• On Douthat on disruption

    Not without some hedging, Ross Douthat suggested the possibility that a conservative reform might be less disruptive to insurance coverage and markets than the Affordable Care Act.

    The conservative alternative I have in mind is not what you might call “the full McCain” — the conversion of the existing employer tax exclusion for health insurance into a universal credit, which is an elegant idea in conception but which would indeed disrupt existing arrangements more dramatically than the Affordable Care Act, and which (on the evidence of the 2008 campaign) is about as politically sale-able as single payer. Rather, it’s the more modest plan the American Enterprise Institute’s James Capretta has done the most work fleshing out, in which a cap on the employer deduction helps pay for a flat credit available only to those Americans who don’t receive coverage through their workplace.

    Liberals object to this plan for a variety of reasons: The credit would fund catastrophic coverage rather than the comprehensive insurance they prefer, and it would require expanding high-risk pools to cover current uninsurables rather than folding them into the existing insurance system. But on the specific question of existing-plan disruption — who bears the burden of reform, and why — I think the Capretta plan has advantages over Obamacare that even liberals should be able to recognize.

    Were I president, in exchange for fiscal, institutional, and broadly bipartisan political support from conception through implementation, I would accept (or would have accepted) something like this proposal. Before I comment on how disruptive it might be relative to the Affordable Care Act — Douthat’s focus — there are a number of other important points worth bearing in mind. With apologies for the length of this post, they are:

    1. The details matter: What is catastrophic? To many, plans supported by the Affordable Care Act are catastrophic plans, with actuarially equivalent coverage as low as 60% and allowable cost sharing in the multi-thousands of dollars for individuals. One can’t even point to Singapore as the benchmark for catastrophic coverage because the circumstances are entirely different. There, deductibles are actually fairly low (US$1,200), but that’s in large part because health care services are highly subsidized, among other government interventions heretofore anathema to the American electorate.
    2. The details matter: What is affordable? A way to make a proposal cheaper to taxpayers is to make coverage less affordable for consumers. (Obvious note: taxpayers are consumers, highlighting the fact that all such proposals are transfer programs.) There can, and will, be heterogeneity in the degree of rate shock and premium joy under almost any reform. The plan to which Douthat compares the ACA would change the nature of tax-subsidization of health insurance in ways that surely will create both losers and winners. Seeds of disruption should start to germinate in your mind already.
    3. High risk pools are not without limitations. The James Capretta-authored document to which Douthat links makes no mention of high risk pools. However, the two documents it cites for elaboration do, though somewhat briefly. The details are vague and seem to vary by document, so some things are unclear to me. (Perhaps I read them too quickly.) High risk pool coverage is, by definition, expensive. To what extent would it be subsidized? To what extent does a high risk pool constitute a cost shift to the sick? To what extent could or would employers shunt sick workers to such pools? Wouldn’t that be disruptive?
    4. Medicaid would be transformed. Under the Capretta plan, Medicaid eligible individuals would participate in the same individual market as other consumers, though with additional financial assistance. The funding relationship between states and the federal government would also be adjusted. Whether these are for the better or not, they would dramatically alter the nature of Medicaid. This is disruptive by definition and design. (Note: Disruption is not always bad.)
    5. Default plans. The Capretta proposal would assign individuals who don’t actively select a plan to one by default. Opting out is permitted, though at some potential future risk or cost. Again, this may be good. It may be reasonably characterized as a “nudge.” But it surely can be interpreted as disruptive to some extent.
    6. There is no coalition for this. Just as it is wrong to say there are no conservative reform ideas, it is equally incorrect to suggest that there is a law-enacting coalition for one. True, this is in large part because Democrats control the Senate and the White House, but them’s the breaks. Having said that, Democrats are well aware of the limitations and problems with the Affordable Care Act. Some are so troubling that the administration is considering some interesting proposals that would require Congress to act. Point being, there is leverage for some negotiation on some aspects of the law. And, crucially, some of the things Capretta has proposed fit within the structure of the ACA, such as allowing Medicaid enrollees to buy exchange plans (see Arkansas), capping the employer-sponsored insurance tax subsidy (see the Cadillac tax), or making exchange plans more catastrophic. But that brings me to …
    7. Exchanges are key. There is no conservative proposal that doesn’t rely on exchanges. Where is the full-out, bipartisan support for their implementation? It’s hard to perceive it through the din of “repeal.”
    8. Repeal is for campaigns, not for governing. There will be no repeal, a point Capretta almost concedes and one I accept as obvious. The law is not going to fully fail, even if it is not a smashing success. More to the point, repeal is not the best way to achieve conservative reform. Any reform would have to offer a navigable glide path from what is to what will be. You don’t get there through repeal. You don’t fight disruption with more disruption! You achieve reform through gradual transition, which is not to say there won’t be any disruption, but to say that it must be delivered in digestible doses.

