February 5, 2013
by Scott Gottlieb , Paul Howard , Tevi Troy
2013 will be a crucial year in the implementation of Obamacare, and a central focus of the Obama administration. Thus far, the Obama administration's emphasis has been on standing up the program's basic edifice for the long run rather than making sure it rolls out smoothly. Once erected, the law's dictates will transform the underlying architecture of the American health care system – perhaps permanently.
Given these stakes, Obamacare's critics cannot afford to spend the next year on the sidelines and accept its intrusive excesses as the new status quo in American healthcare. Opponents must change their approach to the law, pursuing reforms that thwart its most invasive elements while laying the groundwork for a market-based makeover. This won't be easy, of course.
With Republicans in control of the House, conservatives must develop a list of workable reforms to Obamacare that they can pursue in exchange for deals with the Democrats on debt ceiling hikes and the litany of thorny budget deals going forward.
Political considerations aside, it starts with making sure that our current system works for all Americans. That means reforming Obamacare's immediate woes.
This starts with chipping away at the federal control that prevents true competition between private health plans. Changes should put us on a path to market-based reforms that will encourage plans and providers to compete on price and quality.
One way to do this is by pegging the federal tax credit to purchase insurance to the cost of a high-deductible health plan. Any savings consumers achieve by picking a lower cost plan should roll into a health savings account that they can use to offset out-of-pocket medical expenses.
Federal rules should also allow any plan currently offered in a state's individual or group market to also be sold on the Obamacare exchanges. These two changes would give consumers a greater choice of health plans than the one-sized design that Obamacare allows, and would encourage people to shop for value.
Second, we need to change how Obamacare determines the "essential benefits" that plans must offer to enable more competition based on benefit design. Right now, Washington sets a floor on mandatory benefits, but then each state gets to push it higher with no penalty for imposing requirements that raise costs. States will have ample incentive to grandfather in all their costly mandates, while adding even more.
Instead, the minimum benefit should be tied to a single, national standard that sets a floor based on what a basic, consumer-directed plan now offers. This will give plans incentive to compete around their ability to expand coverage while still maintaining a competitive price. Right now, with routine benefits dictated by Washington, plans compete on price alone. Their only incentive is to cut costs by clamping down on the catastrophic benefits Washington doesn't try to control and to get financial leverage over utilization by offering consumers narrow networks of providers to choose from.
Third, with half of Obamacare's expanded coverage coming from Medicaid, states need more tools to lower costs and improve the quality of care that program offers.
Congress should offer every state the same deal Rhode Island received in 2009 that traded capped federal funding in return for broad administrative flexibility and control over their own Medicaid benefits. Call it anything but a waiver, and it might pass. To date, Medicaid's cost growth in Rhode Island has fallen from 8% to 3% annually and by every reasonable measure, the quality of the program has improved.
Finally, Congress should try to nix entirely some of Obamacare's underlying flaws.
The law's cost-control measures are dependent on escalating layers of government control on providers and patient choices – orchestrated by an alphabet soup of new boards, agencies, and commissions that must be constrained, and in time shuttered.
Shrinking the size of the subsidies that flow to consumers for affordability's sake — and targeting them based on true financial and medical need — will fix another one of the law's deficiencies: the current subsidies will distort labor market decisions and force people to stay below income levels lest they lose some of their government grants.
The single most feared feature inside the White House is the so-called "claw back." This is a nasty provision that makes people owe the government back money for their spent insurance subsidy when they end up earning more income than Obamacare had estimated the prior year, when their subsidy level was determined.
All of these changes will be hard to secure. But they will have the effect of improving Obamacare and allowing an opening for more market-based operations in the system.
Once Obamacare is fully implemented, it's almost a certainty that the current budget projections will be wrong. The program will be substantially more expensive. At that point, our fiscal challenges will force some kind of changes.
Having some market-based mechanisms built into the program before that time will give a future congress and a subsequent president the opportunity to take real and necessary changes to establishing a workable health care system for the long run. Repeal is no longer an option, but reform needs to be placed on the table.
Scott Gottlieb is a physician and Resident Fellow at the American Enterprise Institute.
Paul Howard is Director of the Manhattan Institute’s Center for Medical Progress.
Tevi Troy is a Visiting Fellow at Hudson Institute and served as the Deputy Secretary of the U.S. Department of Health and Human Services from 2007 until 2009.
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