Ethics & Public Policy Center

At Last, the Replacement

Published in National Review on March 10, 2014


Yuval Levin

Yuval Levin is the Hertog Fellow at the Ethics and Public Policy Center and the editor of National Affairs.


In recent months, as their hopes and promises have come crashing down, Obamacare’s champions have fallen back on one last argument in defense of that law: that Republicans have no health-care reform of their own to offer the country.

In fact, various Republican legislators have offered up alternatives to Obamacare. These alternatives all included some good ideas. They were often vulnerable, however, to politically potent criticism. Some of them didn’t do enough about the underlying problems of our health-care-financing system, and so could be characterized as not making coverage sufficiently accessible or affordable; others took bold steps but threatened to disrupt existing employer-provided health coverage.

A proposal unveiled in late January by Senators Tom Coburn, Richard Burr, and Orrin Hatch, however, has made it downright impossible to claim that Republicans aren’t offering serious, practical health-care ideas. Their proposal builds on some of those earlier initiatives but goes farther in the right direction.

It would extend a tax credit for the purchase of health insurance to all Americans who make less than three times the poverty level and who do not have access to health-care coverage from a large employer. That credit (paid for largely by capping the tax exclusion for employer-provided coverage) would provide all those Americans with the same benefit now extended only to people with employer-based coverage, and so allow most of the uninsured to afford at least catastrophic coverage. Medicaid recipients would be allowed to opt out of that program and take the credit instead. People with preexisting conditions would be protected: If they had maintained continuous coverage, insurers would have to offer them policies at the same rates as other applicants; if they had not, they could gain coverage with the help of subsidized state high-risk pools.

The proposal is a huge step forward for Republican health-care policy. All Republican alternatives to Obamacare have been cheaper and less coercive than Obamacare, of course, but the senators’ proposal is the first one that is also competitive with Obamacare in the number of people it would cover and would not cause those who have employer-provided insurance to lose it.

Liberals can’t simply pretend that this proposal does not exist, so they have had to seek other lines of attack. Some, like the New York Times editorial board, have insisted it would cover fewer people than Obamacare. But the first assessment of the proposal’s costs and effects, conducted by the University of Minnesota’s modeling team for the Center for Health and Economy, suggested it would actually enable about 2 million more people to get coverage over the coming decade than Obamacare would, and at a much lower cost.

Other liberals’ criticisms simply misread key features of the plan. So, for example, they have said that it would raise taxes. This is true in the trivial sense that almost any tax-reform plan raises taxes on some things. Counting its repeal of Obamacare’s tax increases, though, the Republican plan looks likely to amount to a large tax cut, and its authors have said that if the cap on the tax exclusion for employer-provided coverage ends up collecting revenue that exceeds the cost of the new credit, they would raise that cap accordingly.

But most Obamacare fans have taken a more peculiar tack: They have likened the new Republican proposal to Obamacare. It has similar features, they say, and similar political drawbacks. So, for example, Sarah Kliff writes in the Washington Post that the Republican plan “takes some of the contours of Obamacare and works around them, such as ending [denial of coverage for] pre-existing conditions and continuing dependent coverage up to age 26.” Donald Taylor blogs that “the rage machine that has been perfected to argue against [Obamacare] could get plenty cranked up” against the plan. Andrew Sullivan referred to the plan as “Obamacare Lite” in several blog posts.

This line of criticism reveals more than those who make it may intend about the weakness of the case for Obamacare and the defensive posture of its champions these days. And it suggests that many liberals carelessly take for granted what is actually the key point in dispute in the health-care debate.

Liberals have argued, for instance, that under both Obamacare and the Republican proposal many Americans’ health-care plans would offer narrow networks of medical providers — even though Republicans have criticized Obamacare for narrowing networks. But the projection on which liberals rely does not say that many people will move from wide networks to narrow ones; it appears to say that many people will move from having no networks to having narrow ones. No conservative, in any case, has ever opposed letting people choose plans that provide narrow networks. What is objectionable about Obamacare in this regard is that it so constrains the marketplace that the shrinkage of networks is almost the only way insurers can offer cheaper plans.

The other superficial resemblances between the new proposal and Obamacare follow a similar pattern: They obscure the deeper context, purpose, and effects of the two sets of policies. Both plans, for example, allow people aged 26 and under to remain on their parents’ insurance — a popular measure that costs next to nothing and has little effect on insurance coverage, and that many states have long had in place. More significant, both also cap the tax exclusion for employer-provided coverage, and both provide subsidies for people purchasing insurance coverage in the individual market.

In Obamacare, though, the cap on the employer exclusion serves to drive growing numbers of people into heavily regulated exchanges. The Republican proposal envisions no exchanges. Its cap has only two goals: to restrain the incentive for ever higher health-care spending and to fund the new tax credit. The purpose, in other words, is to encourage and enable people to become more discerning consumers of health insurance. The subsidies have different purposes as well. In Obamacare much of their point is to overcome the disincentives to purchase coverage that the law’s excessively prescriptive and burdensome rules create. In the Republican proposal they are intended to enable people to enter a robust and competitive insurance market as consumers with real purchasing power — the kind of market that federal policy had long suppressed before Obamacare and continues to suppress under it.

