The Post-Obamacare Playbook for Market-Based Health Care Reform

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The election settled the biggest domestic policy question of the past few years: Obamacare will be implemented, not repealed. Would-be conservative reformers, such as the American Enterprise Institute’s Thomas Miller, are now thinking about how best to introduce market reforms with Obamacare on the books. Miller has laid out what he thinks is the best strategy for right-of-center reformers in the post-Obama reelection era in a new paper: “When Obamacare Fails: The Playbook for Market-Based Reform.”

In his paper, Miller lays out not only a number of possible reforms he’d like to enact, but also a strategy for navigating the political process. To get a sense of where conservatives are headed in the health care policy arena, RealClearPolicy spoke with Miller at length about his new paper. What follows is an edited transcript:

RealClearPolicy: What was your motivation for writing this paper?

Thomas Miller: Filling a vacuum in health policy reform proposals. There has been no shortage of deeper and substantive, as well as shorter and more political “I-just don’t-like-this” complaints about the Affordable Care Act (ACA). Many of them are thoroughly justified. But they only get you part of the way in challenging and overturning the flaws of Obamacare. Whether it was during the run-up to the Supreme Court decision last June, or even afterwards during the presidential campaign, the health policy debate over the Affordable Care Act never rose to the level of saying, “Not only do we not support what’s been done or how it was imposed by hook or by crook, but there is a a different and better approach. There’s another way to reform our health care system without just reverting to the pre-ACA status quo.”

So this work provides a “playbook” to shape that agenda, but without trying to assume a bunch of bizarre theoretical what-ifs or imagining what we could do if we legislated with a clean slate. Instead, it talks about some relatively tested policies, while stretching the older boundaries a little bit to offer better options, in order to demonstrate that there is a different route ahead. And then, when what’s being attempted under the ACA doesn’t work, we’re going to have to return to thinking about how to do things differently. It’s a more uphill process, in political terms, than it was a couple years ago, but the reframing of health policy reform issues still needs to be reconsidered. You need to know where you’re going before you can begin to take some marginal steps back from the ACA in that better direction.

So what is that process, going from where we are now late in 2012 to what you describe?

Well, the process is probably going to flow from the arrival of significant negatives before better positives are put back on the table, unfortunately. You have to be a realist about what’s out there in the political landscape, and where the relative voting power in Congress as well as executive branch authority is. That’s not going to change for a number of years. However, one can easily anticipate that what is supposed to be installed and implemented and put into place within the next two years is not going to work very well. In some areas, it may just crash and implode. As we begin to dig through the policy rubble and look for some other alternatives, you first can do all kinds of patch-up jobs. There’ll be some of those efforts, both through revised regulations and hopefully incremental legislative fixes in a couple of years, but if they’re not guided by a broader idea as to where you want to go and what you’re aiming for, I think those are going to be somewhat lateral moves.

So, first things have to get worse before they get better. But there’s a natural balance in American politics and even in health policy by which we correct our mistakes, although not always as well as we might have originally. That is what’s ahead when we get full installation and implementation of this law. I think that will be a time for rethinking and reconsideration. It should not just be a random fire drill, but should have some better anchoring points to it.

Are you talking about working within the framework of what’s law now? Are you talking about repeal or reform?

Well, I’d like to do both repeal and reform. But, as they say in football, you take what the defense gives you. And you wait for circumstances to change. In an ideal world, we would not necessarily scrap every line or paragraph of the Affordable Care Act. There are some things within it that aren’t objectionable, but a lot of it is, because it’s so interwoven in that one mistake begets another mistake and covers the tracks of a previous one. However, it’s more likely that certain elements of the law will spring leaks and turn out to be unworkable, unaffordable, and/or undesirable. We’ll probably end up changing them in pieces, and end up back toward a lesser version of what might have been a better integrated approach to doing the law in a more thoughtful way. And again, I don’t’ see that happening for several more years, but if you don’t know what you’re aiming for when you say you want something better, you won’t get it.

The Obama administration is only going to change its stance when it has to, required to do so by objective outside circumstances and developments, whether it’s the limits of what we can afford, what actually can work, or what the public says it really doesn’t like happening. But every politician is a follower and not a leader ultimately. As voters change their attitudes toward this law to be even more negative, even though they haven’t been very supportive of it thus far, then you begin to see the rest of the political force-field shift and evolve to become more open to some of these changes. I think it would be hard to envision most of this as involving a vote of Congress for at least several years, and if the president wants to continue to veto it, it might be held up for four years. But there will be changes in regulations, changes in the emphasis of enforcement, and new opportunities for some of the players to have more flexibility to go in somewhat better directions. They could become possible before the end of this current presidential term.

Thinking practically, what are those changes? What would be the first step?

Although I’ve spent a lot of time in the paper writing about fundamental change in the financing structure of all our health care subsidies, that involves a big legislative package. Given that we’re already again running sideways in the current budget talks and fiscal cliff, that’s an even longer-term process. However, the administration could dial back the degree to which it tries to dominate and surround every decision in health care, once they find out that they’re not getting the same kind of take-up and participation in the health exchanges or in the Medicaid expansion they were hoping for, and the wires and pipes just don’t fit together and mesh, and everything that flows in just doesn’t come back out the way envisioned. So to the extent that people are guided by external results – Are health care costs lower? Is health care more available? Is population health actually improving? Is the quality of care improving? When those results don’t happen, real-world evidence will begin to change things at the margin. That will open up more breathing room for people to do things differently.

So you’re talking about mostly the regulatory side?

