The Walker Health Care Plan

Published August 18, 2015

National Review Online

In a speech in Minnesota today, Wisconsin governor and presidential candidate Scott Walker laid out his case for fully repealing Obamacare and his proposal for reforming the federal government’s role in health care to make our system more market oriented (and thereby also more functional) than it was before Obamacare.

Walker’s campaign released this document laying out his plan in more detail. I think it’s the most substantively and politically serious conservative health care reform we have yet seen from a presidential candidate, and hopefully it will spur some more to come.

The Walker proposal will be familiar to health wonks: It is based on several prior conservative proposals, especially those advanced by senators Coburn, Hatch, and Burr in 2014 (and then Hatch and Burr along with Congressman Fred Upton after Coburn retired this year), by House Budget Committee chairman Tom Price, and by the 2017 Project, a conservative policy group. All those are generally based, in turn, on this proposal laid out by James Capretta (my colleague at the Ethics and Public Policy Center) and Robert Moffit of the Heritage Foundation in 2012. There are minor differences among those, and Walker has some novel elements too (especially regarding Medicaid reform), but the basic structure is similar.

Shall we dive into the weeds just a little?

After fully repealing Obamacare, Walker would first move toward equalizing the tax treatment of health insurance by providing a tax credit to anyone not offered an employer-based health insurance plan. The credit would be based on age (not income), and could be used for the purchase of any state-approved health insurance plan—reversing the federal takeover of insurance regulation which is the essence of Obamacare. This would make at least catastrophic health coverage available to essentially anyone with no premium cost beyond the credit (as insurers would have a strong incentive to offer plans with premiums equal to the credit and out-of-pocket costs adjusted accordingly), and in the wake of the repeal of Obamacare’s federal insurance regulations such plans could come to look like real insurance for those who wanted no more than catastrophic coverage. Others could of course purchase more comprehensive plans, paying for the added coverage as before. This would in essence put a floor of catastrophic coverage, rather than no coverage, beneath the health insurance system and then allow that system to function as a robust, competitive market.

To further encourage the development of such a market, Walker would significantly improve the rules surrounding Health Savings Accounts, which generally accompanied catastrophic coverage plans before Obamacare. The annual contribution limit on those accounts would rise significantly, nearly doubling, to $6,250 per individual and $12,500 per family and anyone starting a new HSA would get a one-time $1,000 credit with which to start the account.

The regulation of health insurance would return to the states under this proposal, and the only real federal rule would be an extension to the entire insurance system of the protection long provided to people changing plans in the employer system—anyone with continuous coverage could change plans without being newly risk rated. This would protect people with pre-existing conditions and give younger, healthier people a strong incentive to get at least low-cost coverage without any mandates. (You can read more about that approach here.) States would also get some federal funds to help people who already have pre-existing conditions but aren’t covered get into the system.

Walker also proposes some significant Medicaid reforms, which we haven’t seen in much detail in previous proposals along these lines. He would break up the existing Medicaid program into three distinct parts. The first, which his campaign paper calls “Medical Assistance to Needy Families” (presumably to hearken to TANF, the program created to replace the old cash welfare system by the 1996 welfare reform) would replace the CHIP program (which provides coverage to children of low-income parents) and the portion of Medicaid that provides what we would normally think of as standard health insurance to low-income adults with a capped allotment to each state to provide coverage to both poor children and adults. This would make the funding relationship between the states and the federal government much more sensible, give the states a lot of freedom to innovate (including with consumer-centered approaches to Medicaid coverage) and create strong incentives for cost savings.

The second component would be a separate program for the acute-care coverage that Medicaid delivers to the disabled and to poor seniors (which would remain largely like today’s Medicaid for those distinct groups), and the third would be for long-term care services for the disabled and the elderly (which would involve a capped allotment like the MANF proposal). These reforms would go a long way toward transforming Medicaid into a modernized insurance system, and could pave the way toward further steps that would integrate the traditional insurance element of the program into the larger insurance market by eventually converting it to an add-on to the federal credit, freeing lower-income families from Medicaid’s sub-standard access to care.

