2 Big Problems With the Republican Replacement

As though waiting to drop the hottest mixtape of the year, House GOP leadership and Speaker Paul Ryan (R-WI) chose to release their new Obamacare replacement plan on Monday evening when everyone was back home watching T.V. And in keeping with Trump’s theme, they’ve titled their plan the American Health Care Act (AHCA),

Unfortunately, this plan would probably see more success as an album than legislation (yes, even if it were just Chairman Kevin Brady (R-TX) reading over an 808). The fact is, the AHCA may not garner enough support in the House for two good reasons. First, the bill keeps a lot of Obamacare’s regulatory framework that has caused prices to rise and choice to diminish. Second, the law is based on advanceable and refundable tax credits for political reasons, which many argue essentially creates a new entitlement. Both are profound mistakes.

First, the AHCA keeps many of Obamacare’s regulations on insurers. Michael Cannon of the Cato Institute writes:

“The House leadership bill isn’t even a repeal bill. Not by a long shot…The ObamaCare regulations it retains are already causing insurance markets to collapse. It would allow that collapse to continue, and even accelerate the collapse.”

The new law essentially maintains the three-pronged structure of Obamacare: community rating (or the pre-existing conditions mandate), penalties on those who don’t buy insurance, and subsidies for low-income people. It even transforms the individual mandate into a form of corporate welfare for insurance companies.

But the key sticking point is the fact that the law depends on advanceable and refundable tax credits to insure people. What this means is that people will pay taxes, then the insusrance companies will  get paid by the government depending on the customer’s age. Essentially, these are subsidies lathered in Republican tax lingo about “keeping your own money.” But Cannon points out that the House leadership’s tax credit is very similar to “ObamaCare’s tax credits [which] are actually 94 percent government outlays and only 6 percent tax reduction.” In short, these tax credits don’t fix the underlying problem of costs and would most likely add to the deficit. (The CBO hasn’t scored it yet.)

So why is House Leadership pushing this bill that “nobody likes”, as one Politico headline put it? It’s increasingly clear that tax credits are being touted for political reasons–not necessarily for their policy merits. The appeal of tax credits comes from the flawed premise that the number of people covered should be the metric for political success.

But making coverage the foremost metric of success is a mistake. The fact is that nothing is going to compete with Obamacare on the number of people covered. Remember, Obamacare accomplished this by making it illegal to not have coverage and, most of all, by expanding Medicaid. In many cases, the coverage the Obamacare exchanges offered was useless because of such high out-of-pocket costs and limited networks.

The best alternative metric for success is price. That was the original problem with our healthcare system before Obamacare, it was the metric President Obama acknowledged, and it is the metric President Trump offered in his joint address to Congress.

If Republicans can successfully create a market where choice and competition flourish, prices will go down and people will be able to buy coverage at prices they can afford rather than the illusory coverage that plagues the Obamacare exchanges.

I’m not saying that coverage isn’t an important part of healthcare. What I’m saying is that in a free society, some people simply aren’t going to buy health insurance. They might instead choose to do direct primary care or put their money in a Health Savings Account (HSA) to pay for any catastrophic expenses. These options shouldn’t be disregarded as illegitimate.

And some people, like the young and “invincible,” simply might not buy coverage. While this is not a wise choice, the only way to convince them otherwise is if there are enough attractive options to make it worth it.

US Healthcare Inflation 
Coverage should, then, be seen as a secondary metric to price. The chart above shows that the price inflation for healthcare far outpaces the consumer price index. On the other hand, healthcare procedures like LASIK and cosmetic surgery, where the government isn’t nearly as involved, have seen prices go down. The House should take note of this distinction and boldly seek to create an environment where similar price reductions can be realized.

So here we are with the long awaited plan to replace Obamacare. Should the House settle for this version of Obamacare-lite, or should it throw all of its work out the window and start from scratch?

At this point, it’s doubtful that Republicans will agree on a single plan. As I write this, Conservatives in the House are trying to release their own plan as a counter move. Staying in limbo and trying to negotiate something isn’t an option either because the market has to deal with this uncertainty.

That’s why Congress should follow the path that Sen. Ted Cruz (R-TX) and others have put forth: Repeal all of Obamacare’s costly regulations. Afterward, enact consensus-based, targeted reforms that deal with the underlying issues of healthcare rather than one massive bill that no one can agree on.

The AHCA certainly has some good things and will be changed in committee, as economist Arthur Laffer points out. Nonetheless, both sides need to be critical of the legislative framework.

-Chris Medrano

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