Even though the regulatory side in many ways is the least accountable component of the governance structure in our politics, in this case it allows for the earliest way to make some adjustments. We know from many examples over the last decade or more of that the ability of Congress to pass major legislation is quite limited. It’s rather difficult to do even with a significant majority in both houses, let alone one resistant to further changes, which is where we are currently. So it’s a lot to ask Congress to reconsider major legislation, even when it’s poorly written and doesn’t work very well. I don’t think it’s a matter of finding some lesser amendments here or there and tacking some things on to an appropriations bill. We’re probably going to need some combination of pushback from voters and another election or two to get that fundamental rewrite. But in the areas in which the overreach on the regulatory side has gone even beyond the text and the letter of the Affordable Care Act – which is pretty dense and complicated itself – those are some areas where it will be a necessity for the folks in Washington to back off.

You recommend that the government programs for health insurance, especially Medicare and Medicaid, transition to a defined contribution model.

It’s more of an initial financing platform, as much as anything.

Can you describe the difference between defined contribution and defined benefit platforms, and why that makes a difference?

With the mirage of politically defined benefits, we usually first imagine what we want to deliver and then assume we’ll somehow find out the way to pay for it later. That tends to create a lot of IOUs that aren’t soundly financed, and it disrupts the supply lines. Defined contribution health benefits are not just a budgetary exercise, although the process does recognize economic realities and leads us to target better what we’re doing with money we take from taxpayers, or borrow from other people, in order to subsidize different ways in which people get health insurance coverage.

The key element involves how you unlock the benefit structure so that more decisions can be made in a decentralized, personalized manner. To the extent someone merits a subsidy on the grounds of being either lower income than other people or presenting higher health risk than most other people, you are no longer just passing dollars back and forth between the same large groups of people -- without knowing who's coming out ahead or behind, or who needs more help from everyone else.

That will encourage a better supply of the type of information than people need to make important health care decisions and choices. It will create a more competitive regime in which those intermediaries and health care providers who perform better are rewarded for it, and those who don’t lose business. That’s the real driving force behind a defined-contribution subsidy platform, while it also remains sensitive to the fact that certain individuals need special support, and we should be generous to them. But if everybody pretends to be generous to everyone else, we’re not doing much more than burn-up a lot of resources in a transfer payment mechanism that tends to subtract value and reduce some of the broader opportunities we have for greater economic growth.

And for people in the private market, who might locked out from health insurance because they have a pre-existing condition, which was primarily the motivation for the Affordable Care Act –

I would say it is better described as the “political marketing strategy” for the Affordable Care Act.

So how is that problem handled outside the context of the ACA?

One of the first things to assess is the size and scope of your problem, and then to deal with it with the best and most effective means, rather than using the problem to leverage a broader agenda of wanting to control and centralize health care decisions that have little to do with the small cohort of people that may have serious problems of access to health care because of pre-existing conditions. If you want to solve a problem it’s best to deal with it on its own terms rather than through policies that can at best scratch the surface while really being aimed at different targets.

The paper I’ve written talks about how to actually deal with the pre-existing condition issue primarily through two policy tools. One policy arm is to more extensively subsidize people who will either not be able to find any coverage due to their high health care risk or are quoted extremely high prices for obtaining that coverage, well beyond what they can handle. That’s the argument for not just the old thin shell of many state-based high-risk pools, but rather for newer ones that have sufficient funds in them to do an effective job while not making people completely insensitive to the fact that when they have greater health care needs and costs, they should pay a bit more (within reasonable limits), unless they’re very low income.

The second part of policy reform is to replace the blunt, crude force of the individual mandate. The mandate will be very difficult to enforce in any case, but it also more fundamentally runs against the grain and the values of broad majorities of the public. Instead, we should provide some strong incentives for people to purchase health insurance but not mandate it. The policy idea is that you will get protection against these pre-existing conditions when you switch plans or maintain your initial insurance coverage. You qualify for that protection if you’ve had previous coverage that was “continuous” coverage for a sufficient period without interruption. That provides a strong incentive for people to acquire and maintain health insurance coverage. The high-risk pool provides some back-up protection even for those who fall through the cracks on that front. We don’t want to punish them beyond the certain point – maximum risk-based premium charges are capped, because it becomes sort of senseless for them to pay higher and higher prices beyond a certain point.

So it’s a combination of those two less intrusive means, They deal with the issue seriously and significantly, but they don’t expand their regulatory and subsidy provisions to create a set of broader controls over the larger insurance marketplace, which can work quite well in its terms in a highly-competitive, market-based approach.

Let me add one postscript about why I was writing this paper. Some of it is to deal with current health policy issues under the ACA within the current vocabulary and the context of what we normally think about in health policy and how it gets debated. You have to meet policymakers, voters, and health system participants where they are. But some other parts of the paper talk about how to frame a broader approach toward improving health care and health insurance regulation by becoming more information-based. We should arm people with the ability to make their choices in an informed manner, but we should not try to be as proscriptive and top-down, “this-is-in-this-is-out” about it.

And in the larger context, unless we solve some of the bigger problems we have, which concern how people from a very early time in life and throughout their life cycle stay healthier, by facing better incentives and gaining the tools to lead healthy lives; plus how our macroeconomic policies ensure a growing economy, then no matter what we do with these other health policy reforms, they will prove inadequate in fixing a health care system in which the demand for care may overflow the limits of its supply, and the actual ability to deliver care effectively and efficiently remains wanting.

Joseph Lawler is editor of RealClearPolicy. He can be reached by email or on twitter.

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