How Republicans Can Fix American Health Care

The bills before Congress get it wrong—what’s needed is incremental reform in a conservative direction.

Mike Blake / Reuters

The Senate health-care bill is not definitively dead, but it’s unmistakably ailing—and the prognosis is not promising.

The prognosis was never promising. All the various Republican health-care proposals circulated since 2010 would remove health-insurance coverage from tens of millions of people, many of them the GOP’s most loyal voters. Look for example at the dilemma facing Kentucky’s Rand Paul.

Four hundred and forty thousand Kentuckians have gained coverage under the ACA; Kentucky’s uninsured rate tumbled from 20 percent in 2013 to 7.5 percent in 2015.

Even more strikingly, it is Kentucky’s Appalachian Southeast that has seen the biggest gains from the ACA. And it so happens that southeastern Kentucky voted more staunchly for Paul’s 2016 reelection than did any other section of the state.

Paul won 76.6 percent of the vote in Clay County, where 15.6 percent of the total population has gained coverage via the ACA’s Medicaid expansion. He won 81.5 percent of the vote in Jackson County, where 15.1 percent owe their Medicaid to the ACA. He won 84 percent in Leslie County, where 18 percent would lose Medicaid if Obamacare were repealed.

Senator Paul resolved his dilemma in a shrewd way: He spoke to ensure that he kept his standing as the purest of the ideologically pure—and acted to ensure that the white poor of southeastern Kentucky retained their Medicaid coverage.

Other Republican senators found their own excuses to arrive at the same result for their own states. It’s generally reckoned that half the people who gained coverage under the Affordable Care Act did so via Medicaid expansion. The Republican ACA alternative would undo that expansion. Unlike the many regulatory changes Republicans had in mind, such a stripping away of an existing benefit is easy to understand—and a natural target for political payback. No surprise then that the senators flinched.

What Republicans have been trying to do all this year is both impressively bold and bizarrely futile. Democratic societies almost never repeal major social insurance programs. The very rare exceptions—like the catastrophic care supplement to Medicare enacted in the last year of the Reagan administration and repealed the following year—are pulled up before they sink deep roots. The determination of Republicans to invest so much time and energy in a doomed struggle represents a certain kind of idealism, but not the kind of idealism on which a governing majority can be constructed. To quote something I wrote after the House GOP fumbled its first vote on ACA repeal-and-replace:

In that third week in March in 2010, America committed itself for the first time to the principle of universal (or near universal) health-care coverage. That principle has had seven years to work its way into American life and into the public sense of right and wrong. It’s not yet unanimously accepted. But it’s accepted by enough voters—and especially by enough Republican voters—to render impossible the seven-year Republican vision of removing that coverage from those who have gained it under the Affordable Care Act. Paul Ryan still upholds the right of Americans to “choose” to go uninsured if they cannot afford to pay the cost of their insurance on their own. His country no longer agrees.

Which is how we got to where we are now.

Some conservatives fret that if Republicans fail to repeal Obamacare after seven years of promising, they will blow up their own coalition. Here’s radio and TV broadcaster Hugh Hewitt in The Washington Post:

It will forfeit every other Republican goal because failing to deliver on the central promise of eight years of debates and campaigns will shatter the credibility every Republican, not just those who block the bill. The party as a whole will be gravely wounded, perhaps beyond healing for a generation or more.

Hewitt is certainly right that it will be embarrassing for Republicans to renege on years of promises of a plan that will repeal Obamacare and replace it with something terrific. But there are worse things than being embarrassed. Yanking the health coverage of millions of people—that is thermonuclear political explosive.

Still, Republicans have to do something. Obamacare in its present form does bear down hard on Republican voters outside coal country. It does stress the country’s finances. It does offend their ideological instincts. What’s needed now is something practical: incremental reform in a conservative direction.

Here’s where that reform could start in the “mend it don’t end it” Obamacare era.

Let’s talk candidly about taxes

The Republican health care plan has been derided as a tax cut plan masquerading as a health plan. The rest of the plan is a mess, it is argued, because Republicans’ highest priority is to lighten the ACA’s tax load on upper-income earners.

That statement of the problem also points the way to some solutions.

If Republicans are most offended by the way the ACA is paid for, then instead of repealing the whole ACA, they should concentrate their energy on changing its financing.

Two financing measures especially irk Republicans: the tax of 3.8 percent on net investment income and the surtax of 0.9 percent on earned income for individuals who earn more than $200,000. It is above all to end these taxes that Republican anti-ACA energy has been committed for more than seven years.

But those taxes are a bad way to finance health care in themselves!

The surtaxes on rich are pitifully inadequate to the job of financing the ACA’s expansion of health coverage. Together, they raise about $35 billion a year, according to the Tax Foundation, a derisory sum in the context of healthcare economics.

That comparatively small revenue stream forces the architects of the ACA to pay for their ambitions in other ways. The most important of those ways is the invisible internal redistribution within the ACA, from young to old and from middle-income to lower income. Healthy young people in the individual market pay much higher premiums than they would have to on a pure risk-adjusted basis. Their excess premiums contribute to reducing the premiums paid by people in their 50s and 60s. Likewise, the ACA offers generous subsidies to lower-income people, but steeply fades them out for workers in the $40 to $50,000 range, who are not poor but who cannot easily afford insurance at market prices either.

While the surtaxes and "invisible taxes” in the ACA more than cover the costs of the ACA’s direct subsidies, they still fall far short of paying for the expansion of Medicaid under the ACA. Remember, more than half the people who gained coverage under the ACA did so through Medicaid—and that is with 19 states still outside the program, including Texas, the second most populous. The ACA’s finances are inherently unstable.

