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Dissecting the Republican Health Care Plan (Part 2)

An admission: I shouldn't be calling this "the Republican health care plan." There's no involvement from GOP leadership. There's no endorsement from the House Republican Caucus. The Patient's Choice Act is the work of four men. Sens. Tom Coburn (Okla.) and Richard Burr (N.C.), and Reps. Paul Ryan (Wisc.), and Devin Nunes (Calif.). Sen. Chuck Grassley (Iowa) apparently helped them out a bit, but his name is not on the effort, and he's not endorsing it.

The plan itself is like the bastard child of the Massachusetts health reforms and the McCain campaign proposal. And that's not a bad thing. Like the McCain health reforms, it erases the employer tax exclusion. That means the health benefits your employer purchases for you will get taxed. And that means your employer is likelier to drop your coverage. The idea here is simple: To end the favoritism given to employer-based health care.

Like the McCain health plan, it plows the money the government used to be spending on the employer tax exclusion into a refundable tax credit that everyone receives ($5,700 for families, $2,300 for individuals). This is actually a progressive change. Rich people are generally employed and their employers generally provide them with health care benefits. Poor people are frequently not employed and the employers they do not have do not provide them with benefits.

But get ready for the break: Unlike the McCain health care plan, the Burr/Coburn/Ryan/Nunes proposal does not leave individuals to fend for themselves on the individual market. This was the McCain plan's fatal flaw. The individual market is cruel, unpredictable, and expensive. The Patient Choice Act does not repeat it.

Instead, all those people who would be purchasing health insurance on their own under the McCain plan purchase it together under the Patient's Choice Act. States are tasked with creating insurance marketplaces where consumers can easily compare different insurers, regulating insurers so they don't make money by making health coverage unaffordable for sick people, regulating insurance products so they meet some minimum standard of comprehensiveness (serious wonks: This is the standard. Go nuts.), and creating automatic enrollment provisions that encourage more people to purchase health coverage.

Are there problems with the proposal? Yes. Big ones. The minimum benefit package is too stingy. There aren't sufficient subsidies for low-income consumers. The plan controls costs by encouraging people to purchase less comprehensive insurance. That's fine until people fall comprehensively ill. It has a tendency to mistake a health care policy paper for the Sean Hannity Variety Hour and say crazy things like "the Federal government would run a health care system — or a public plan option — with the compassion of the IRS, the efficiency of the post office, and the incompetence of Katrina."

But it's still a step forward for the Republican Party. It's an admission that individuals can't go it alone. That the state has a large and important regulatory role to play. The business model of insurers is not simply broken but actively cruel. A Republican Party that accepts the principles of this plan is a Republican Party that is much likelier to accept the principles of Obama's eventual plan.

Related: Dissecting the Republican Health Care Plan (Part 1)

By Ezra Klein  |  May 21, 2009; 8:00 AM ET
Categories:  Health Reform  
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Next: How the Government Has Made the Banks Into Gamblers

Comments

Thanks for this post Ezra. Actually stunning, at this point, to see a serious policy paper by republicans. Any republicans. And stunning to see this group making key concessions to reality instead of being utterly hamstrung by ideology. Of course, as you noted, "There's no involvement from GOP leadership", so who knows if this actually means anything.

Posted by: wvng | May 21, 2009 8:36 AM | Report abuse

Wow. Republicans sound happy with the way Bush botched Katrina. They are invoking the memory of their own screwup to discredit the government in general.

Voters should stop electing those clowns.

Posted by: Aatos | May 21, 2009 10:01 AM | Report abuse

You'll know the GOP is serious about this plan when Gingrich, Limbaugh and Cheney endorse it. Need I point out that it's the height of irony that the rest of us would interpret that as a signal not to take it seriously.

Posted by: Rick00 | May 21, 2009 11:49 AM | Report abuse

wow. the free market of health care is "cruel, unpredictable, and expensive." so are relationships, but you don't see me begging for federal bureaucrats to pass rules on how to build lasting and affordable relationships.

there is no legal basis for the federal government to be involved in health care. we are constitutionally guaranteed passive rights (speech, due process, etc.), not active ones. are food and clothing a right?

"States are tasked with creating insurance marketplaces where consumers can easily compare different insurers, regulating insurers..."

before you assume the government should make comparing insurers easy, you should check out this revolutionary market occurrence: http://www.expedia.com. just imagine the airline market coming up with a platform to compare flight costs in just a few clicks!

talented and motivated health care entrepreneurs will always be faster and better than government in health care (and most but maybe not all areas).

government created the managed care system and its the only industry in which technology improves and cost goes up. let's get the middle people out of the system and let companies compete and patients/doctors bargain for lower costs.

