the federal government doesn't have the authority to butt in and tell those courts what sort of awards they can give.  The Democrats caved on Medicare Advantage anyway, when the time actually came to cut benefits.  And it's not like playing around with the taxes we used to fund this thing would somehow have substantially improved its operation.  

The fact is that Democrats did not have to have Republicans in order to pass Obamacare.  They wanted to have them, of course.  But they did not need them.  Which is why we got a huge, complicated system that relies on bureaucratic controls and first-dollar coverage; that is the sort of program that Democrats like.  Their vision is fundamentally at odds with a consumer-driven approach.  And there wasn't an available compromise that would have married the two, both because the political opposition would have been fierce, and because doing so might have raised the price tag to a level that neither party could accept.  

It's fine to say that Obamacare is better than doing nothing.  But it's not fair to blame Republicans for not somehow making this better.  Democrats didn't want to do the things that Republicans thought were better, and they had the votes to pass the plan they wanted.   Its benefits and its flaws have to both be laid at the feet of the folks who voted for this system, not the people who didn't.