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Dreaming of a Post-Obamacare World

By: Jeffrey H. Anderson
November 2, 2016

s the presidential race approaches its climax, Obamacare has finally taken its rightful place at center stage. Donald Trump recently said, “Hillary Clinton wants to double-down on Obamacare, destroying American healthcare forever.” She has “access to the best doctors in the world,” he added, “but wants you and your children to live under Obamacare.” Given those stakes, “Repealing Obamacare is one of the single most important reasons why we must win on November 8th.”

Trump is right to emphasize President Obama’s signature legislation. As Charles Kesler has written, failure to repeal Obamacare would permit “what can be called, without exaggeration, gradual regime change at home. For the health care question involves…nothing less than the form of government and the habits and character of the American people.”

It is not enough, however, for advocates of limited government and liberty merely to talk about repeal. As Kesler has observed, they must also convey to the citizenry what comes next. It is in this vein that Scott W. Atlas’s new book, Restoring Quality Health Care, proves useful.

Atlas, an M.D., Hoover Institution senior fellow, and the former chief of neuroradiology at Stanford University Medical Center, describes a health-care system that actually works as the American economy is supposed to work. Under the system Atlas delineates, people would generally control their own healthcare dollars and shop for value. Doctors, hospitals, and other providers of medical services would either offer good care at good prices, or lose business to those who do. Insurance would genuinely be insurance, not prepaid health care that you “sign up for” when you need subsidized near-term care.

The core of Atlas’s proposal is getting people onto high-deductible, limited-mandate, catastrophic coverage (or LMCC, to borrow his acronym), and pairing such insurance with tax-free health savings accounts (HSAs). This combination would help protect people from catastrophic illness, while putting them in charge of their routine health-care spending.

This is entirely sensible and pretty standard conservative fare, but few emphasize this LMCC-HSA pairing as fully as Atlas does. He uses it as the basis for his proposed reforms of the private health-care system, Medicare, and Medicaid. In all three cases, the federal government would provide funding or tax breaks to help people acquire high-deductible catastrophic coverage, and would let them use HSAs to pay for their out-of-pocket expenses with pre-tax dollars. (Atlas defines “catastrophic coverage” as insurance with annual out-of-pockets limits capping how much the policyholder could ever have to pay.)

Atlas would reform Medicaid by getting its beneficiaries onto LMCC private insurance and enrolling them in HSAs, including giving them HSA seed money. He would reform Medicare along the lines of the Paul Ryan-style “premium support” model—a sort of Medicare Advantage Plus—but with more emphasis on HSAs, as Atlas would make all Medicare enrollees eligible for new Medicare HSAs. And he would reform the private health-care market by transforming the existing tax exclusion for employer-based insurance—and Obamacare’s subsidies in the individual market—into a universal tax deduction. This deduction could be claimed by those with or without job-based plans, but would apply only to premiums for LMCC private insurance with a deductible of at least $5,137.50 for an individual, and to HSA contributions. Why? Atlas writes, “It would be counterproductive to encourage the purchase of insurance bloated with expensive coverage requirements that minimize copays and effectively eliminate concerns about prices of care.”

In other words, Atlas wants to remove the middleman, thereby reintroducing value-shopping and price-visibility to our health-care system. For if the patient is the payer, he or she will demand to see prices, and doctors and hospitals will oblige. Atlas writes, “My plan reforms health insurance back to the way it was intended to function, that is, to cover only significant and unexpected costs” (italics in original). He adds that “pairing HSAs with high-deductible coverage reduces costs—the main goal of health system reforms in the first place.” Of course, reducing costs is not liberals’ main goal for health-care reform. Otherwise, Obama wouldn’t be telling us, in the midst of 25-percent premium increases, that Obamacare is a rousing success.

Atlas provides some good insights, such as showing how HSAs achieve something that most tax breaks for health care cannot: “The tax incentives of HSAs are different from those in a policy of simply allowing a tax deduction…. They counter the tax bias against high-deductible plans in a unique way. Instead of simply introducing incentives that subsidize health care spending relative to other spending, they also incentivize saving.”

Published by the Hoover Institution, this somewhat wonky but generally quite readable 99-page book offers further details on Atlas’s proposals. There are things in the book about which one could quibble—such as the frequent use of “the ACA” (the left’s preferred acronym for the clunky-sounding Patient Protection and Affordable Care Act) rather than “Obamacare.” (The right rarely encounters a rhetorical advantage it can’t squander.) In a similar spirit, when Atlas criticizes Obamacare’s individual mandate, he does so by calling it “both anticompetitive and anticonsumer,” which doesn’t quite have the same ring as, “It’s an affront to liberty and the Constitution.” On a more substantive note, it is disconcerting from a limited-government perspective to hear Atlas call for having the federal government establish an HSA for each new American citizen at birth.

