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Though Obamacare is law, it is not settled policy. Most Americans continue to say that President Obama and the 111th Congress got health reform wrong — very wrong.
Faced with this growing criticism, supporters insist they can fix the law with more legislation and more regulation. We disagree. The problems with Obamacare cannot be fixed because they are woven into its fabric. The law is fundamentally and structurally flawed, and cannot be repaired or improved. It must be repealed and replaced.
You simply can’t build a patient-centered health-care system on Obamacare’s foundation of bureaucracy and central planning.
Throughout our new book, Why Obamacare Is Wrong for America, we describe in detail where this law will take us — to higher costs, lower quality, long waits for care, and limits on access to new treatments and medicines.
The very real problems with health care in the United States can be solved, but not with Obamacare. The key is to empower patients, not the government.
We are at a crossroads: Either we can move to a truly market-driven health-care economy that puts consumers in charge of choices, or we can continue to build one that puts government at the center. Obamacare will be governed by hundreds of new boards and commissions, thousands of regulators, and tens of thousands of pages of regulation.
Instead, we support a system that builds on the core strength of our market economy and puts consumers in charge. You would have new powers and the tools to demand better choices in a competitive marketplace that offers more affordable health insurance and policies that suit your needs.
But to get there, Congress must fix some of the fundamental flaws that are keeping you from being able to own and control your own health insurance and therefore make more of your own health choices. You could pick policies that would allow you to keep young-adult children on your policy, cover preventive care with no out-of-pocket costs, and have no limits on what your policy will pay. The policies would likely be more expensive; the difference is, you would decide whether they are worth the cost.
Our current system has built so many barriers to allowing you to make these choices that many people think it just can’t be done. “It’s better to have Obamacare than the system we have now,” some say. But the future under Obamacare is bleak. Instead, we can build a bright 21st-century health-care economy. The key is to give power to the people!
FACTS OF LIFE
Between now and 2013, several facts of life remain. The current health-overhaul law is on the books, and bureaucrats in the Obama administration are grinding away to put the regulatory machinery in place. It’s unlikely that Congress could muster the votes in the 112th Congress to overturn President Obama’s predictable veto of a bill that would overturn the law. And it will be hard to convince independent voters that a sweeping repeal of Obamacare is a good idea until they see better ideas being offered. Free-market reformers must offer positive solutions, not a status quo that is unsatisfactory to many Americans.
Ironically, supporters of Obamacare argue that their plan builds on the free market and consumer choice and that it absolutely, positively is not a government takeover of health care.
They did use some of the names of sensible concepts and ideas that free-market analysts have been advocating for years. For example, they agreed that, in our increasingly mobile economy, Americans should have portable insurance that they can take with them as they move from job to job. To do that, subsidies for health-insurance premiums are portable. They also agreed that you should be able to pick your own health insurance, just as you pick other types of insurance.
The architects of Obamacare gave a rhetorical nod to these ideas by providing tax credits to help people afford premiums and by creating new marketplaces — or “exchanges” — where people can shop for portable insurance policies.
But Obamacare took these market-based ideas and twisted them beyond recognition into a bureaucratic knot. The exchanges are weighed down with rules, regulations, and government restrictions, and crushed under a mountain of bureaucracy. The only things that remain of free-market ideas are the labels: tax credits, portability, and consumer choice. We need to peel off these labels and put them on the right policies. We need to get the incentives right with policies that reward people for making the right choices and provide a strong safety net to help the most vulnerable people.
In a properly functioning market, millions of people make billions of choices every day about what they do, where they go, and how they spend their money. Everyone offering a service or a product in the market gets these signals, and they respond by providing consumers with more of what they want and less of what they don’t. Different companies offering the same services are competing with one another to do a better job so you will pick them over their competitors. Why on earth would we want a system, especially in something as personal as health care, where all of these market signals are lost, and doctors and patients are responding to regulators, not you?
PUTTING CONSUMERS IN CHARGE
The central pillar of free-market reform is a vigorously competitive health sector. Many of the problems the country is facing involving health costs could be addressed by encouraging much more competition and giving consumers greater control over resources and decisions involving their care and coverage. Greater transparency in both prices and performance, along with a larger choice of options, would drive out insurers that charge more for their products than they are worth to consumers. This delivers much better results than having government officials throw rhetorical stones at insurers just to score political points.
Unfortunately, the lack of competition in health insurance in many states limits options for coverage, overregulation drives up costs, and our structure of financing health insurance gives consumers little power to make choices. Obamacare will make these problems worse.
Though health care is different from other sectors of our economy and requires special consideration, there are many areas in which consumers want to and can have more control over their health-care choices — especially regarding the kind of health-insurance policy they want and how much they are willing to pay for it.
