A New Health-Care Debate

Published April 19, 2018

National Review - April 16, 2018 issue

After years of being a central political question, health care is on the back burner. Both parties contain experts and activists who want to make major changes to health policy. But for now, both parties’ politicians are wary. Democrats are, as usual, more interested in the subject than Republicans, but they are somewhat divided about what to do next and in any case are not yet in a position to enact anything. Republican politicians, meanwhile, seem to have concluded from their failed efforts to repeal and replace Obamacare that the whole issue is best avoided. It is not surprising, then, that talk of a bipartisan deal to shore up Obamacare’s insurance exchanges has petered out.

But the problems of our health-care system (a system that, among its troubled elements, includes Obamacare and a set of Republican alterations to it) may not be so easily ignored. And Republicans may find that following their instincts — that is, putting the issue out of their minds except when Democrats force it onto the agenda — sets them up for one defeat after another.

It is certainly understandable that Republicans do not wish to relive their 2017 experience of trying to legislate on health care. The chief force working against them was the public’s fear of sweeping change, directed from Washington, D.C., to their health arrangements. That force helped Republicans during the initial debate over Obamacare and would likely help them again if they let Democrats take the initiative on the issue once more. Taken by itself, then, this public sentiment is a political reason for inaction.

It would be another one if Republicans failed to overcome a second force that held them back last year: their own ignorance and lack of preparation. Very few Republicans had a sense of the trade-offs involved in different approaches to protecting people with preexisting conditions, which became as contentious an issue as anyone who had followed health policy would have predicted. Republicans conducted the 2016 campaign without any broadly shared commitment, even a rough one, about how to handle Obamacare in the event they won. President Trump only added to the confusion. During the campaign, he praised other countries’ nationalized health-insurance systems and published a few nonsensical paragraphs he called his “plan.” (Among other things, it called for the creation of health savings accounts, which had already been instituted in 2003.) Republican legislative proposals on health care kept being improvised through much of 2017 and were never clearly explained — especially by the Republican with the loudest megaphone.

Democrats and the press were by contrast tireless in making the case that the Republican plans would “take away” health insurance from 15, 22, or 23 million people. These numbers came from the Congressional Budget Office, which based them primarily on its assumption that many people bought health insurance because Obamacare fined those without it. Thus even if the numbers were credible — and there were reasons to think that the CBO had too much confidence in the power of Obamacare’s “individual mandate,” as the organization itself is now in the process of admitting — they meant that most of the people who would “lose” their insurance would be going without it voluntarily. Much of the debate left a very different impression.

Undermined by the press, by the public’s bias toward the status quo, and by their own inadequacies, Republicans failed to enact a legislative replacement for Obamacare. Yet they have nonetheless effected some important changes in health policy. Their tax bill eliminated the fines on the uninsured — which will give us a chance to see whether the CBO’s projection of a mass exodus from insurance markets comes true. The Trump administration ended its predecessor’s practice of sending tax dollars to insurers (authorized but never appropriated by Congress) to cover the cost of cutting co-pays and deductibles for low-income policyholders. And it took a series of executive actions, of which the most significant was the liberalization of rules governing short-term insurance plans. Obamacare left these plans largely free of the regulations it employed to reshape most of the market for individually purchased insurance, and so allowing them to grow has the potential to reduce the law’s impact quite a bit.

These legislative and administrative steps have been significant, and they mean that “Obamacare Remains in Place” is not quite the right headline for describing the state of affairs in the wake of a confusing year.

In 2012, when the Supreme Court considered a challenge to the constitutionality of the individual mandate, it was taken for granted on all sides of our politics that pulling out the mandate would be tantamount to blowing up the rest of Obamacare. Now the mandate has been pulled out, and while it has turned out to be less important than it seemed, both the substantive and the political importance of its demise should not be underestimated. The expansion of short-term insurance plans could create an alternative insurance market for younger and healthier people who cannot find affordable coverage in dysfunctional state exchanges; their leaving could gradually turn the exchanges into something like subsidized high-risk pools for people with high medical costs. And the mixed signals the administration sent all year about whether it wanted to stabilize or destabilize the exchanges was implicitly resolved in favor of the latter when Congress decided to avoid making payments to insurers in the omnibus spending bill enacted in late March.

