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Republican health care deviated from conservative principles, was there a better way that could have won the debate?

July 19, 2017

 

Tom Price, U.S. Secretary of Health and Human Services, a medical doctor and key architect of the Republican health care proposals 

 

Americans generally support subsidies that help low and moderate income individuals and families get health care coverage. A Kaiser Family Foundation poll conducted in November 2016 found that 80% of the public, including 67% of Republicans, favored financial help to low and moderate income Americans who don’t get insurance through their jobs.

 

There was always little chance that Republicans were going to successfully overcome the public opposition to drastically reducing the health care subsidies embedded in Obamacare. But if their plan had stuck to conservative principles it would have at least informed the public debate about how to best subsidize health care coverage. And maybe, just maybe, they would have won the argument. At the very least the Republican party would have remained true to their principles of transparent government.

 

What Republicans should have said is we Republicans understand that many Americans need subsidies to be able to get affordable health care coverage, and we support that. However, we are against hidden subsidies. We are for transparent government, where subsidies and the taxes that support the subsidies are transparent, visible for all to see, so that when voters go to the polls they know exactly what subsidies they are supporting, who is getting the subsidies and what taxes will be needed to support those subsidies. This is in keeping with the conservative principle of a free and open and transparent government. Republicans could have also made the argument that such transparency and the use of market pricing would have made for more efficient health care markets.

 

Instead, the Republicans offered plans that cut health care subsidies drastically, while all the while, in the words of Donald Trump, implying it would be better and beautiful. That was a lie.

 

There are two ways that Obamacare provided subsidies for health care coverage. First, there are the direct subsidies that are tied to an individual's or a family's income. These include both the expansion of Medicaid to essentially all with incomes less than 133 percent of the official poverty level of income and the subsidies to low and moderate income individuals that purchase non-group health insurance policies in the online health insurance market place exchanges set up by the federal and state governments.

 

These subsidies are paid by the federal government directly and hence are explicitly included in the United States government budget. They obviously need to be paid for out of United States government tax revenues. The costs are upfront and transparent. As such, it is obvious that the subsidies result in the need for higher federal taxes. The advantage to subsidies of this kind is that it is easier for voters to understand what is going on  - a direct subsidy to a segment of the population, subsidies that will need to be funded by higher taxes. The Republican plans needlessly proposed drastic cuts in these open and transparent subsidies that most Americans support.

 

But there is another kind of subsidy embedded in the Obamacare design. These are subsidies that result from restrictions on the way health insurance providers can design and price their policies. The most obvious one is that health insurers must sell policies to those with preexisting medical conditions under the same conditions that they sell to those without preexisting conditions. This requirement allows those with preexisting conditions to get policies at much lower costs than otherwise, but it raises the cost for others who are forced into a higher risk pool than their situation warrants. This results in healthy people subsidizing the less healthy.

 

Another subsidy under Obamacare is the restriction that health insurers are limited to how much they can charge older people for a health care policy relative to younger people. Since older people tend to need more health care than the young, this forces the young to subsidize the old. Economists usually refer to these kinds of semi hidden subsidies as cross subsidies. As you can see this kind of subsidy is not quite as transparent as a subsidy paid by the government out of general tax revenue.

 

There are other Obamacare restrictions on health care policies that cause smaller cross subsidies. Policies must cover birth control aids forcing those who don't need or want birth control devices to subsidize those who do, and they must cover child birth, forcing those who are in child bearing years to subsidize those who are past their child bearing years.

 

Republicans could have made the argument that if the voters want to support these kinds of subsidies it should be done in a more transparent way, with direct subsidies for the cost of health care policies marketed by health insurance providers to those with preexisting conditions, the elderly, the child bearing population and those who need birth control coverage. The cost of these policies would be higher of course, especially policies for the elderly and those with preexisting conditions but the market will make them available if there is demand for them and the federal government provided subsidies to those with low or moderate incomes who need and want these policies.

 

Whichever way the subsidies would be provided, via rules and regulations on health care insurers as under Obamacare and paid for via higher health care plan premiums, or via direct subsidies to those who want and need these more expensive policies freely marketed by health insurers and paid for via higher taxes, the end result could end up being very similar - those with preexisting conditions and the elderly and others could get the subsidies that most Americans could support. But the transparency of those subsidies would be starkly different.

 

If Republicans had been more upfront and clear that they don't oppose health care subsidies for the truly needy and deserving, but they want the subsidies to be open and transparent and in keeping with a philosophy of open and transparent government they may have had a good argument. Instead Republicans mostly tried to ram through drastic cuts to health care subsidies that most Americans support.

 

References:

A report on the Kaiser Family Foundation poll

http://www.kff.org/health-reform/press-release/after-the-election-the-public-remains-sharply-divided-on-future-of-the-affordable-care-act/

 

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