These differences are not incidental but essential to the health-care debate. At the core of America’s health-care dilemma is a question: How can we maximize quality and access while minimizing cost? We have been terrible at answering that question for decades, above all because the economic incentives created by various federal policies have kept us from focusing on finding an answer, and as a result we have let costs run out of control while access has lagged.

Liberal approaches to health-care reform begin from the premise that health-care economists already know the answer to this question and that what remains is to apply their answer and compel the health-care system to accept it. Obamacare embodies this approach: It defines in great detail the insurance product and the terms under which it is to be offered and then compels insurers to sell that product and consumers to buy it.

This approach requires many insurers and consumers to make economic decisions they would otherwise consider unreasonable, and the law tries to overcome their resistance to doing so by imposing penalties for non-compliance and offsetting the costs and risks of compliance with taxpayer dollars. Essentially everything about Obamacare — including the insurance rules, the mandates, the taxes, the exchanges, the subsidies, and the incentives the law puts into place — is geared to advancing this vision of things. It would have been politically unviable for the government to simply take over health insurance and directly apply the vision of experts. But the law is moved by the same basic logic as a single-payer system: We have the answer and need to impose it on everyone from above.

Conservative approaches to health-care reform, on the other hand, begin from the premise that we do not know how to achieve the best balance of quality, access, and cost, and that in any case no top-down solution could be effectively imposed on a system as complex as American health care and no particular solution is likely to be right for very long. Instead, we are most likely to achieve that difficult balance of quality, access, and cost through a genuinely competitive market in which insurers may offer a range of options and consumers have the resources and the freedom to choose among them. Such a system, conservatives argue, would create powerful incentives for everyone involved to seek out precisely the efficient balance we now lack, and to do so on a continuous basis and so encourage constant innovation and improvement.

Such a market requires clear but modest regulatory constraints to protect consumers and ensure competition. And, given the cost of coverage and care and the longstanding distortions government has created in this market, it requires some subsidies to enable all Americans to participate in the market and obtain at least the core benefit of insurance: protection from extreme, unexpected costs. The need to please consumers is what would move insurers and providers of health care to find better ways to offer more-appealing products and services at lower cost, and that is how the problem at the heart of our health-care-financing dilemma stands a chance of being addressed. Essentially everything about most conservative health-care proposals — including the insurance rules, tax-law changes, subsidies, and incentives they would put into place — is geared to advancing this vision of things.

One of the Republican proposal’s similarities to Obamacare does not quite fit this mold: Like the Democrats’ law, it would means-test the subsidy for individual coverage, phasing it out as income rises from twice to three times the poverty level. This phase-out would create disincentives like those of Obamacare (if on a smaller scale) to work more and earn a higher income. But it is by no means essential to the logic of the new proposal. On the contrary, a flat, universal benefit would better fit the system envisioned by the proposal and better address the problems it is meant to deal with.

Other surface similarities to Obamacare do nothing to take away from the very distinct aims and character of the Senate proposal. That proposal, like most other conservative health-care proposals of recent years, would move our system not only to the right of Obamacare but also to the right of the system that preceded it. Effectively, it goes in a direction opposite that of Obamacare.

The means employed by liberal and conservative health-care reforms should be understood in the context of their quite different assumptions and ends. That both might involve a cap on the employer tax exclusion or a subsidy for coverage does not mean that the very different systems of which such policies are part are analogous at all. To adapt William F. Buckley Jr.’s line about the CIA and the KGB, comparing conservative to liberal health proposals on the basis of their occasional use of the same methods is akin to saying “that the man who pushes an old lady into the path of a hurtling bus is not to be distinguished from the man who pushes an old lady out of the path of a hurtling bus, on the grounds that, after all, in both cases someone is pushing old ladies around.”

Many liberals’ inability to see the differences between Republican and Democratic health-care ideas suggests that they take the prescriptive, command-and-control character of Obamacare for granted. They assume that the purpose of any health-care reform would be to tell insurers what to sell and consumers what to buy and to make sure that everyone does as he’s told. They seem not even to contemplate a different approach to lowering costs while improving quality and access — the market-based approach by which we take on such problems across our economy. And so when a plan takes this different approach, they hardly notice it, fixating on this or that familiar detail while quite ignoring fundamental distinctions.

This different approach makes it possible for conservatives to offer the public a health-care proposal that would beat Obamacare on its own criteria of success: coverage expansion, lower premium costs, and lower government spending. And it could achieve that without the burdensome and prescriptive regulations of Obamacare, without its taxes on the uninsured and penalties for employers, without a Medicare board trying to micromanage the practice of medicine, and without doubling down on a Medicaid program that denies the most vulnerable Americans ready access to care. In fact, it could achieve those goals precisely because it would avoid these misbegotten ideas and because it would embody an essentially different philosophical outlook — one that looks to competition rather than centralization and to consumer choice rather than expert management.

That different outlook defines the new Senate proposal, and the Left’s failure to see this is deeply telling. But if in fact liberals can discern no basic difference between the Coburn-Burr-Hatch proposal and Obamacare, then maybe they would be open to a deal: If the Democrats agree to enact the new Republican proposal, Republicans will agree to call it Obamacare Lite.

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