Posted by: nomorerepublicrats | May 21, 2009 3:22 PM | Report abuse

nomorerepublicans: "there is no legal basis for the federal government to be involved in health care. we are constitutionally guaranteed passive rights (speech, due process, etc.), not active ones. are food and clothing a right?"

No one is saying that health care is a constitutional right, or any other kind of right. That's a different issue than whether government should be involved in providing a service. One could say the same thing about education, or fire protection, or crime prevention: there are no constitutional rights to these things. That doesn't mean it's not a good idea for government to be involved in these things.

"talented and motivated health care entrepreneurs will always be faster and better than government in health care (and most but maybe not all areas)."

The Europeans get as good health results as we do at slightly more than half the per capita costs. I'd say that's pretty good evidence that our mostly private system doesn't work very well. I'm generally a free market advocate, but I'm not willing to ignore evidence that seems to show that the market is not the solution to every problem.

I think it's pretty clear that the free market simply does not put the right incentives in place for good health outcomes. In particular, it gives insurance companies the incentive to cover only people who are healthy and deny coverage when they think they can get away with it.

"government created the managed care system and its the only industry in which technology improves and cost goes up. let's get the middle people out of the system and let companies compete and patients/doctors bargain for lower costs."

I don't think the government created managed care; I think it came about after health care reform failed under Clinton in the early 90s. And Medicare seems to consistently outperform private managed care, so it seems to be something government does better than private entities.

As for letting patients bargain with doctors, they're at a tremendous information disadvantage with providers. It's an interesting idea, but I think it's not practicable in the real world.

Posted by: dasimon | May 21, 2009 3:42 PM | Report abuse

***dasimon writes***
No one is saying that health care is a constitutional right, or any other kind of right. That's a different issue than whether government should be involved in providing a service. One could say the same thing about education, or fire protection, or crime prevention
*********************
if health care is not a right the government shouldn't be involved in it (though it does have some authority to uphold contracts). and i agree with you that education is not a federal government duty.

***dasimon writes***
The Europeans get as good health results as we do at slightly more than half the per capita costs. I'd say that's pretty good evidence that our mostly private system doesn't work very well.
*********************
in some areas europe does well and in some areas we do better. of course, we also subsidize the defense of europe, so they are able to put more of their money toward things like health care. i'd also like our military empire to be reined in, and i think we might see a different set of financial priorities out of europe if this happened...

***dasimon writes***
I think it's pretty clear that the free market simply does not put the right incentives in place for good health outcomes. In particular, it gives insurance companies the incentive to cover only people who are healthy and deny coverage when they think they can get away with it.
*********************
is auto insurance any different? insurance in general is about assessing risk and offering coverage based on that risk. the only way for it to cost the same for everyone is for risks to magically be equal or for the costs to be averaged and applied to everyone. if you are a non-smoker and you are paying the same rate as a smoker, this might not seem very moral.

***dasimon writes***
I don't think the government created managed care; I think it came about after health care reform failed under Clinton in the early 90s.
********************
i would suggest reading up on the issue. it started in the early 70's, and has resulted in corporatism at its worst. it's the drug companies and HMO's that lobby congress today for managed care...

***dasimon writes***
As for letting patients bargain with doctors, they're at a tremendous information disadvantage with providers. It's an interesting idea, but I think it's not practicable in the real world.
*********************
i was surprised to learn about health care before managed care. believe me people went to doctors, poor people were covered or seen for free, and the evil private industry didn't simply leave people to suffer and die.

entitlement programs are more than half our gi-normous federal budget and are bankrupting us. politicians will not be able to simply print enough money to cover the costs...something will give soon...

Posted by: nomorerepublicrats | May 21, 2009 4:30 PM | Report abuse

Please read "Don't Doc American Health Care" in a recent Forbes or Forbes.com. Cato also has a lot of supporting statistics. Repeating the same misleading information doesn't make it true...

"***dasimon writes***
The Europeans get as good health results as we do at slightly more than half the per capita costs. I'd say that's pretty good evidence that our mostly private system doesn't work very well."

Wrong again. The current inefficient, middleman system (even if it is still the best) is totally due to two monumental government intrusions into health care: wage caps during WWI, which led to the employer based insurance, and the "Great Society" courtesy Lyndon Johnson, that created the Medicare monster. Everything else, including "managed care" followed. So instead of pushing the current idiocy to its logical conclusion of government run single payer system, health care must be returned to free market plus a safety net (not entitlement!)

