The Republican plan for replacing Obamacare doesn’t replace Obamacare

April 3, 2013

Do Republicans have an alternative to Obamacare? Matt Yglesias looked at proposals from Ramesh Ponnuru and Yuval Levin and concluded that the alternative is less spending on health insurance for poor people, stingier health coverage for middle-class people, and lower taxes for rich people. This is consistent with the topline spending priorities in the GOP budget. Yuval Levin responds here, and his response, which lays out his proposals in more detail, seems consistent with Yglesias's basic reading.

But Yuval Levin and Ramesh Ponnuru are not the Republican Party. Ben Domenech, who worked in George W. Bush's Department of Health and Human Services, finds what he says is the media's refusal to report on the actual Republican Party's actual health-care ideas maddening. "Of all the absurd memes repeated by the policy-bereft media these days," he writes, "the idea that Republicans have no plan to replace Obamacare is one of the most irritatingly false."

Where I come from, them's fighting words. Particularly "policy-bereft," which is about the worst thing you can say from someone aside from "appendix-table incapable." So here, according to Domenech, is the GOP's eight-point plan to replace Obamacare:

  1. They want to end the tax bias in favor of employer-sponsored health insurance to create full portability (either through a tax credit, deductibility, or another method);

  2. They want to reform medical malpractice laws (likely through carrot incentives to the states);

  3. They want to allow for insurance purchases across state lines;

  4. They want to support state-level pre-existing condition pools;

  5. They want to fully block grant Medicaid;

  6. They want to shift Medicare to premium support;

  7. They want to speed up the FDA device and drug approval process; and

  8. They want to maximize the health savings account model, one of the few avenues proven to lower health care spending, making these high deductible + HSA plans  more attractive where Obamacare hamstrung them.

This isn't a plan to "replace Obamacare." It's a plan to do the opposite of replacing Obamacare. It's as if I said I had a plan to fix the house by replacing the leaky roof, and you said you had a plan to fix the house by getting rid of the roof.

The confusion here is the term "replace Obamacare." Obamacare is, at its heart, a policy to make sure most every legal resident of the United States has access to comprehensive, affordable health care. In order to achieve that goal, it helps poorer Americans pay for insurance and regulates the products offered by insurers to make sure they're worth paying for.

The eight-point program Domenech lays out is not an alternative approach to achieving the same goal. It's actually an effort to achieve an almost perfectly opposite goal. Rather than make comprehensive insurance more accessible through government subsidies and regulation, it makes insurance stingier and rarer by removing government subsidies and regulation.

It's a plan, for instance, to save money by making it so fewer Americans have access to comprehensive, government-provided health care. It's a plan to cut costs by letting insurers offer far stingier, far higher deductible policies than they do today. It's a plan to limit the ability of injured patients to sue. It's a plan to hand Medicare over to private insurers. Ut's not repeal-and-replace so much as repeal-and-do-something-else-entirely.

The Republican plan, as explained by Domenech, wouldn't just mean fewer people with comprehensive health insurance than under Obamacare. It would likely mean fewer people having comprehensive health insurance than under the status quo. Perhaps that's a good thing. A key conservative belief in this debate is that insurance products are much too comprehensive and the market should be rebuilt around high deductible and catastrophic plans. But it's undeniably a very different thing. Obamacare and the Republican ideas aren't even apples to oranges. They're apples to taking away apples.

Let's go through the items one-by-one.

1. They want to end the tax bias in favor of employer-sponsored health insurance to create full portability (either through a tax credit, deductibility, or another method)

It's hard to say anything about this idea because the range of implied policies is so vast, and the consequences so varied. One way to end the tax bias in favor of employer-sponsored insurance is to end the deductibility of employer-sponsored insurance. That would get the job done, but mean many more uninsured people. Another way would be to make health insurance costs deductible for individuals as well as employers. That would mean more insured people, but it would cost a lot of money. Or you could end deductibility for health insurance and offer every individual or family a tax credit of the same size. The effect of that would depend on the size of the tax credit. Then there's the fact that all these ideas would turn people out into the individual market, where they'd pay more for the same insurance.

