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The Democratic party is moving steadily toward a full embrace of Medicare for All as its official health-care policy. While the term is flexible enough to mean different things to different people, the overall direction is clear enough. The party is advocating for the enrollment — eventually — of all Americans in a government-run insurance plan of some sort. Details to follow.

Opponents of full, government-run health insurance are ready to attack all versions of the idea on a number of fronts. Among other things, Medicare for All would disrupt insurance coverage for the 180 million people who currently get their coverage from employers. Many of them are happy with what they have and would rather not give it up for an untested, publicly-run plan. Also, Medicare for All would require an extremely large tax increase. Just making these obvious points may be enough to keep the purest versions of Medicare for All at bay.

But do opponents of government-run health care have a competing vision for improving the health system? Because, over the long run, it may not be enough just to be against government-run health care if the public perceives the alternative as inadequate, and, currently, there is widespread agreement that the status quo is inadequate. The provision of medical care remains far too costly. Waste is rampant. Administrative costs are high. The system is fragmented and uncoordinated, the paperwork is maddening, and the quality of care provided to patients is uneven. The persistence of these problems over many years is a major reason why the U.S. has been on a steady march toward greater government control of the health system, even without a full embrace of a nationalized plan.

Opponents of Medicare for All shouldn't try to defend the dysfunctional status quo. Instead, they should advance reforms that would make the system work better for patients, and bundle them as the alternative to Medicare for All.

The last two years have demonstrated how difficult this challenge will be for Republicans. The GOP failed in its attempt to repeal and replace the Affordable Care Act (ACA) largely because the Trump administration had no clear vision of where it wanted to take the health system, and House and Senate Republicans had too many conflicting objectives to put together a coherent plan. In the end, the GOP fell short on repeal because they couldn’t agree on replace.

That problem persists. A handful of Senate Republicans have been pushing an alternative vision for the health system built on federalism. In its first iteration, this idea was sponsored by Senators Lindsey Graham, Bill Cassidy, and Bill Johnson, as well as former Senator Dean Heller. The Graham-Cassidy-Heller-Johnson plan proposed to convert the new funding for health coverage provided in the ACA into block grants provided to the states. Those funds, combined with a reformed Medicaid program, could be used by the states to provide insurance coverage in ways that differ from the ACA's framework.

This idea has some political appeal among Republicans because it would allow them to avoid making difficult decisions at the federal level about the design of the health system. When asked, they could say that it is up to the states to decide on the details of insurance regulations and health insurance subsidies.

The trouble with Graham-Cassidy is that it misdiagnoses the fundamental problem with American health care. The problem is not that the states have too little authority. Rather, it is that the provision of medical care occurs outside the discipline of a functioning marketplace. There are a number of reasons why this is the case, starting with existing federal policy. What’s needed is a serious effort to allow market incentives — competition and consumer choice — to deliver higher quality, lower cost health care to all Americans.

Graham-Cassidy does not promote market-driven health care. The dominant insurance systems — Medicare, and employer-sponsored coverage — are left unreformed by the legislation. The conversion of the ACA's premium credits and cost-sharing subsidies into block grants to the states would have very little effect on where most people get their insurance, or their medical care. Further, allowing states to regulate health insurance sold in the individual market differently from the rules of the ACA also would have little effect on overall costs, or how care is delivered to patients.

Market-driven health care requires different reforms. First, the tax preference for employer-provided health care needs to be limited, to give both employers and workers stronger incentives to seek out lower cost and higher value insurance and medical care. It is estimated that the current open-ended tax break increases the cost of employer coverage by 35 percent. The ACA's Cadillac tax is an imperfect answer to this problem, but it is better than nothing. Unfortunately, Republicans have been leading the effort to repeal the tax without replacing it with a better alternative. If the GOP is serious about a market-driven health system (and that's a big "if"), it must change course and embrace some version of a limit on the tax break for job-based coverage. That's the surest way to bring new cost discipline to the system, which will mean lower costs for patients.

A second critical change is transformation of Medicare into a premium support program. Beneficiaries would select their insurance coverage from competing plans, including the traditional, government-run fee-for-service option. Beneficiaries choosing more expensive options would pay for the higher premiums with their own money. Those selecting less costly options would keep 100 percent of the savings. This design would ensure the insurance plans would compete vigorously with each other to keep their premiums as low as possible. The Congressional Budget Office (CBO) has estimated that a certain specification of this reform would lower costs both for the Medicare program and for the beneficiaries.

Beyond these major adjustments, the role of Health Savings Accounts (HSAs) needs to be updated, to allow them to become more effective instruments of consumer-driven health care. Among other things, HSA enrollees should be allowed to use their accounts to pay for  primary care using a monthly fee model instead of fee-for-service. Further, there needs to be an effort to make the suppliers of common medical interventions compete with other on the prices they charge by allowing all HSA enrollees to pay posted prices for these services.

Of course, there's a reason these reforms (especially the limitation on the tax preference for employer coverage and premium support in Medicare) haven't been embraced by Republicans: they aren't terribly popular. Some voters may be wary of an expanded role for the government in health care, but they aren't wild about a market-driven system either.

Unfortunately, it's not possible to have market-driven health care with the consumers completely insulated from all of the cost consequences of their decisions. For the system to work, consumers must have strong financial incentives to seek out high-value and low-cost options. Voters are naturally risk averse, which leads them to fear these reforms would increase their costs. The reality is that if all Americans were empowered to act as informed consumers, the result would be better care and lower costs for everyone.

Making the case for market-driven health care to a skeptical public is a tough assignment, but there is no real alternative to trying. At some the point, if the market is never tried, the public will get fed up with the waste and dysfunction, and Medicare for All will look like the only answer.

James C. Capretta is a RealClearPolicy Contributor and a resident fellow at the American Enterprise Institute.

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