• Health policy tectonics

    Aaron and my posts are starting to go up on Ezra Klein’s blog, where we’ll be all week. You should be reading them there. (Seriously, is there a single TIE reader that does not read Klein?) However, we will cross-post here too. This is the first one.

    Recently, Kevin Outterson suggested to me an interesting way to organize the health policy debate. There are three principal fault lines dividing Democrats and Republicans, which I describe below. Being a bit stylized (as abstractions must), the divisions are not pure. Sometimes the tectonic plates shift.

    Fault line 1: Risk pooling. Broadly speaking, the Democratic approach to risk pooling is to broaden it. At the liberal extreme is single-payer, Medicare-for-all style or even fully nationalized (a la the U.K. or the VA). In either case, that’s the biggest possible risk pool. Stepping rightward from the extreme are other reforms aimed at broadening the risk pool, leveraging healthy participants to fund the unhealthy: guaranteed issue, individual and employer mandates, premium subsidies, eliminating lifetime caps, and instituting nondiscrimination rules. Not all of these are or were solely favored by Democrats, but they characterize the broad view on the left on risk pooling.

    The Republican approach tends toward risk pool fragmentation, more “personal responsibility” than “all for one, one for all.” The thrust of late from the right has been more consumer cost sharing (high-deductibles, Rep. Ryan’s Medicare voucher plan), looser regulation, cross-border competition, no mandates and the like. All of these weaken or rely less on the risk pooling mechanism of insurance. If everyone were in a high-deductible health plan, the risk pools would be completely individual in the deductible range.

    Fault line 2: Medical cost-benefit decisions. This fault line is centered on who decides what care you receive, or, to be more precise, what care is covered by insurance (public or private). Democrats favor a high degree of aggregation, using population-based comparative- and cost-effectiveness research to inform coverage decisions. Republicans want individuals to make those decisions in consultation with their physician.

    The two are not, in fact, mutually exclusive. To the extent there is a difference it is whether the patient/doctor-level decisions are (a) informed by research and (b) covered by insurance (public or private). This divide is clear between the IPAB (experts) and the “empowered consumer” (market) models.

    Fault line 3: Rational choice in insurance markets. If the second fault line is focused on medical decisions, the third divides views on insurance purchasing decisions. Democrats favor standardization and regulated, managed competition-style markets in which individuals’ choices are somewhat constrained. Republicans are more apt to propose greater consumer choice, freer markets and greater flexibility.

    At the heart of the divide is a difference in presumption about the ability of individuals to make rational choices. Republicans think individuals can be highly rational, savvy shoppers in the health insurance marketplace. Democrats are more skeptical and, therefore, seek more consumer protections such as the exchanges and insurance regulation. The structured Medigap market is in the classic Democratic form, for example.

    Conclusion. The chart below characterizes current and proposed insurance markets according to the three fault lines. For each fault line, D = Democratic and R = Republican, as defined above.

    Looking at this table, we see that the ACA is most clearly Democratic and today’s commercial market and Rep. Ryan’s Medicare plan are most clearly Republican. Drilling down, the two major controversial changes in the ACA were (1) the specific tools used to manage risk pooling (the mandate and insurance market rules) and (2) strengthening population-level cost containment (IPAB and comparative-effectiveness research). These fall within the purview of fault lines 1 and 2, respectively.

    Meanwhile, Ryan’s plan for Medicare is controversial in the way it fractures the risk pool and relies on personal choice. It does this by removing the single largest pool, traditional Medicare and by providing subsidies for private plans designed to erode over time. Fault lines 1 and 3 are at play here.

    Many of the table entries are debatable. In fact, I was torn about some entries myself. For example, the ACA’s exchanges could be considered an R on risk pooling, particularly if premium subsidies erode, about which I’ll say more in a subsequent post. But the ACA preserves traditional Medicare and continues to support Medicare Advantage (though with lower funding), giving it a clear D in the risk pooling category for Medicare overall.

    It’s fitting, even expected, that the ACA has a somewhat ambiguous political orientation. Though it was passed by Democrats, it includes ideas previously endorsed by Republicans. Moreover, when a political fault line so sharply divides, perhaps the only thing that can pass is something that straddles it.

    Comments closed
    • If the Ryan premium support was likely to cover the cost of the cheapest plan in a given market, then I would rate it a D in fault line 1 (Risk Pooling) on the strength of the risk adjustment provisions.

      If the CBO is right, and the support levels prove to be entirely inadequate over time, then his plan is overall a R in risk pooling.

    • good post. To me, one of the strongest take homes is that if you apply the actual policy of the ACA to the fault lines it is mixed as Austin says (some D ideas, some R ideas). In the end, the ACA is a fairly bipartisan bill (in policy terms) that is completely partisan in political terms. How do we move ahead?

    • Similar to Don’s point, and as I posted at WaPo, the problem is not a disagreement over policy. The ACA includes lots of R ideas. The problem is politics. The Rs will not vote for anything labelled D, even if the thing was originally an R idea.

      Individual mandates are the clearest example. They came to national prominence as an R idea during the Clinton healthcare debate. Prominent R politicians and think tanks strongly supported them. Then the Ds adopted the idea to get R support during the ACA debate and the Rs totally rejected their own idea.

      There’s no way to bridge a gap when the gap is due to a political calculation that bipartisan solutions are unacceptable, rather than a policy gap.

    • Your table clearly explains the public opposition to the Patient Protection and Affordable Care Act. Most people like their current insurance and among seniors, about 25% of them have moved to Part C already in its roughly 13 years of existence. The former is all R by your analysis and the latter is 2/3rds R.

    • an informative formulation

      would be even better if formulation went beyond identifying the positions of each political party to identify the “economic battle” – who gets $ and who gives $

      it is striking that the “economic issues of health care are discussed in philosophic and political terms

    • First of all, thanks for the work you do on this blog – it is very informative -something I look forward to every day.

      I recently read Leemore Dafny’s “Are Health Insurance Markets Competitive.” Frankly, while I didn’t not understand much of the mathematical arguments, her conclusion raised a question that I think may apply to this dialogue. Democrats look at the insurance exchange one way and Republicans another. The question is, in laymen’s terms, how do we know when an insurance market is working? What could we expect from health insurance markets pre ACA and what should be expect in the insurance exchange? For example, when a health insurance market works, let’s say, pre ACA, would insurers make less and insure more or make more and insure less. The evidence that I have seen says that it is the latter.

      Thanks for considering this request.