Domenech can't be more specific here because there's no unanimity among Republicans as to the best path forward. But absent that unanimity, it's impossible to judge the policy.

2) They want to reform medical malpractice laws (likely through carrot incentives to the states);

The Affordable Care Act is likely to have a more significant effect on medical malpractice lawsuits than most realize. Still, President Obama has long been clear that he'd like to cut a deal with Republicans that would go quite a bit further. Republicans just haven't been willing to trade anything away for that concession.

I've spent more hours than I'd like to admit digging into malpractice costs, and I'm skeptical that the favored conservative reform -- capping the damages patients can sue for -- will do much good. A number of states, including California and Texas, have already done that, and they've not turned into oases of low health-care costs. In addition, the biggest medical malpractice problem isn't in courts but on operating tables: The most important reason we have so many lawsuits is we make so many mistakes.

More promising are proposals that would give doctors "safe harbor" as long as they follow accepted best practices. That would both cut down on the number of lawsuits and improve the quality of patient care.

3) They want to allow for insurance purchases across state lines

Of all the health policies in the conservative arsenal, this one commands the most unanimity among elected Republicans, and is also the most baffling. It forgoes the benefits of federal regulation while simultaneously rejecting the benefits of federalism. It's straight race-to-the-bottomism. Permit me to crib a little from a previous post I wrote on the subject.

Insurance is currently regulated by states. California, for instance, says all insurers have to cover treatments for lead poisoning, while other states let insurers decide whether to cover lead poisoning, and leaves lead poisoning coverage -- or its absence -- as a surprise for customers who find that they have lead poisoning. Here's a list (pdf) of which states mandate which treatments.

The result of this is that an Alabama plan can't be sold in, say, Oregon, because the Alabama plan doesn't conform to Oregon's regulations. A lot of liberals want that to change: It makes more sense, they say, for insurance to be regulated by the federal government. That way the product is standard across all the states.

Conservatives want the opposite: They want insurers to be able to cluster in one state, follow that state's regulations and sell the product to everyone in the country. In practice, that means we will have a single national insurance standard. But that standard will be decided by South Dakota. Or, if South Dakota doesn't give the insurers the freedom they want, it'll be decided by Wyoming. Or whoever.

The Congressional Budget Office looked at this plan back in 2005. It didn't save much money or do much to reduce the number of uninsured. Here's what it did do: The legislation "would reduce the price of individual health insurance coverage for people expected to have relatively low health care costs, while increasing the price of coverage for those expected to have relatively high health care costs," CBO said. "Therefore, CBO expects that there would be an increase in the number of relatively healthy individuals, and a decrease in the number of individuals expected to have relatively high cost, who buy individual coverage."

4) They want to support state-level pre-existing condition pools;

In general, state-run pre-existing condition pools are pricey and ineffective, as Josh Barro details here. They also wall the ill off from the well. If we want to cover pre-existing conditions, we should just...cover pre-existing conditions.

5) They want to fully block grant Medicaid

This is where Republicans stop being polite and start getting real. The first three policies on Domenech's list could, depending on the details, help increase insurance coverage. This policy just kicks millions of poor people off health-care insurance.

Here's the deal: Medicaid is currently a federal-state partnership where the feds pay around 60 percent of the costs, the states pay around 40 percent, and the total funding is dependent on how many people sign up for the program.

Block-granting changes Medicaid in two ways. First, rather than being a federal-state partnership, states run the entire program themselves, and the federal role is limited to reduced to handing states a pre-determined amount of money each year. The idea here is that freed from federal meddling about who needs to be eligible and what needs to be covered, states will unleash their innovation machines and develop better, cheaper ways to run Medicaid. This is the part Republicans like to talk about.

