How Republicans Can Fix American Health Care [Archive.org URL]

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.

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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.)

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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.

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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.

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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.

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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.

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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.