Competition can work when consumers are truly engaged in getting better value for their health-care dollars. Government needs to get out of the way, not build more barriers.
MONEY TO THE PEOPLE
Health costs are rising relentlessly, and this is forcing up the cost of health insurance for individuals, employers, and government. Many people with existing medical conditions don’t have access to affordable insurance. And too many families are uninsured and are just one illness or accident away from financial disaster. Reformers must offer new ways for people to get health insurance, ways to keep costs under control, and ways to reform Medicare and Medicaid with real solutions rather than shell games.
This starts with a new vision, one aligned with a 21st-century economy in which you, rather than government bureaucracies, have control over your own resources. Our vision is to build on a process that switches existing health-care benefits to “defined-contribution” programs. This concept can be applied to taxpayers’ financing of all three major insurance-coverage platforms in the United States — Medicare, Medicaid, and private health insurance.
It is a concept already familiar to most workers. The defined-contribution revolution is already well under way in private retirement programs. In 1985, about 80 percent of all full-time U.S. workers were enrolled in company pension plans that offered them a defined benefit. Those plans promised workers that the company would pay them a pension of a certain amount after they retired.
By 2006, the share of those workers in defined benefit plans had dropped to just 20 percent. The last quarter century has seen a revolution in 401(k)s, IRAs, Keogh plans, and other defined-contribution plans that allow retirement funds to be portable and controlled by individual workers. Health insurance could and should offer the same opportunity.
Defined-contribution payments are a different path to comprehensive health reform. Payments would be made more directly to people rather than laundering, hiding, and redirecting spending through third-party middlemen. Having more control over their health-care spending would empower and encourage consumers and patients to make better health-care choices. They would stimulate more innovative and accountable competition by health-care providers. And they would encourage us all to save and invest so that we can pay more for health care when it delivers more value but redirect our resources elsewhere when it delivers less.
This wholesale shift has not yet occurred in health care because federal entitlements and tax policies are in the way. They have propped up arrangements that emphasize government support over patient satisfaction.
HERE’S HOW THE SYSTEM WORKS NOW
If you work for a company that provides health insurance, you get a generous tax break if your employer writes the check for it. The premiums for your health insurance are taken off the top, or excluded, from your income before your employer calculates the taxes you owe. No matter how much your employer spends on health-insurance premiums, you don’t pay any taxes on that part of your compensation. (The insurance is not a gift from your employer; it is part of your pay package. The more it costs, the less you have in take-home pay.)
It’s cheaper to buy health insurance with these pre-tax dollars than to buy it on our own with after-tax dollars. The tax savings can be worth several thousands of dollars a year. So over the decades, consciously or not, tax policy has provided a big financial incentive for tens of millions of Americans and families to get health insurance at work.
Incentives to economize, among employers as well as workers and consumers, are muted because the spending — and tax breaks — are invisible and without limit. Today, if you earn a salary of $75,000 for your family, and your employer also enrolls you in a $13,000 health-insurance policy, the tax break for that coverage is worth about $5,200.
But people pay a high price for this generous health insurance at work. Take-home pay has risen modestly over the last decade — just 38 percent on average — because so much of your compensation has been gobbled up by expensive health insurance, which has gone up 131 percent over the same period. Your employer isn’t paying for the bulk of your policy; you are. Your employer has been taking the money out of your overall compensation package to pay your health-insurance premiums. At some point, we just have to say enough!
The same thing is happening with Medicare and Medicaid. If you are in one of those programs, you have little or no control over the prices of the health care you are consuming since your doctors and hospitals send the bills to government (or your supplemental insurance plan). The new health-care law would make matters worse by moving millions more people into heavily subsidized, taxpayer-supported programs (through either state health-benefits exchanges or Medicaid). This is the very kind of open-ended financing arrangements that are at the heart of today’s cost problem.
We can’t go on forever like this. At some point, someone has to put on the brakes. Obamacare does it with price controls, which will ultimately turn into rationing. We want do to it by engaging the power of the free market so that health care is better, more convenient, and less expensive.
HERE’S HOW IT COULD WORK
Every American household — whether working or not — would get a health credit. The credit could be used only to purchase health insurance and health-care services. Any household that didn’t buy coverage would lose the entire value of the credit. The number choosing to do so would likely be very small. The credit would be available to you whether you get your health insurance on your own, at work, or through other kinds of groups. The value of the credit would be determined by Congress, but, depending upon its size, could be largely financed by modernizing the tax treatment of health insurance. Moving towards a universal, fixed-dollar credit would be a different, but real, alternative to the new health law and could actually be a path to health insurance for everyone. The credit also would begin to break down the obsolete regulations we have now that tie health insurance to your job. You would be in charge of choices, and your health insurance could stay with you.