"***dasimon writes***
I don't think the government created managed care; I think it came about after health care reform failed under Clinton in the early 90s."
********************


Posted by: catofan | May 22, 2009 8:54 AM | Report abuse

I meant WWII

Posted by: catofan | May 22, 2009 9:06 AM | Report abuse

Ezra, you are confused as usual. A 30-year-old couple and 2 children can get HSA health insurance in Lansing, MI for $207/month or $2,484 per year. The $5,700 tax credit would pay 100% of the insurance PLUS deposit $3,216 in their families tax free HSA. The deductible decreases to $3,000 max Out-Of-Pocket for the entire family.

You love Mass. Connector program which has only 5 choices and the cheapest program from Blue Cross costs $1,000 a month for the same family with $10,000 family Out-Of-Pocket. It's all online, check it out.

Calling yourself a health care wonk is kinda funny because you know so little. Remember that I enrolled America's first HSA so you can trust me.

The Mass. Connector plans are not portable across America where the HSA insurance is. The HSA insurance lets dependents keep their insurance as adults if the become diagnosed with MS like my daughter. The Mass. Connector plans don't.

Ezra your drivil sounds ok if the people reading your stuff are totally uninformed.

Vote Republican and get free health insurance from the government PLUS a huge HSA deposit, all tax free.

Posted by: RonGreiner | May 22, 2009 4:25 PM | Report abuse

nomorerepublicans:

if health care is not a right the government shouldn't be involved in it (though it does have some authority to uphold contracts). and i agree with you that education is not a federal government duty.

Why stop at the federal government? Why should states provide it? And if there's no constitutional right to police or fire protection, why provide that? There are certainly no constitutional rights to roads or sewers or protection from pollution. The idea that "if there's no constitutional right, then the government should stay out" would cover just about everything people want and demand from their government; it proves way too much.

in some areas europe does well and in some areas we do better. of course, we also subsidize the defense of europe

All of the studies I've seen, all of them, show that we do no better overall and pay almost twice as much (so if the Europeans paid as much as we did, they'd probably do far better). And I'd like some numbers on how much we're "subsidizing" the defense of Europe. Plus that argument assumes that if we pulled our troops out, they'd replace them with their own, which they probably wouldn't.

people went to doctors, poor people were covered or seen for free

and health care was a lot less expensive. Costs have been rising far faster than inflation for a long time, so to look at the 70s as a baseline that no longer applies is a bit of a canard.

Posted by: dasimon | May 24, 2009 12:07 AM | Report abuse

catofan: So instead of pushing the current idiocy to its logical conclusion of government run single payer system, health care must be returned to free market plus a safety net (not entitlement!)

While I admire your faith in the "free market," do you really contend that a truly free market in health care would deliver the same overall outcomes at half the cost--which is what most European systems provide? And how will "the market" provide an incentive to insure those with preexisting or chronic conditions?

The current inefficient, middleman system (even if it is still the best)

How can one assert that it's "still the best" when other systems get similar outcomes at just about half the per capita cost? That seems like rejecting the data in favor of ideology. But the real world won't cater to our ideology, regardless of where on the political spectrum it comes from.

Posted by: dasimon | May 24, 2009 12:55 AM | Report abuse

We already have a better system than the European (that is when it counts, as opposed to largely unnecessary visits and relatively trivial problems and procedures), and this is without a truly free market, just some elements of it. Competition without restrictive government regulation always does miracles. Government, on the other hand, has no incentive to be competitive or efficient.

The "half-cost" business with "similar results" is misinformation - I had previously referenced Forbes and Cato where such claims are soundly refuted. Furthermore, despite already rationing real care and long waits, European, Canadian and Far Eastern health care systems are nonetheless experiencing financial difficulties and may not be sustainable.

Finally, "health care" should not be confused with "insurance." Insurance is meant for exceptional circumstances, just as with any other insurance - auto, home, etc. Vast majority of problems can be handled on pay per visit basis or, for more serious cases though pretax medical savings accounts. Behavioral modification will also do miracles.

Even for serious preconditions, there would be options available in truly unregulated markets, albeit more expensive. For those with particularly bad luck or lack of means, there clearly needs to be safety net.

The bottom line, the collectivist approaches are faulty from the outset, even if they can keep going for a while. This is because the invisible hand of the market is not part of it. It is also wrong in principle since it takes the choice away form an individual and puts it into political domain.

I don't want to pay for cholesterol drug for some obese schmuck or for a flu or ear-infection visits of a regular person (drink a lot of fluids and stay in bed for the former while most ear infections are not treatable and just require time; in an unlikely event that antibiotic is needed, it is affordable for most). Conversely, in the case of serious illness, I don't want my loved one dead waiting for a CAT scan because of rationing.

Posted by: catofan | May 25, 2009 4:36 PM | Report abuse

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