By Steven Pearlstein
Since the election, I, among others, have pointed out that Donald Trump would not be able to keep his promise of repealing the rest of Obamacare while protecting people with "pre-existing conditions." To do so would still require everyone to buy insurance — the controversial "individual mandate — while still requiring insurers offer policies to anyone who wants to buy one at the standard "community" rate.
It would be wrong, however, for Democrats to jump from that observation to the conclusion that there aren't other ways to structure a health insurance market to achieve near universal coverage at affordable prices. Republicans have proposed a number of credible reform ideas that could preserve most of the gains from Obamacare while restructuring the system to better conform to conservative, market-oriented principles. A few would even make the system more efficient and more progressive.
Broadly speaking, these Republican plans would induce more of the young and healthy into the market with lower premiums, even as premiums rise for those who are older and sicker. Most would abolish many of the new Obamacare taxes and reduce federal regulation of insurance markets while preserving some but not all of the Obama premium subsidies for the poor and working class.
The most interesting and radical of the Republican reform ideas is to eliminate the tax-free treatment of employer-paid health insurance and use the $260 billion in increased revenue to give tax credits for every American to offset the cost of buying health insurance. This idea was originally proposed by Republican candidate John McCain in 2008 presidential campaign, and has now been picked up in one proposal by Republican Senators Richard Burr (N.C.) and Orin Hatch (Utah) and Rep. Fred Upton (Mich.), and in another by Avik Roy, head of a new conservative think tank.
The current exclusion is the largest and one of the most regressive tax breaks in the current income tax code. The biggest benefits go to people who have the highest incomes and have the most expensive health insurance policies, while people who are unemployed or work for employers who don't offer health insurance don't get any tax benefit at all. The only justification for such a regressive and inefficient tax is a political one: Eliminating it would trigger fierce political opposition from big business and big labor.
In these various proposals, the amount of the tax credit would be adjusted by age and income and be sufficient to allow those with median incomes or less to buy "catastrophic" insurance that would cover any major medical incident. Individuals and their employers would be free to supplement the catastrophic policy and buy another layer more comprehensive coverage, but only with after-tax dollars. Or they could put additional funds in a tax-free health savings account to pay for routine medical care not covered by insurance. Government could deposit additional funds in the health saving accounts of lower income households.
By tying the level of the tax credit to the cost of catastrophic insurance, a well-designed Republican "replacement" could make it possible for all Americans to afford less expensive basic coverage without resorting to a mandate. Surely this is a framework that Democrats should be able to work with as an alternative to Obamacare, which relies instead on an individual mandate, premium subsidies for the poor and working class and a "Cadillac tax" on gold-plated insurance policies. Like Obamacare, it would require insurers to sell policies to everyone at the standard rate, albeit with greater variation based on age. Unlike Obamacare, the structure of the tax benefits would be progressive rather than regressive.
Democrats at this point will surely complain that catastrophic insurance is unacceptable because it leaves households responsible for paying thousands of dollars for routine medical bills until insurance kicks in. After all, a lot of people resent large co-payments and deductibles, even if they lower premiums. And there is evidence that if low income households are required to pay anything out of pocket, they will not get necessary preventive or routine medical care, putting them at risk for getting seriously sick later on.
But there is equally compelling evidence that when people have health insurance that covers any and all medical expenses, they act like hungry football players at an all-you-can-eat buffet, consuming much more health care than they need, irrespective of cost, driving up health insurance premiums for themselves and everyone else. When people pay for routine health care the way they pay for other necessities, they are more likely to buy only what they need and shop around for the best value.
Both sides in this debate overstate their case.
Democrats have a bad habit of assuming that people — particularly poor people — aren't smart enough to figure out how to best spend their health care dollars without guidance from the nanny state.
At the same time, the Republican case for "consumer driven" health care overstates the degree to which most of us are willing or able to shop for value. When it comes to medical care, our instinct is to think that low price means low quality. (Would you go to surgeon who advertises, "Special This Week Only! Hip Replacements: Two for the Price of One! ) And how are we supposed to shop for value when lying half-conscious in the back of an ambulance?
Given the political realities, Democrats should be willing to accept a system built around high deductible insurance as long as such policies also cover proven preventive care and treatment of chronic conditions.
In exchange for expanding the role of tax-free health savings accounts, Democrats could insist that the accounts of low-income families receive government subsidies to cover a significant share of their out-of-pocket medical expenses.
In exchange for going along with the Republican push for "consumer-driven" health care, Democrats could insist that consumers have the tools they need to make good decisions. Doctors, hospitals and drug companies could be required to provide clear, simple information on prices and quality. Providers could be prohibited from charging more for individuals paying their own bills as they charge the largest insurance company. And to insure a genuinely competitive market, rather than the fake one we have now, Democrats could demand stepped up anti-trust enforcement against hospitals, insurers and drug companies, while taking away from medical associations the power to limit the supply of physicians and prevent nurses from performing routine tasks.
In exchange for hard caps on insurance industry profits and administrative costs, insurers could be required to disclose how much of every premium dollar goes to pay for medical services.
And in exchange for less federal control, state regulators could be given the option to maintain as much of the Obamacare architecture they chose.
Inevitably some laudable features of Obamacare will be lost in any bipartisan compromise. Elections matter. But it's worth remembering that President Donald Trump and his Republican allies will be as desperate to show they can make good on their promise to painlessly repeal and replace Obamacare as Democrats are desperate to preserve it as is.
Democrats can leverage that reality to their advantage. Rather than simply demonizing all Republican ideas and rejecting them out of hand, Democrats might do well to acknowledge the changed political environment and negotiate a better alternative to Obamacare than the one the Republican Congress will deliver if forced to rely on the votes of their most conservative members.
Steven Pearlstein is a Washington Post business and economics writer. He is also Robinson Professor of Public Affairs at George Mason University.