    Now, back to Douthat’s point: Is the Capretta proposal more or less disruptive than the Affordable Care Act? I’ve already discussed how the Capretta plan is disruptive, as any reform must be and as Douthat acknowledges. However, I do not think it’s possible to evaluate whether it would be more or less disruptive than the ACA. One would have to carefully define what “disruption” means. Is it the number of people whose plans or options change in any way? Is it the dollar amount of change in out-of-pocket or total cost? Do we make a distinction between disruption we like (costs going down, options going up) vs. dislike (costs going up, options down)? Do they offset each other? Disruption most certainly should not be measured by the amount of hand wringing by pundits or anecdotes reported on network TV.

    For all that, given #8, above, I don’t think disruption relative to the ACA is the right line of inquiry. The ACA is happening, and we have to accept the disruption that comes with at least its initial implementation. The right question is, how much more disruption do we want and in what ways?

    Here, there is a canyon of subjectivity (see #1, #2, #4, #5, for example), which can only be resolved through the political process. Since the ACA is the law and the Capretta proposal is a few white papers, perennial gridlock and status quo bias are not working in conservatives’ favor.

    That could change. But I doubt it will change by convincing even moderate Democrats to repeal the law. The right approach, in my view, is to recognize that ACA proponents want to amend the law. Conservatives interested in governing ought to work with them on that as a means of finding vehicles to change the law in ways that might be appealing both to Republicans and moderate Democrats.

    Meanwhile, save “repeal” for the campaign. It may be how you’ll get elected (in some districts), but it’s no way to govern.

    @afrakt

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    • How would a cap on the deduction make sure employer’s wouldn’t dump their employees into the individual market. What am I not getting?

    • You’re too kind. This is just more disingenuous conservative goal-post shifting, and you darm well know where Douthat was imagining all the “detail” knobs would be set. If Obama had proposed this instead, Republican would have hated it also, and it would have been MORE inconvenience for MORE Americans than Obamacare.

      How do I know this? I live in Massachusetts, I get insurance through my wife’s employer. Romneycare as experienced by me is one additional piece of paper to my employer (“yes, I swear I am insured by my spouse, and decline your coverage”) and one pretty-easy piece of paper at tax filing time (list all family members, list one insurance company and policy, ditto for each family member after the first). Not very hard, not very disruptive, and employer-insured is common case, so I can safely say I actually do speak for “most Americans” here. A voucher I can spend on insurance is not going to make me happy. *I* *don’t* *like* *shopping*. I don’t like shopping for appliances, I don’t like filling out forms with dozens of details. That takes time and mental energy — both things that turn out to have relatively high value, and if I had more to spare, I might well expend them for my employer to turn them into even more dollars. Maybe that’s not the case for Douthat, but it is for me, and is for my wife.

      Furthermore, given the documented crappy performance of the US healthcare system, failure to disrupt the insurance market is a bug, not a feature. Inefficient and deceptively marketed policies should go away.