There is, however, a major shortcoming in Atlas’s mostly fine work. Essentially everything he wants to do—namely, have genuine insurance and HSAs replace Obamacare’s individual mandate, its subsidies, and its redefining of “insurance” (through its “community rating” and “guaranteed issue” provisions) as something that you no longer have to buy before the thing happens that you’re insuring against—requires getting rid of Obamacare. Yet never once does Atlas refer to repealing Obama’s centerpiece legislation. He occasionally refers to partial repeal in reference to a particular provision, but he entirely evades the notion of full—or even nearly full—repeal. Indeed, at one point he writes that “reforms are urgent, particularly in light of the deleterious impacts of Obamacare.” But Obamacare’s can’t be “reformed”; it can’t be “fixed”; it must be repealed—or else Atlas’s entire project of making health insurance once again function “the way it was intended to function,” is doomed.

It is unclear why Restoring Quality Health Care avoids the fact that Obamacare stands in the way of everything Atlas is trying to achieve. His lack of focus on repeal renders his plan less politically viable as a means of achieving repeal. His plan has three main weaknesses in this regard. First, it would easily be portrayed as threatening some 160 million Americans’ employer-based insurance. Second, it has no real answer to the politically thorny question of what to do about expensive preexisting conditions. Third, it would take huge Obamacare subsidies away from the chosen few and give them little in return.

What is the nature of these problems? On the first point, most Americans with employer-based insurance don’t want to be told that its tax status will be changed—and those who don’t have LMCC plans or HSAs certainly don’t want to be told that they will lose their existing tax break and get nothing in return. Simply put, changing the tax treatment of the typical employer-based plan is an idea without a constituency.

As for preexisting conditions, Atlas provides a service by reminding his readers—in a way that Republican officeholders have timidly failed to do—that Obamacare’s redefinition of insurance, transforming it into the rough equivalent of homeowners insurance that you can purchase after your house is already on fire, is the main reason why costs are going through the roof. If this link were explained to the American people, most would presumably prefer to substitute commonsense regulations that provide protections for people with preexisting conditions and yet do not undermine the entire notion of insurance. Such protections would include a guarantee that, if you move in short order from job-based to individually purchased insurance, an insurer couldn’t charge you more for a “preexisting condition” that was covered under your prior plan.  But Atlas doesn’t speak of such protections. He relies strictly on “high-risk” pools to help cover those with expensive preexisting conditions. Such pools can be part of the answer to the preexisting-condition question, but they surely can’t be the only one.

Finally, Atlas’s plan is susceptible to the charge that millions of newly insured people would lose their coverage. Obamacare’s direct subsidies to insurance companies—falsely labeled and scored as “tax credits”—pretty much go only to the near-poor and middle-aged. But for the chosen few, these subsidies are a huge windfall. Take, for example, a family in Milwaukee with 57-year-old parents, three kids, and an annual income of $35,000. That family gets an Obamacare subsidy of more than $23,000 a year. Under Atlas’s plan, this family (which doesn’t pay income tax) would lose their Obamacare subsidy and get a payroll tax deduction of $2,295—losing more than $20,000 in the process.

In comparison, consider the simple, non-income-tested, refundable tax credits in the Obamacare alternative that I have advanced at the Hudson Institute. This plan has been adopted fully or in part by Ed Gillespie, Tom Price and 84 House cosponsors, as well as Governor Scott Walker. The House GOP plan draws on it to a significant degree. Our plans would give this family a tax credit of $8,700: money in their pockets for buying health insurance of their choice, free of Obamacare’s mandates. Or they could shop for value, find insurance for less than $8,700, and deposit their full savings in an HSA. Such tax credits could pave the way to repeal in a way that Atlas’s tax deduction could not. Most Americans would likely think that the $20K-plus that this family gets in taxpayer-funded insurance subsidies is obscene, especially since most of them don’t get a penny under Obamacare. But cutting what that family gets by 90 percent likely isn’t going to fly, in which case we could be stuck with Obamacare forever.

Despite these critiques, Dr. Atlas does a nice job of showing what the American health-care system could look like in a post-Obamacare world. Now we just need a Congress, a president, and a plan that can actually get us there.