January 28, 2014
Healthier and Wiser
The new health-care plan from Senators Tom Coburn, Orrin Hatch, and Richard Burr is the best one to emerge from Congress yet, and marks real progress in the campaign to replace Obamacare. The plan aims to make health insurance affordable for roughly as many people as Obamacare was intended to, but without the higher taxes, the regulatory micromanagement, the threat of rationing, the reduction in consumer freedom, the vast new bureaucracies, or the perverse incentives. And while not perfect, it largely succeeds in these objectives.
Like previous Republican plans, this plan lets the uninsured buy coverage on the individual market with the help of a tax credit. It improves on those earlier plans in a few ways: The amount of the credit varies by age, and the credit does not disrupt existing insurance arrangements by simply replacing the current tax break for employer-provided insurance. (Instead that tax break would be capped, building on one of the few sensible elements of Obamacare.)
The plan includes more regulation of health insurance than we would prefer in an ideal world. It retains Obamacare’s mandate that insurers let 26-year-olds get covered on their parents’ policies and its requirement that insurers impose no lifetime limit on beneficiaries’ payouts. It also limits the ratio of oldsters’ to youngsters’ premiums, although the limit is sufficiently high that it may not have much practical impact, especially since states could raise them further. The key thing, though, is that the law allows insurers to continue to sell insurance, properly understood. They would be able to take account of their customers’ risks. They could sell cheaper policies that covered fewer services, rather than being able to cut premiums only by shrinking their networks of doctors (which is the chief form of competition Obamacare allows).
And it would prevent the problem that called forth the hated individual mandate from arising in the first place. Under Obamacare, insurers have to offer the sick and the healthy the same policies at the same rate. That rule radically reduces the incentive to buy insurance, so the law imposes a tax to try to coerce people into doing it. The discrete problem of people with preexisting conditions thus becomes an excuse for restructuring the entire insurance market.
The Republican senators’ plan avoids this problem. It imposes a much lighter regulation that strengthens, rather than weakens, the incentive to buy insurance: It merely requires insurers to offer coverage to those people who have maintained continuous coverage. And for others with preexisting conditions, it funds high-risk pools. Since what you need once you’re sick and uninsured is not really “insurance” — it’s too late for that — so much as financial help, the plan provides that help. The Republican plan thus avoids any need for an individual mandate or a tax on the uninsured.
The law’s provision for “auto-enrollment” should not be mistaken for such a mandate. It gives states a new option: When someone has not used a federal tax credit toward the purchase of insurance and then needs medical care, the state may, if the person does not object, treat him as having bought an insurance plan equal in value to the credit. The number of uninsured Americans would thus fall without the individual’s being in any way coerced to buy anything from any company.
The plan would also offer states a new deal on Medicaid, capping the federal payment to them while giving them more flexibility in how they use it. Ideally they will simply cash the money out for most of their Medicaid populations, allowing them to buy into the regular insurance market instead of staying in the subpar Medicaid one.
All in all, the plan is a major advance for free-market health care — even compared with the situation that obtained pre-Obamacare. Fewer people would be locked out of health-insurance markets by federal tax policy, more competitive pressure would be brought to bear on insurers and health-care providers, and the government thumb on the scale against catastrophic coverage would be lighter. If Medicare were also reformed along the lines that almost all congressional Republicans have voted to support in the past, the contrast would be sharper still.
One of the great liberal conceits of the age is that to extend insurance coverage to the uninsured and make sure the sick do not fall through the cracks requires the centralized political management of the health sector. Given those objectives, the administration and its allies insist, Obamacare or something like it is the only game in town. The great service that Senators Coburn, Hatch, and Burr have performed is to explode that myth.
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