Compromise Needed to Replace ObamaCare

 

Compromise is not a four-letter word. Unfortunately, it has been treated in Washington recently as if it were.

The lack of compromise by the Obama administration led to the totally partisan approval of ObamaCare. Not one single Republican voted for the new legislation that radically altered one-sixth of our economy. The result was a contentious law that failed to win the public’s approval and the single most important issue of conflict that led to the loss of over 1000 Democratic seats in the federal and state legislatures.

Republicans are now in control but they must not fail to learn the lessons of the Democratic mistakes. They must seek compromise with Democrats if they are to replace ObamaCare with a sustainable new healthcare system.

Conflicting Ideology

Republicans and Democrats disagree on many issues. That’s what distinguishes the two different political parties. When it comes to healthcare the differences boil down to two main issues: government control and freedom of choice.

Democrats believe the government should decide for the people what is best for their health and force the marketplace to provide that. This is referred to as a defined benefit approach. Republicans believe the government should decide how much it will contribute to each consumer – a defined contribution approach and then let the consumer decide how much they want to buy while letting the marketplace determine what it will cost.

The defined benefit approach of Democrats gives government maximum control and consumers have little freedom of choice. The marketplace has little reason to compete so the prices are determined by what the government has required. The defined contribution approach of Republicans limits government control and maximizes freedom of choice while incentivizing the marketplace to lower prices through competition and flexibility in design of insurance products.

The Democratic approach gave us ObamaCare. The government mandates what every policy must cover and the cost skyrocketed due to unnecessary, but required insurance coverage. The unpopularity of these policies led to poor market penetration (fewer people enrolled) which led to higher prices for everyone. That approach clearly was a failure.

The Republican approach seeks to reduce government control, increase freedom of choice, and lower prices by increasing competition in the marketplace. With more freedom to design the insurance coverage you want, more consumers are expected to enroll which will lower prices significantly.

Compromise to Achieve Improvement

While the Democratic approach overall has been a failure, there are parts of ObamaCare that are popular and should be retained. Furthermore, to achieve consensus, Republicans should consider compromises that will increase Democratic support without sacrificing important changes.

Robert Laszewski, insurance industry analyst, suggests several compromises that might be considered. Here is his list of suggestions on several key areas:

  • Insurance plan structure
    • Republicans – more flexible plans to meet consumer needs
    • Democrats – continue to offer ObamaCare Silver Plans as an option

The key demographic is to attract 75% enrollment of those eligible in order to achieve stable, fiscally sound insurance premiums. ObamaCare only achieved 40% enrollment resulting in rapidly rising premiums. He believes this compromise will achieve the needed enrollment for stable prices.

  • Low-income consumer choices
    • Republicans purchase low-cost plans for the value of their tax credits.
    • Democrats – buy into Medicaid with the value of their tax credits.

There is little logic in preferring Medicaid to a low-cost private plan because the private plan offers better access to healthcare providers. But offering both will satisfy those who prefer Medicaid.

  • Individual Mandate/Pre-existing Conditions
    • Republicans – end the Individual Mandate. Offer a continuous coverage provision that guarantees coverage of pre-existing conditions so long as insurance is maintained.
    • Democrats – guarantee coverage is available even if insurance not maintained but with stipulation that pre-existing conditions will not be covered for one year.

This will prevent “gaming the system” that currently is practiced widely and causes higher premium prices. With incentives to maintain insurance coverage, more people will be enrolled and premium prices will go down.

  • Tax treatment of insurance
    • Republicans – capping the tax preference for high-cost health insurance plans.
    • Democrats – elimination of the “Cadillac tax” of ObamaCare on high cost benefit plans but capping the tax preference cap at no more than the cost of the standard Silver Plan in the marketplace.

This will discourage the high-cost insurance plans that are offered by some employers, especially union contracts, that unfairly offer large tax savings and actually lower wages. It will seek a more level-playing field for taxes.

  • Insurance Exchanges
    • Republicans – let states discontinue the insurance exchanges, relying upon the traditional market and a total return to state regulation of insurance markets.
    • Democrats – let states continue to operate their ObamaCare insurance exchanges, if they so choose, offering Silver Plans.

It is likely the Silver plans will become unattractive as competition and flexibility in designing plans leads to more attractive and affordable plans apart from the exchanges. But this flexibility will attract Democratic support in the short run.

  • Medicaid Reform
    • Republicans – grant states more flexibility in designing their Medicaid plans to save money and improve quality of care. Allow the 19 states that did not expand Medicaid under ObamaCare to expand with greater flexibility and the original funding promise of 100% federal support for three years. Also, establish federal Medicaid funding caps ultimately tied to inflation.
    • Democrats – allow those 31 states that expanded Medicaid under ObamaCare to continue as they do now. Phase in the funding caps over five years.

Let the two approaches to Medicaid compete for ten years and then sunset Medicaid funding enabling the Congress to compare the two approaches and the states’ laboratory results for coverage cost control before moving on.

Those states that expanded Medicaid under ObamaCare are already feeling the budgetary pressure these additional Medicaid patients have created. Allowing them to continue will garner more Democratic support but eventually more of these will come to see the conversion of Medicaid patients to private insurance enrollment as the right move in the future.

I believe that many of the Democratic approaches suggested in these compromises will eventually be dropped as the competition weeds out the more costly approach of defined benefit insurance. But allowing it to continue in the short run will reassure Democrats and those Americans who favor these plans. Thus, these compromises should garner the bi-partisan support needed for long-term success.

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