A framework for replacing Obamacare

James Capretta and Scott Gottlieb of AEI lay out the four reforms around which they say the effort to replace Obamacare should center. They are:

1. Provide a path to catastrophic health insurance for all Americans.

Obamacare provides all sorts of health care coverage, including lots of coverage the purchaser doesn’t need (e.g. child birthing care for people not capable of having children). Making people pay for coverage they don’t want or need provides money with which the government subsidizes the health care of other people and enables those with preexisting conditions to buy insurance.

Capretta and Gottlieb argue that Obamacare’s replacement should focus on the basics. It “should make it possible for all people to get health insurance that provides coverage for basic prevention, like vaccines, and expensive medical care that exceeds, perhaps, $5,000 for individuals.”

How?

Those Americans who don’t get health insurance through employers, or Medicare and Medicaid, should be eligible for a refundable tax credit that can be used to enroll in a health-insurance plan. The credit would be set at a level comparable to the tax benefits available to individuals with employer-sponsored insurance plans. The subsidy would be enough to make a basic level of catastrophic coverage easily affordable for all Americans.

2. Accommodate people with pre-existing health conditions.

As Capretta and Gottlieb note, the price of insurance naturally reflects added risk, but there’s a “reasonable social consensus that people should not be penalized financially for health problems that are largely outside of their control.” Thus, they propose that “as long as someone remains insured, he should be allowed to move from employer coverage to the individual market without facing exclusions or higher premiums based on his health status.”

If someone chooses voluntarily not to get coverage, state regulation could allow for an assessment of the risk when the person returns to the market. Well-run and properly funded high-risk pools can help address the inevitable cases of expensive claims for the remaining uninsured.

3. Allow broad access to health-savings accounts.

Catastrophic health insurance doesn’t cover ordinary medical bills. To pay for these expenses, Capretta and Gottlieb propose a one-time federal tax credit to encourage all Americans to open a health-savings account (HSA).

They point to a study by the National Bureau of Economic Research. It concluded that families spent between 7 percent and 22 percent less on health care in the three years after switching to an HSA. Spending was also lower for outpatient services and pharmaceuticals, without any increase in emergency-room spending.

Thus, say Capretta and Gottlieb, “as millions of consumers begin using HSAs, the medical-care market will begin to transform and deliver services that are convenient and affordable for patients.”

4. Deregulate the market for medical services.

HSAs will empower the demand side of the market, but Capretta and Gottlieb argue that, in addition, suppliers need freedom from regulation to provide packages of services better tailored to people’s needs. For example, “those consumers who maintain HSA balances should be allowed to use their resources to purchase direct care—basic services that keep people healthy and treat illnesses and chronic conditions—from physician groups.” This might take the form of a monthly fee, a practice sometimes referred to as direct primary care.

Similarly, “hospitals and physicians should be allowed to sell access to their networks of clinics, oncology services, and inpatient facilities as an option to be used in the event a patient is diagnosed with an expensive illness.”

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Capretta and Gottlieb are calling for a system that’s fully consumer driven — one that empowers individuals to be the surveyors and purchasers of their care. Such a system would stand in stark contrast to Obamacare which tells people what insurance they must have and pretends that many insurance plans tailored to individual needs are “junk insurance.”

As noted above, Obamacare engages in this pretense to force some people to buy insurance they don’t need as a means of subsidizing other people. Some “subsidizing” will, I assume, be necessary in a post-Obamacare world if popular provisions, such as accommodating folks with pre-existing conditions, are to be continued.

But the way to pay to for any such subsidies is the same way we normally pay for things the public deems desirable — through general revenue, not through coercing unlucky individuals into buying things they don’t want or need.

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