All three of these moves point in the direction of greater instability in the exchanges. And that instability was already quite great in many states. It will now become nearly impossible to assign responsibility for that dysfunction exclusively to one party or the other, as both the original design of Obamacare and the changes enacted legislatively and administratively over the past year play a role.

So as we look out on the health-care landscape during this lull in the political debate, a few overall trends seem most pertinent. Insurance-coverage levels are certainly higher now than they were before Obamacare’s enactment. Measures vary some, but it appears that just under 90 percent of Americans under age 65 now have health-insurance coverage, while just under 84 percent did before Obamacare was enacted.

Most of this additional coverage has come through the expansion of Medicaid. The individual market has actually been contracting lately. It shrank by nearly 15 percent in 2016 alone (and preliminary 2017 numbers suggest the decline continued). Employer-based insurance has contracted some as well: There were 3.6 million fewer people in the employer market at the end of 2016 than at the end of 2013, just before Obamacare took effect.

Increased coverage is the law’s core accomplishment. But it has increased by less than was originally expected, and partly in ways that are accompanied by instability. Obamacare’s exchanges have not lived up to their billing, largely because plans offered through them have turned out to be unattractive, especially to people whose premiums are not heavily subsidized by taxpayers. Premiums have more than doubled in the individual market since Obamacare took effect, even as cost sharing has also increased and provider networks have narrowed. In many states this has set in motion a process by which insurers find it harder each year to attract younger and healthier customers, are forced to raise premiums and narrow their networks as a result, and therefore find it even harder to attract such customers the next year.

The steps Republicans have taken over the past year have been intended in part to ameliorate these problems and to make it easier for unsubsidized consumers in the individual market to find affordable coverage options. But the reach of these measures has been limited, Obamacare’s core regulatory architecture (which is responsible for the unstable economics of the exchanges) remains in effect, and consumers will keep getting bad news each summer and fall about the next year’s insurance options as long as this goes on.

These continuing problems with Obamacare’s fundamental economic logic have not brought about a rethinking of that logic on the left. Instead, liberal health-care experts are trying to press their politicians to take the Republican failure to replace Obamacare as evidence of the popularity of Obamacare’s approach (rather than as evidence of the same kind of resistance to change that made Obamacare itself such a political disaster for Democrats), and therefore as a reason to push the same approach farther. The theme of today’s Democratic health-care conversations is that Obamacare did not go far enough, and the internal debate among left-leaning activists is about just how much farther to go.

Some propose what are essentially extensions of the reach of Obamacare’s core architecture. The biggest losers under the law have been middle-income families who earn too much to qualify for exchange subsidies but whom regulation has left without good options for coverage. So this winter, Senator Elizabeth Warren proposed legislation that would provide them, too, with subsidies. Under her proposal, no one would have to pay more than 8.5 percent of household income for health insurance. Other proposals (from the Century Foundation and other liberal think tanks) would revive forms of the public-option idea that Obamacare’s architects were forced to drop — for instance, enabling anyone who cannot find affordable private coverage to buy into Medicaid.

But for some on the left, such proposals do not go nearly far enough, and the lesson of the past decade of health policy is that only single-payer will do. There have been such voices in the Democratic coalition for many years, of course. Bernie Sanders has proposed “Medicare for all” single-payer legislation regularly for more than 20 years now. But when he unveiled this year’s version, he was surrounded by more than half of the Senate Democrats, a level of support never seen before for such proposals. The Center for American Progress, a liberal think tank that has tended to define a consensus for Democratic policy, released a similar proposal in February, which would create a Medicare-like program that would be open to anyone who wanted it, and into which uninsured Americans would be automatically enrolled.

Democratic politicians used to fear the political implications of proposing a wholesale government takeover of health insurance, and the massive political price they paid for Obamacare should have made them all the more afraid. Instead, they are allowing the party’s activist base to push them toward such proposals.

Yet the dangers have not disappeared. The first involves money. Essentially no effort has been made to explain where the money to cover the gargantuan costs of even extensions of Obamacare’s subsidies, let alone single-payer proposals, would come from. The small handful of left-leaning states that have looked at state-level single-payer reforms have all ended up running away screaming once the costs became apparent, and these would be all the more daunting at the national level.