THIS WORKS FOR MEDICARE AND MEDICAID, TOO
Something similar could and should be done in Medicare. In fact, it’s already been done in a part of Medicare: the prescription-drug benefit, which was added to the program in 2003. Medicare beneficiaries decide for themselves what kind of drug insurance they want to purchase each year. The government’s contribution is based on the average price charged by participating drug plans in a region, and it remains the same regardless of which plan the beneficiary selects. If seniors select plans that are more expensive than the average price of all plans offering bids each year to provide drug benefits, they must pay the additional premium out of their own pockets. Many select less expensive plans available to them because scores of insurers compete aggressively with one another for their business every year. The result is that federal spending on the program is some 30 to 40 percent below initial projections.
As new retirees turn age 65 and enter Medicare, they should be given the same control they now have over drug coverage for their entire Medicare benefit. The resulting competition among private plans and the traditional Medicare fee-for-service program, as well as among those providing services to the beneficiaries, would work far better than top-down government regulation alone to hold down costs and premiums. It would also make insurers much more attentive to the needs of their patients, as seniors who were dissatisfied with how they were treated could take their business elsewhere at the next available opportunity. (Open-enrollment seasons would take place at least once a year.)
Medicaid — the health insurance program for low-income Americans — locks participants into a system of insurance that is largely separate from what everyone else experiences. Medicaid’s payments to doctors and hospitals are so low that many physicians simply refuse to see patients with Medicaid coverage. Medicaid is also not coordinated with employer insurance, so when low-income people get higher-paying jobs, they often lose Medicaid without the guarantee of getting coverage at their job.
All of this could be fixed by giving the nondisabled who are enrolled in Medicaid the same tax credit given to all other working-age Americans. That would serve as their base of insurance to help them get private coverage. What is now spent on them in Medicaid could be then be used to provide additional help with premium expenses as well as out-of-pocket costs when they need health care. This approach would allow Medicaid participants to get the same kind of insurance — and thus access to the same doctors and hospitals — as everyone else. It would also mean that they could keep the same insurance even when they move up to higher-paying jobs with new employers.
Building an effective marketplace for health care requires some additional steps beyond reforming how employers, Medicare, and Medicaid pay for insurance. We need more transparent information about prices and quality, better state regulation of insurance markets, and further assistance for beneficiaries making choices about what will be best for them. Nevertheless, it’s clear that the key reform that is needed is one that puts you — and your fellow Americans — in charge of the money. That’s the way to slow rising costs while also improving, not compromising, quality.
THE RYAN ROADMAP
It is impossible to discuss comprehensive health care and entitlement reform without mentioning the most comprehensive proposal to accomplish what’s needed: the “Roadmap” offered by Rep. Paul Ryan, the new chairman of the House Budget Committee.
In drafting his Roadmap, Representative Ryan’s explicit objective was to restore long-term balance to the government’s budget without resorting to huge tax increases by building a network of affordable entitlement programs that will not crush America’s entrepreneurial initiative.
The Roadmap puts you in charge of your health care by simultaneously reforming Medicare and Medicaid, as well as the tax preference for employer-paid insurance. His plan lays the foundation for restoration of long-term balance to the federal budget.
In the Roadmap, Americans age 55 and younger would enter into a restructured Medicare program that paid fixed dollar amounts to the cost of their health insurance. The tax exclusion for employer-provided health-insurance premiums would be repealed and converted into fixed-dollar refundable tax credits for all households with a member under the age of sixty-five. States would choose either to allow their Medicaid recipients (except for those who are disabled or receiving long-term care assistance) to participate in the tax-credit plan (augmented by additional low-income assistance) or to use federal block-grant funding to restructure their Medicaid programs with greater flexibility.
Over the long run, the massive run-up in debt that would occur under the current law would be avoided entirely, even as taxes were not increased.
But even those numerical indicators do not fully highlight the importance of what Representative Ryan has proposed. The Ryan plan would convert tens of millions of Americans into cost-conscious consumers. The combined effect of doing so across age groups and incomes would create tremendous competitive pressure on insurers and health care providers to deliver much better value at less cost.
The Ryan Roadmap is thus not just a budget plan. It is also a plan to transform American health care. It is built on the fundamental principle that with you and your fellow Americans in charge of the health-care dollar, we can get much better health care at lower costs than we are getting today.
ENSURING THAT SICK AMERICANS AREN’T LEFT OUT
Even if we fix U.S. health care by putting consumers in charge, there will still be a problem with making sure those who are especially sick can get good insurance too. Today, there are an estimated 2 to 5 million Americans who have a “pre-existing condition” that would deny or limit their access to health-insurance coverage. Private insurers in the individual market must take the much higher risk — and costs — of those ailments into account when setting premiums, or limiting initial coverage for them.
