How to Reform ObamaCare Starting Now

The Republican rallying cry during this election season has been a promise to "repeal and replace" ObamaCare. The problem is that through at least 2012 President Obama would veto any law repealing his signature health-care legislation. What, then, can Republicans do in the next two years? Look to the states.

After November, more than 30 Republican governors (many newly elected) will have the opportunity to resist the legislation at the state level. They could refuse to implement the health-care exchanges that are the core of ObamaCare. Doing so would force the federal government to step in and run the exchanges for the states--a chore that would slow down federal implementation of ObamaCare but fail to provide any alternative solution to insurance coverage problems.

The more promising option is for governors to perform as much radical surgery as possible on the exchanges until a new Congress working with a different president can do something better. By offering their own market-friendly versions of exchanges, they will establish an alternative to ObamaCare and its one-size-fits-all health plans.

ObamaCare was not about fixing the insurance market. It was about seizing control of it.

The feds may declare that these exchanges do not comply with federal rules and are not eligible for new federal subsidies beginning in 2014. But the Obama administration will be hard-pressed to find the resources to establish and run its own federal exchanges in time if enough states resist its dictates and appeal to their citizens with a better offer.

ObamaCare intends health-care exchanges to be a regulatory dragnet to trap insurers into offering a single government-prescribed set of health benefits. State-designed exchanges could, and should, do the opposite.

Any willing insurers already licensed to operate in a state should be able to offer plans. Their operating rules would focus on providing better information to consumers, rather than limiting the types of plans available. Exchanges should also enable easier allocation of private payments and public subsidies, simplify enrollment, and reduce transaction costs.

Once inside the exchange, consumers would be guaranteed the ability to renew their coverage without regard to changes in their health status, so long as they remain continuously insured. If individuals want to switch plans, they couldn't be hit with higher costs due to changes in health status as long as they stay within some baseline range of benefits that was largely equivalent to their previous plan. And a new Congress should make sure that consumers shopping in these market-based exchanges get the same tax advantages that employers do, eliminating the bias that now forces people to get coverage from their bosses.

Under this arrangement, there wouldn't be the incentive for gaming the system that exists under ObamaCare, which encourages forgoing coverage until one gets sick, or buying cheap policies and upgrading only after an illness strikes.

Of course, not everyone will be able to afford to purchase insurance in these exchanges. Poor people and those with major medical problems or chronic conditions that make them largely uninsurable would certainly need to be subsidized. But today we already subsidize many of these people through a patchwork of programs.

Taxpayers can provide targeted subsidies through expanded high-risk pools to cap out-of-pocket, risk-based premium costs for the most vulnerable. In the longer term, states could get waivers to "monetize" Medicaid medical benefits and allow these recipients to shop in the same exchanges. Recipients might well prefer a voucher option to Medicaid coverage that pays most providers half as much as private insurance and fails to deliver many of the benefits it promises. Subsidies should flow directly to consumers, rather than to the health plans as ObamaCare required.

The elements of these market-based exchanges are already buried deep inside ObamaCare. But they remain under a lethal dose of regulation that rules out every choice but those made by the bureaucrats working inside the president's "Office of Health Reform."

ObamaCare was not about fixing the insurance market. It was about seizing control of it. Thus it shouldn't be surprising that a new analysis by the Congressional Research Service says that states can use ObamaCare to erect a de facto single-payer system by simply excluding from their exchanges every plan but a state-run "public" plan. "There is no specific language in [the president's health plan] that would prohibit an exchange from denying certification to every private plan that applies," the analysis finds.

California is already headed down this road. Voters have opted for a "selective contracting" scheme in which a five-member board of unaccountable appointees will tightly control which insurers operate in the California exchange.

But other states, particularly Utah, are moving in the opposite direction with their own version of market-based exchanges before ObamaCare's regulations can catch up. The Utah Health Exchange is an Internet-based information portal that connects consumers to the information they need to make informed choices. In many cases, it allows them to buy insurance electronically.

Several other states are interested in establishing similar plans and daring the Obama administration to stop them. Replacing the command-and-control features of ObamaCare with a plan offering consumers a real marketplace is a change many people can start to believe in. And one Mr. Obama would be imprudent to oppose.

Scott Gottlieb, M.D., is a resident fellow at AEI. Thomas P. Miller is a resident fellow at AEI.

Photo Credit:iStockphoto/Anant Dummai

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