    • Also from CBPP. And this is obvious:

      In cases where employers continued to offer coverage, the Patients’ Choice Act would create another troubling set of problems. Many healthier employees would likely find that with the new tax credit, they could buy a policy in the individual market that costs them less than remaining in their employer-based plan, since the premiums for their employer’s plan would reflect the higher cost of the less healthy employees with whom they are pooled. Healthier individuals would thus have strong incentives to opt out of employer-sponsored insurance, which would leave the older and sicker workers in the employer insurance pools and thereby drive up the cost per beneficiary of the employer coverage. Many employers would be forced to respond by raising employee contributions, leading still more of the younger, healthier workers to opt out.

    • Douthat is of two minds: on the one hand, he fears that the rocky roll-out of Obamacare could lead to the adoption of a New Deal approach to universal health care, and on the other hand, he promotes the kind of piecemeal reform as a substitute for Obamacare that most likely would increase the likelihood of the adoption of a New Deal approach to universal health care. I suppose it’s the good Douthat vs. the bad Douthat. My view is that the status quo is unsustainable, and by status quo, I mean an employment-based health care funded system. It was a historical accident, and has been continued mainly because the U.S. hasn’t experienced high levels of long-term unemployment and paltry economic growth. Until now. Imposing the cost of health care, not to mention the cost of retirement, on employment makes little economic sense – if avoiding “dislocation” is the primary goal, then lowering the cost of employment should be the essential feature of “reform”. Besides, how much longer will industry voluntarily continue the existing system in an era of diminished economic opportunity and diminished loyalty (by employer and by employee). HR is viewed as a cost, a drain on the “productive” departments in a company, an expendable department of a profit-conscious CEO. Today, the individual market for insurance, the one for which the exchange was created, is mostly for the low income, the self-employed, those who work for small firms, and most people view Obamacare and the exchange as something for others not for themselves. How will attitudes change when employers discontinue providing insurance and millions of those currently covered by generous group plans find themselves on their own in the individual market.

    • WE ALREADY HAVE A “HIGH RISK POOL,” CALLED “LIFE”

      This thoughtful analysis of Mr. Douthat’s ideas is an appreciated time-saver. Of course it arrives too late to do much good for anyone, and the better suggestion—that our politicians work together to improve the ACA—is obvious.
      ____________________

      In any discussion correlating healthcare coverage to healthcare costs, the aspect that always jumps out at me is the issue of “high-risk” pools. The tragic flaw of high-risk insurance relates to the tragic flaw of pre-ACA policies, as well as to the tragic flaw of our overall system:

      Too many factors affect one’s health and one’s need for health care, throughout one’s life. Thus, a system that effectively punishes individuals for cancer or major neurological disorders, etc. (whether preexistent or developed over time), seems “cruel and unusual.”
      ____________________

      In my family’s particular case for health care in relation to insurance, here’s how I look at it:

      We have thus far paid in about $517,000 in today’s dollars (adjusted roughly for inflation; not counting return on the “float”). If we’d gotten Big Illness at the outset, we would have been advanced the bulk of that money. If we get it at the end, prior to Medicare, so be it. (And, of course, if we never get it, we “win” the lifelong Healthcare War.)

      I don’t know what the actuarial odds are, that we’ll either pay in more than we receive, or get back more than we pay in. Regardless, it’s an uncivil mistake to think in such terms when it comes to personal, healthcare “defense.” This is why some form of universal coverage makes so much sense.

      But say (God forbid!) we get some Big Illness later in life, and get shunted over to a “high risk” pool.: that process disregards our history of premium payments. We’ve already PAID for the high risk.

      Obamacare mitigates that defect, if it doesn’t remove it entirely.
      ____________________

      If we all pay for insurance (including subsidies) and we all receive insurance, and we all receive health care, then we at least conform to some minimum standards of civilized society.

      After all, even in the dimmest, most-primitive societies, replete with shamans and medicine men, members of human society get free-of-additional-cost healthcare.

      Regards,
      (($; -)}
      Gozo!

    • The Capretta plan does have some positives, but here are two more questions (among many):

      1. Will current recipients of Medicaid, who face zero deductibles,be forced to us their tax credits to buy plans with $2000-$5000 deductibles?