In fact, the president is holding up the plight of these Americans as the main rationale for the government takeover built into Obamacare. While describing the plight of a young woman in the audience of a rally he attended in April 2010, President Obama told the crowd: “If [opponents of the law] want to look at Lauren Gallagher in the eye and tell her they plan to take away her father’s ability to get health insurance . . . they can run on that platform.”
The choice the president presents is a false one. And his solution isn’t working. We have a problem that needs to be addressed, but turning over the entire system to government control is not the answer.
Ironically, Obamacare included an ill-conceived version of what is needed to actually ensure that sick Americans can get affordable insurance. Obamacare created a $5 billion “high-risk pool” program that is poorly designed, hastily constructed, and severely underfunded. Because the benefits that must be offered are so expensive, the premiums are very high. About 375,000 were expected to apply by the end of 2010, but only about 8,000 people have enrolled so far. Clearly, this program needs to be rethought.
The lessons to be learned from Obamacare’s early experience is not that high-risk pools don’t work; it’s that they won’t work if they are built to fail. For starters, they have to be reliable and well funded to get people to sign up. They should provide assistance to people who find themselves, through no fault of their own, looking for insurance as individuals even though they have a history of high medical costs. The high-risk pool should help them pay their premiums, and state regulations will place an upper limit on how much they can be charged directly. The pools need to be coupled with stronger protections for those maintaining continuous insurance coverage so that they don’t find themselves needing high-risk assistance at all.
High-risk pools can address preexisting conditions without the costs and burdens of the heavy-handed federal regulation of insurance planned for 2014. In short, we can do more by doing less and the solution can be transparent, well targeted, and adequately funded.
High-risk pools that deliver what they can promise will be more expensive. But compared to the sweeping burdens of Obamacare, they will cost much less and do less damage to the rest of the private health-care market, which many Americans prefer and from which they still benefit greatly. High-risk pools can represent the foundation of what it means to replace, not just repeal, Obamacare’s flawed prescription for health-policy change.
ADDITIONAL IMPORTANT REFORMS AT THE STATE LEVEL
Putting consumers in charge and protecting those with preexisting conditions are the crucial steps needed to broaden coverage and slow the pace of rising costs.
But some other steps are needed as well. In our federalist system of government, states should be given the latitude to take the lead in implementing such changes in ways that are most acceptable to their citizens.
For instance, consumers should be given new opportunities to find and purchase the coverage that fits their needs. In that regard, states should be given greater flexibility to put in place insurance marketplaces which would give consumers accurate and comprehensive information about their options, as well as simplify the process of enrollment. These marketplaces should offer more consumer assistance, not tighter insurance regulation. The Utah Health Exchange is a model. Exchanges can be a mechanism to aggregate defined contributions and allow consumers to purchase health insurance with pretax dollars.
The federal government also should allow the states use those mechanisms to fundamentally transform their Medicaid programs into consumer-choice models.
The states should also open up sale and purchase of health insurance to consumers in other states. This would help residents in states with costly and excessive regulations to find affordable coverage elsewhere and would drive down costs.
States must also reform their medical-malpractice laws to remove distortions associated with arbitrary and unlimited jury awards. Today, lawyers shoot for the sky and hope they come up winners. The limited number of cases where they do hit the jackpot is causing doctors to do whatever is necessary to avoid the same fate. The result is billions and billions of dollars in unnecessary medical treatment. Sensible tort reform would allow doctors to practice sound medicine and still protect patients from genuine malpractice.
THE PATH FORWARD
Moving forward, leaders in Congress must start to work on reform that is compatible with our nation’s political culture, the values embodied in our constitution, and our free-market economy.
The challenges are enormous, even without the upheaval of Obamacare. Millions of baby boomers will soon be signing up for Medicare, putting new pressures on the system. The costs of government entitlement programs threaten to squeeze out other public services provided by federal and state governments. Millions of people continue to lose their health insurance when they lose or change jobs. And the cost of health care and insurance coverage continues to rise.
It is not possible for a government bureaucracy to know how to solve all of these problems or to address the diverse needs of 300 million Americans. What’s needed is reform that puts you and your fellow citizens, not government, in charge of the health care dollars. That’s the way to ensure your needs are addressed, with better health care at less expense for all of us.
A CHECKLIST FOR A STEP-BY-STEP APPROACH TO HEALTH-CARE REFORM
Thomas Miller is a resident fellow at AEI. Grace-Marie Turner is president of the Galen Institute. James C. Capretta is a fellow at the Ethics and Public Policy Center. Robert E. Moffit is a senior fellow at the Heritage Foundation.
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