Perhaps even worse, at least as a political matter, is the prospect of disrupting the employer-based insurance through which most Americans get their health coverage. The more incremental expansions of Obamacare’s subsidies envisioned by Warren and others attempt to avoid such disruption but cannot fully succeed. The various single-payer ideas would all involve massive disruptions for millions of families. The politics of such disruption has always proven insurmountable for reformers on the right and left alike, and there is not much reason to think that has changed.

And even the incremental measures amount to doubling down on the approach that has left the individual market in many states in shambles. Democrats simply have not come to terms with the fundamental failure of Obamacare’s economic model in many states, which suggests that the law’s “captured market” approach cannot create a viable insurance system, even with more money. Subsidizing the entry of higher-income people into such broken insurance systems is not a solution to the problems they confront and could easily be a recipe for greater political disaster for its architects.

“More of the same” is a strange lesson to draw from the Democrats’ experience of health-care policy and politics over the past decade, and yet that is just what they seem to be taking away from it all.

For conservatives, this peculiar Democratic blindness poses a perverse temptation. It would be easy to fall right back into what was the familiar groove of Republican health-care politics for decades: criticize the Democrats’ approach and capitalize on its enormous political vulnerabilities while neglecting to propose any serious alternative solutions.

That groove is so attractive because the vulnerabilities of the Democrats’ proposals are very great, and Republican politicians tend to think that offering their own proposals only distracts voters from those vulnerabilities. Throughout the Obama years, Republicans in both congressional and presidential races would insist that health proposals of their own would just paint a target on their backs. Calling for the repeal of Obamacare without getting too specific about replacements would, on the other hand, maximize the advantage that the Democrats’ miscalculation had made possible.

The immediate political logic of this approach was sound, and it surely contributed to the GOP’s ability to win elections. But having won them, Republicans have found that their vagueness on health care cedes the policy momentum to the Left and keeps them even from repealing most of the Democrats’ unpopular law, let alone enacting conservative solutions that could solve some basic problems and persuade voters that Republicans ought to be trusted on health care.

Rather than fall back into lassitude on health care, Republicans should continue to advance market-friendly reforms. One advantage they would have if they returned to the issue is that even though they failed legislatively in 2017, in the process they made significant conceptual progress. After two decades of debilitating squabbles between champions of different approaches to changing the tax treatment of health insurance to expand health coverage, Republicans were compelled by the constraints of the budget-reconciliation process to develop a third and entirely distinct alternative that offers more promise. The conversion of most federal health dollars into block grants to the states, combined with the recovery of state control over the regulation of health-insurance markets, allows for a plausible state–federal division of labor in health policy and for state experimentation with various approaches to the formidable problems that bedevil the individual market.

Under such an approach, embodied by the Graham-Cassidy bill in the Senate, the federal government would essentially provide a defined contribution toward coverage, the states would design means of assisting the poor and the sick and would regulate insurance markets, and consumers would have maximal choice and control over any public funds spent on their behalf.

Even given the political constraints of narrow Senate majorities, block-granting Medicaid and Obamacare dollars could allow for extensive deregulation and therefore for the emergence of more-functional consumer markets in the states, rather than a doubling down on the failed model of federally captured markets that yield horrendously unattractive insurance products.

Conservative health-care experts have developed the fine details of such an approach well beyond the basic structure of Graham-Cassidy in the months since Republicans failed to repeal and replace Obamacare. Should congressional Republicans turn back to health care, they would have a thought-out and plausible legislative vehicle to start from that is suited to the needs of both the health system and the congressional budget-reconciliation process.

This decentralizing and deregulatory approach to health policy offers a substantively and politically attractive path for Republicans. But whether it turns out to be more attractive than falling back into the role of pure critics of Democratic health reforms remains to be seen. The future of market-based health economics in America, and perhaps the political prospects of a recognizably conservative Republican party, may well depend on the answer.

Yuval Levin is the editor of National Affairs and a fellow at the Ethics and Public Policy Center. Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg View, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.

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