      2. When Capretta and other talk about capping the tax preference for employer plans, do they mean:

      a. capping what the employer deducts

      b. making employer contributions partly taxable to the insured employee.

      There is not that much revenue in (a). A lot of companies plus all govt agencies and non profits pay no corporate taxes at all.

      There is a lot of revenue in (b). And a lot of resistance too, not least from well off employees both Repub and Democratic.

    • Disruption is a real problem, but I would assert that 1) Douthat is defining “disruption” incorrectly, and 2) it needs to be managed, not avoided. To me, disruption is when an inattentive patient ends up being refused from treatment because he hasn’t noticed that his coverage has lapsed.

      An example that comes to mind is the expansion of Medicaid coverage to many AIDS patients–prior to the ACA we had the Ryan White CARE act, which is a payer of last resort for AIDS treatments for people with no other ability to pay for treatment. Under the ACA, many of these patients will now be eligible for Medicaid that would cover AIDS treatments, and have therefore become ineligible for CARE act coverage. The problem is that those who have not been following the reform are unaware they qualify for Medicaid, and also unaware that their current AIDS coverage under CARE has been canceled. As a result, many of these patients are failing to get regular treatments, which is a problem.

      However, clearly the solution here is to launch an outreach campaign find these patients and enroll them in Medicaid. The fact that they’ve lost CARE funding is not inherently bad, even though it is causing disruptions.

    • Gozo, you might want to read Prof Robin Hanson on health care.

      He believes that societies provide health care to their citizens out of loyalty, whether familial or racial or national.

      It is no accident to him that the societies with universal health care all tend to be homogenous as to race, religion, and nationality. This is obviously true of Japan and Iceland. The northern European nations that have universal healthcare today were far more homogenous when they installed public health insurance years ago.

      Americans feel loyal to the elderly, essentially their parents. Americans do not feel loyalty to other races and classes.

      This is behind a lot of the resistance to the ACA, in my view.

      • Bob Hertz (November 8th, 2013 at 15:41) writes, “…Prof Robin Hanson…believes that societies provide health care to their citizens out of loyalty, whether familial or racial or national….It is no accident…that the societies with universal health care all tend to be homogenous…Americans feel loyal to the elderly, essentially their parents. Americans do not feel loyalty to other races and classes….This is behind a lot of the resistance to the ACA, in my view.
        ____________________

        This compelling point speaks to challenges that confront our “American experiment.” One might view the bulk of America’s domestic controversies to a struggle of HOMOGENEITY versus DIVERSITY. Or perhaps to some sort of sense of WASP-based entitlement to shape the shared culture.

        Thus, the Right is not “racist,” per se. Rather, the resistance is “ethnist.” Given that the bulk of minority Americans retain vestiges (or more) of their cultural heritage, the net effect SEEMS racist. But it’s the WASP-displeasing MANIFESTATIONS of other cultures—such as “Slave-legacy” absent-father families and “Latino” Spanish-language media—that anger the Right.

        The anger imbues an impulse to punish The Other. “Let them learn English! Make them pull their pants up! And why should my family have to sacrifice to give them food stamps? Welfare. Healthcare.”

        Thanks for the Hanson suggestion.

        Regards,
        (($; -)}
        Gozo!

    • Robert Aylward may be right when he says that employer funded health care is precarious.

      When even a modest family health policy costs $15,000, only very large and very prosperous employers can keep covering the premium and essentially passing on the cost to their customers.

      A firm paying wages of $20,000 or $30,000 per employee does not have a prayer of paying employee health premiums……and that is where job growth has taken place for a decade.

      If you just do the numbers, a single payer system with a 15% payroll tax would get us through the transition. However, if the government cannot even impose the very weak employer mandate in the ACA, it surely cannot impose a single payer plan.

      Personally I would favor a ‘pincer movement.’

      a. expand Medicaid to lower paid workers
      b. expand Medicare to older workers

      These both have immense hurdles but I think they are the way to go.

      Bob Hertz, The Health Care Crusade