HEALTH CARE

05.12.14

With More Competition and Choice, Obamacare Might Not Be So Horrible

Yes, it’s a dumb and deeply offensive law to begin with, but that doesn’t mean it can’t be made less dumb and offensive.

Last month, even as President Obama touted the “8 million people” who signed up for individual coverage under the Affordable Care Act, he granted that the program was far from perfect—or even complete. “There are going to be things that need to be improved,” he told the press, insisting that there wouldn’t be “any hesitation on our part to consider ideas that would actually improve the legislation.”

OK then. Even though I think Obamacare is a truly epic mistake (more on that later), here are three obvious ways to make the president’s signature legislative achievement better, cheaper, and more cost-effective.

1. Allow anyone who wants to, regardless of income or age, to purchase a low-cost “catastrophic plan.”

As it stands, only people under 30 and folks who qualify for a variety of “hardship exemptions” can buy cheap “catastrophic plans” that are designed “to mainly protect…you from very high medical costs.” But the whole point of health insurance is to protect you from “very high medical costs.” Indeed, the only clear benefit of Medicaid insurance is that it helps beneficiaries buffer “large, health-related financial shocks.” (Medicaid certainly doesn’t appear to improve health outcomes.)

The difference in premiums between a catastrophic plan and “bronze” plan is substantial. I plugged in info for a hypothetical 29-year-old male making $40,000 a year and living in Butler County, Ohio (I live there part-time). Catastrophic plans cost as little as $128 a month, with a $35 per doctor visit co-pay and a $6,350 deductible and out of pocket maximum. Bronze plans start at $191 a month, fully one-third more than the catastrophic plan, with a $6,000 deductible.

Because catastrophic plans are not generally available to people 30 and older, it’s tough to make exact comparisons for older Americans, but there’s every reason to believe that the stripped-down plans would be much cheaper while also protecting against medically induced bankruptcies. If one of the main goals of Obamacare is to put “consumers back in charge of their health care,” as the Department of Health and Human Services (HHS) claims, giving people one more choice makes total sense.

2. Force insurers to compete across state lines. For all the press surrounding the total number of signups, the fact is that each state comprises a solitary health-care market. That means two things, neither of which is likely to make Obamacare more successful or less costly.

First, some individual state markets may simply go belly up because not enough people, or the wrong demographic mix, signed up. An analysis of government enrollment data by Avalere Health found huge discrepancies among the states, with less than half hitting their targets. After accounting for attrition due to nonpayment of premiums, Avalere estimates that Florida enrolled about 199 percent of its target, California enrolled about 186 percent, and Idaho about 185 percent. However, such strong results are more than balanced by states such as Minnesota (57 percent), New York (49 percent), and Hawaii (46 percent).

As important, overall enrollment by “young invincibles”—generally healthy people between the ages of 18 and 34 who are paying higher premiums to subsidize coverage of older Americans—came in at around 28 percent. Obamacare’s architects were assuming that 40 percent of young invincibles would sign up. That miscalculation could mean serious trouble in terms of actuarial soundness. Within Obamacare’s own framework, expanding the risk pool to the national level is a no-brainer.

Second, a national market would also spur competition and thus lead to better prices and more innovation. This is something we all understand when it comes to most goods and services. If New Jersey banned the importation of vegetables from other states, that would be a boon to Garden State produce magnates but a clusterfuck for consumers. Progressives have long argued that allowing insurers to sell health plans across state lines would lead to a “race to the bottom” in terms of coverage that would screw over unsuspecting customers. But under Obamacare’s diktat, a national floor for benefits and covered services has effectively been set.

Health insurance companies, in cahoots with state insurance commissions, have carved up their territories like old-school mob families.

The other big argument is that out-of-state insurers won’t have the leverage to negotiate lower prices with local doctors and hospitals, so they either wouldn’t win customers or even be interested in competing. Come on already. As my Reason colleague Ronald Bailey has shown, health insurance markets in any given state are so heavily concentrated among a few firms precisely because of antitrust exemptions granted by Congress in 1945. “The truth is,” argues Bailey, “that companies don’t want competition; they want government guaranteed profits.”

Health insurance companies, in cahoots with state insurance commissions, have carved up their territories like old-school mob families. A true national market that would force insurers to compete for customers on the basis of price and service would expand consumer options and eventually lead to new ways of doing business.

3. Grow the supply of medical care already. Proponents of Obamacare have paid a lot of attention to forcing more people into the health-care system via the individual mandate, Medicaid expansion, and premium subsidies. They’ve spent next to no energy on growing the supply of medical care. It’s not a pretty picture when demand increases and supply stays flat. In fluid markets, you get price hikes; in massively regulated ones such as health care, you get long waiting times, rationing, and pissed-off customers. No wonder nurses and other practitioners are freaking out.

Robert Graboyes is an economist who studies health-care economics at The Mercatus Center at George Mason University. He says the quickest way to grow the supply of health care is to ditch all sorts of barriers to entry such as “certificate of need requirements, protectionist professional licensing, benefit and/or provider mandates, scope-of-practice limitations, restricted medical school admissions, and medical tort laws.” Scrapping all of these (and more) would be best, but deep-sixing any of them would be a great start.

Think about it: Nearly three dozen states have “certificate of need” laws governing when new hospitals can be built or existing ones can expand. In those states, existing providers can effectively veto new competition. That’s idiotic under the best of circumstances. Under Obamacare, it’s downright criminal. Columbia economist Frank Lichtenburg calculates that in terms of medical interventions, nothing beats pharmaceuticals when it comes to increasing and extending the quality of life. Yet under Obamacare, it’s still going to cost $1 billion and 10 years to bring new drugs to market.

As I noted above, I’m not a fan of the Affordable Care Act. Cost projections for massive government health-care programs are about as reliable as the ones used for military interventions, and the Congressional Budget Office has already increased its original cost estimate for the first full decade of Obamacare’s costs by 100 percent. There’s surprisingly little reason to believe that forcing us to buy insurance will make us healthier even as it makes our wallets lighter. The federal government should no more be in the business of guaranteeing health insurance than it should be in the business of surveilling its citizens or bombing foreign countries independent of war resolutions. I think the Supreme Court’s decision to rubber-stamp the individual mandate even as it rewrote the law to make it constitutional is one of the great blunders of American jurisprudence.

As a libertarian, I ask you: What else is new? Obamacare is not just a dumb law but a deeply offensive one (on this at least, the American people have my back). That doesn’t mean it can’t be made less dumb and less offensive.