But it's the second change that really matters. Right now, Medicaid's funding is decided by how many people need it and how much health care they use. The Republican block granting proposals tie it to a formula that grows more slowly than health-care costs. The result is the block granting program in the Ryan budget, for instance, would cut Medicaid by more than $800 billion over the next decade, and assuming no dramatic change in health-care costs, that will mean 20 million people lose their coverage.

Kaiser Family Foundation
Kaiser Family Foundation

Make no mistake: This policy saves a lot of money. But it saves that money by taking health care away from poor people. There is no way to cut $800 billion from Medicaid without hurting the people who rely on it.

6) They want to shift Medicare to premium support;

This policy actually does act as a replacement for part of Obamacare. Republicans aren't seriously proposing an alternative to Obamacare's efforts to expand coverage. But they are seriously proposing an alternative to Obamacare's theory of how to control costs.

Again, to crib from a past post: Republicans believe Medicare is the singular problem contributing to the relentless growth in health-care costs, and the only way to truly fix our health-care system is to turn Medicare into a voucher system, breaking it up among private and public options and letting competition work its will. That's what premium support does.

Democrats look at the lower prices paid in single-payer countries as well as the lower prices paid by Medicare in this country and come away with a very different conclusion: We could be paying much less and getting much more, but the insurance industry, at the moment, doesn’t have enough power via-a-vis hospitals and other providers.

Medicare, as the nation’s largest payer, is thus the most promising solution to health-care costs, and Medicare should be using its bargaining power to lead the private market — in particular, by persuading hospitals and other providers to make overdue, but difficult, reforms to how they deliver care, and by creating a template for how to pay for quality rather than volume.

One ongoing example is electronic health records, which were long resisted by providers, but are coming into wide use now not just because the federal government helped providers pay for them, but because Medicare is going to start docking the pay of providers who don’t use them.

Therefore, for Democrats, breaking Medicare up into a mass of competing insurers removes one of the most powerful levers available for controlling health costs. For Republicans, Medicare needs to be broken up if costs are ever to be controlled.

7) They want to speed up the FDA device and drug approval process; 

This is a good idea. But it's an idea that requires more funds. That, as usual, is the rub.

8)  They want to maximize the health savings account model, one of the few avenues proven to lower health care spending, making these high deductible + HSA plans  more attractive where Obamacare hamstrung them.

How much cost-sharing is required to make something "high-deductible"? Under the Affordable Care Act, the "bronze" plans only cover 60 percent of a person's expected health-care costs -- leaving the other 40 percent in their hands. The deductible for individuals can be above $6,000, and for families, it can be above $10,000. That's more than enough, as I read the research, to reap the benefits of high-deductible plans. Do Republicans really want to go much further than that? If so, why?

(Now, there is an interesting issue, which I don't pretend to be an expert on, related to how the medical-loss ratio accounting in Obamacare might accidentally affect these plans. But let's leave that to the side for now.)

The high-deductible plans are a good place to end this post because they speak, again, to the Republican theory here. The Democratic vision is that every American should have be able to get pretty comprehensive health insurance. The Republican vision, as articulated by Domenech, is that health insurance should be less comprehensive than it currently is, and the federal government should be doing less to help people afford it. Or, to put it differently, Obamacare is trying to solve the problem of too little insurance. The Republican ideas are trying to solve the problem of too much insurance.

That's not necessarily a very popular vision. And that gets to a problem with Domenech's post. Elected Republicans might, in a general sense, intellectually agree with these points. But they haven't actually converged around a bill. Even Mitt Romney's health-care ideas were laughably vague.

If House and Senate Republicans did try to write a bill that laid out how these ideas would work in detail, then hard choices would have to be made, and unpopular trade-offs would come clear, and interest groups would become angry, and analysts would begin running the numbers on the costs and consequences, and Democrats woulds begin launching attacks. Once all that happened, would Republicans still agree on these ideas?  Nobody knows. But I'm skeptical, and the fact that Republicans haven't put forward an actual legislative replacement to Obamacare suggests that so, in the end, are they.

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Evan Soltas · April 3, 2013