Walker would also pursue a few other elements often seen in conservative health care proposals: He would for instance allow insurance to be purchased across state lines, would allow various groups to purchase insurance as pools (what used to be called Association Health Plans), and would encourage tort reform at the state level.

The credit offered to people outside the employer system, which is probably the key mechanism in the proposal, would be funded by capping the tax exclusion for employer-provided health coverage and by savings from the Medicaid reforms, which could be very significant if CBO scores of similar ideas over the years are any indication. Since the credit, cap, and Medicaid allotment levels are all readily adjustable, the relationship between them could presumably be set in a variety of different ways in negotiations over the legislative formulation of this kind of approach. The proposal offers illustrative amounts for the tax credit, but not for the cap on the exclusion or the state Medicaid allotments, and Walker’s goal of not adding to the deficit against a pre-Obamcare baseline could be achieved in a number of different ways by such adjustments.

The Walker document notes that the proposal is designed “for a smooth, easy transition into a better health care system,” and by adding rather than removing options it would surely help that happen. Its structure would also allow for a more explicit set of transition mechanisms for the people now entangled in Obamacare (along lines like these, for instance) if Congress so desired.

Taking in the repeal and replace elements of the proposal, this approach would amount to an enormous tax cut, would dramatically improve the market orientation of the health care system not only compared to Obamacare (which isn’t saying much) but also to the pre-Obamacare system, and would restrain health costs while giving people more options. It would also, if scores of comparable proposals are any guide, achieve levels of insurance coverage comparable to Obamacare. If Obamacare, which is projected to leave about 30 million people uninsured, can be called “universal coverage” then this kind of approach could too, at a far lower cost and without the heavy taxes, burdensome and constitutionally dubious mandates, or costly regulations.

The basic tradeoff involved is in the comprehensiveness of that coverage. Obamacare is built around a highly prescriptive definition of coverage, which doesn’t allow something to be called insurance if it just provides protection against serious financial risk rather than effectively pre-paying for a large amount of routine care. Some on the Left have long argued that insurance that only kicks in to cover significant costs (as insurance does in other realms) can’t really count as health insurance, since it wouldn’t allow for the sort of routine care essential to maintaining health.

This difference about what health insurance is has actually been essential to the Left-Right divide on health care, though it hasn’t always gotten the attention it deserves. Liberals have increasingly been willing to acknowledge the growing evidence (though there has long been a lot of evidence) that insurance doesn’t improve health very much but rather provides much-needed financial security, but they have yet to allow this to reshape their basic view of what insurance ought to look like and what is really essential about it. Proposals like the one Walker put forth today are built on an answer to that question: everyone could afford at least catastrophic coverage if they wanted it, and beyond that there would be a competitive market in additional coverage and care. Meanwhile, Obamacare, because of the narrow space it provides for varying insurance design, has been yielding a lot of insurance products that look like upside-down insurance: very high out of pocket costs (often higher than what a pre-Obamacare catastrophic plan would have involved) coupled with extensive minimum coverage requirements, so that routine care is covered by insurance but unexpected calamities create financial disasters. Not surprisingly, such products turn out to be pretty unattractive. Flipping that model around would make for much more sensible insurance.

An approach like the one Walker laid out today would be a huge step in the right direction. The problems with the health-care system that preceded Obamacare called for a move to the right, not to the left—toward provider competition and consumer choice, not centralized prescription and expert management. This proposal offers such a move, going well to the right not only of Obamacare but also of what came before it.

It’s not the only way to improve the health care system, and other candidates will surely present their own approaches to conservative health-financing reform (as a couple already have). But this one sets the bar for conservative health reform very high, in both substantive and political terms. Let’s hope more candidates reach that high.

Yuval Levin is the Hertog Fellow at the Ethics and Public Policy Center.

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