With unstable finances come a contested political future. The people who pay the surtaxes may not quite muster the clout to repeal the program. But they are more than sufficiently powerful to continue challenging it for a long time to come. The lesson of Daniel Ziblatt’s book on democracy resonates here: The price of stability is buy-in from opponents. So long as the ACA fuses the twin goals of health-care coverage and large-scale income redistribution, that buy-in will not be forthcoming.

The ACA needs a replacement funding stream that yields more revenue and that taxes more broadly. This was the deal that Republicans should have demanded in 2009-2010. It will be harder to achieve today (because with ACA an accomplished fact Republicans now have less to trade), but it still should be their goal. One way to achieve that more difficult goal is to propose funding streams that are not only larger than the surtaxes on high incomes, but that Democrats and liberals will find even more attractive. I’ve long urged a carbon tax as a way to fund health-care expansion. President Trump’s abrupt and unconsidered call for a federal internet sales tax raises another possibility. The U.S. has entered a revolution in retailing that threatens literally millions of jobs. The continuing de facto subsidy to online shopping looks even less justifiable now than ever. Why not a federal tax set to some averaging of state sales taxes on physical stores? Such a tax would raise far more than $35 billion and would equalize the playing field between retailers in a way that helpfully slows the creative destruction of retailing jobs.

At the same time, Republicans should also welcome higher excise taxes on choices that raise healthcare costs: on alcohol, on processed sweeteners, on marijuana where it is legal. (My own wish, and I recognize how impossible this is, would be to tax bullets as well, but that too radically challenges present political dogmas.)

Broadening the financing of the ACA would also encourage more Americans to care about health-care costs, as well as health-care benefits. It would put “skin in the game,” as conservatives have long advocated—and in a way more politically tolerable than past conservative proposals to this end. Because, along with a new approach to revenues, Republicans should also advocate …

A new approach to cost-cutting

Republican thinking on health-care cost control has been premised on the idea of “skin in the game.” The theory is that health-care costs have been driven by bad consumer choices—and could be restrained by better choices. If consumers shouldered more of the cost of medical care themselves—say, up the $6,750 per family level implied by health savings account legislation—they would make think twice before calling the doctor, and maybe even generally take better care of themselves. The power of the marketplace would the bring down overall costs.

Even as theory, this idea is not looking very credible these days. Americans do bear more and more of their own insurance costs these days. Average out-of-pocket spending on health care has risen by about 50 percent since the year 2000—faster than that for Medicare beneficiaries—even as American health outcomes have deteriorated.

Politically, this country has been running a referendum on deductibles since the passage of the Affordable Care Act—and the deductibles are losing. All sides now damn them as a failure, not a feature. House Speaker Paul Ryan, on unveiling his replacement to the ACA in March, said that "skyrocketing premiums, soaring deductibles, and dwindling choices are not what the people were promised seven years ago.” White House press spokesman Sean Spicer concurred. "I've mentioned this before: Having a card and having coverage that, when you walk into a doctor's office, has a deductible of $15,000, $20,000 a year isn't coverage,” he said. “Our healthcare plan will lower premiums & deductibles—and be great healthcare!” tweeted Trump in March. That sounds like a commitment.

The future of health-care cost-cutting in America is top-down cost-cutting, not bottom-up. It’s the providers who will have to be squeezed, not the consumers. That’s a job that demands hard-nosed, green-eye-shade accountants of the David Stockman type: formerly a Republican specialty.

Even more: It demands rigorous cost-benefit analysis of how better outcomes are purchased. To hazard a generalization, America over-invests in medicine, but under-invests in public health. No country on earth does a better job of saving premature and underweight babies than the United States. Few developed countries do a worse job of ensuring that pregnancies come to a full and healthy term. Enforcing seat belt and helmet laws, curbing the use of narcotics, raising alcohol taxes, reducing consumption of sugars and processed foods, better nutrition programs for pregnant women and new mothers, making even some minimal progress to gun safety standards—all these things would yield far more progress per dollar than money for doctors and hospitals (as doctors and hospitals would be the first to agree). It’s precisely the party less beholden to the medical-industrial complex that is better positioned to act as America's rational health cheapskates.

As the health-care industry becomes ever more closely tied to the public sector, the GOP—as the party of the private sector—should accept the responsibility to become the party of skepticism about the claims and perquisites of that industry. If the GOP is to be the party of seniors, it cannot also be the party that rationalizes every price demand of the pharmaceutical sector.

Republicans can do all this in the confidence that ...

There is no tipping point

The conservative political imagination is haunted by the fear of a “tipping point,” beyond which there is no return from the sharp downhill path to the tyranny of socialism. That fear inspired Paul Ryan’s famous 2010 “makers and takers” speech at the American Enterprise Institute, but you can trace its origins all the way back to the Jacksonian era’s debates over allowing the unpropertied to vote. These dreaded tipping points regularly arrive—and it turns that politics does not in fact stop. The forces of conservatism are not forever overthrown. New issues arise; new coalitions are formed.

A future in which health-care anxieties trouble Americans less will be a future more open to arguments on behalf of entrepreneurship and free enterprise. Economic risk-taking will become more attractive, not less. Like their British and European counterparts, Americans will listen more attentively to Republican arguments about skilled versus unskilled immigration as they learn to think about how much people pay into—versus talking out from—the health-care system over the entirety of their life cycles. It may not be a coincidence that the Republican drought in presidential voting since 1988 has coincided with the years of most intense national debate over whether all should have health insurance. It’s very possible—and I personally think likely—that Republican chances at the presidency will improve once a vote for the GOP ceases to be a vote against health coverage for all.