A Better Healthcare Strategy for Republicans
The healthcare bill signed into law earlier this week is an historic legislative accomplishment, if for no other reason than the massive impact it will have on the U.S. for generations. I’ve spent a lot of time thing week trying to understand the details behind the law and how it will impact our country. An earlier post attempts to briefly summarize four key questions that everyone in America should understand: 1) How does it affect the average person? 2) How much does it cost? 3) How will it be paid for? 4) When does it all go into effect?
In this post, I’d like to address how Republicans should be thinking to help make the nation’s healthcare policy better. For the purposes of this post, I am going to assume that the bill that was signed into law will remain largely unchanged (i.e., it won’t be repealed and the basics of how it will affect the average person will remain unchanged).
Most people reading this probably know my political leanings, but in the interest of full disclosure I’m a fiscally-conservative, socially moderate Republican (yes, we do exist!). It’s been a tough decade for people that share my centrist ideology.
There are three aspects that Republicans should be thinking about:
- Do we agree with the primary goal of the bill?
- Do we agree how the bill sets up the rules of the game for the healthcare system?
- Do we agree with how the bill funds the new entitlement program?
From a political standpoint, I believe the answers should be “Yes”, “Yes”, and “No”.
#1 Do we agree with the primary goal of the bill?
What is the primary goal of the bill? For the sake of argument, let’s define it as reducing healthcare costs and ensuring that all Americans have health insurance. I strongly believe that every citizen should be able to agree that these are worthy goals.
Typically Republicans are not in favor of entitlement programs. Part of that is because of a belief in rugged, American individualism and that the government should stay out of our lives. But I believe that most of the opposition is based on the idea of wealth redistribution and the costs of running such programs. The government is incredibly inefficient and is not a good steward of our money. Therefore, if it was possible to have a new healthcare entitlement program that didn’t bankrupt the country and the burden of the program was shared fairly, more Republicans would be willing to consider it.
Almost everyone in American, Republican or Democrat, should be able to agree that healthcare costs are out of control. Additionally, we should be able to agree that having 50M uninsured people roaming around the country is not good for society. These two facts alone mean that healthcare reform can be good for everyone, even if there is some wealth redistribution that goes along with it. A small business owner that is facing 15% per year growth in health insurance cost would gladly pay a slightly higher tax in order to keep cost inflation in the low single digits.
The basic tenets of the new law are also good things for consumers of healthcare: no annual or lifetime limits on coverage, no exclusions for pre-existing conditions, mechanisms for individuals to buy healthcare through exchanges, and coverage for everyone.
At this point many Republican readers are probably thinking to themselves – “Sure, the goal is worthy, but it doesn’t matter… we can’t afford it.” Bear with me, that’s question number 3. Let’s talk about question #2 first.
#2 Do we agree how the bill sets up the rules of the game for the healthcare system?
Let’s make one thing clear: This bill is not socialist. Don’t listen to Glenn Beck or talk radio. They are wrong. The way that the law implements subsidized healthcare for the poor is hardly socialist in nature. If anything, it is based on the market-based principles that Republicans have advocated since the Goldwater era.
If a socialist was setting up a program in the U.S., they would start by eliminating all insurance companies and directly paying for all healthcare expenses that its citizens incur. There would be no tax credits or subsidies. There wouldn’t even be bills when you go to the doctor’s office. You would just go to the doctor, and the doctor would get a paycheck from the government. There are plenty of Democrats that wish this was the system in place. The reality is that Medicare is much closer to socialized healthcare than this new law.
For starters, there is no government run insurance company. All citizens will be mandated to purchase a healthcare policy from an insurance company if they don’t already have one through their employer. For the people who cannot afford the full cost, there are tax credits to subsidize the cost.
Let’s take a different problem the government faces, such as education. If I were to tell you that Democrats were willing to end direct payments to school districts and instead fund education by allocating $10,000 to every family, allowing them to choose which schools they send their children, as a Republican, you’d be doing backflips. This is the voucher based education system that is considered such an extreme right-wing idea that Republicans never even bother to discuss it outside of their own caucuses.
Essentially, the healthcare bill uses the same principles as education vouchers and applies them to health insurance. Sure, there are some differences between vouchers and tax credits, but at the end of the day, it’s a very market friendly solution to a difficult problem.
Further, the bill does a nice job of using market forces to help push down costs. For example, to achieve savings in the Medicare Advantage program (which allows Medicare beneficiaries to receive care from private plans rather than traditional fee-for-service plans) the government is not setting arbitrary price controls on healthcare services. Instead, it monitors the average cost of services in a market and never pays for procedures that cost more than the average amount. This makes sense to me – why should the government pay $5,000 for a colonoscopy if the average cost of a colonoscopy is $2,500?
Another example is the changes to how Medicare payments will be made for home-based services. The government will analyze the current mix of services and costs for home health care across the different markets in the U.S. and find the “average” for every market. The bill then limits the amount of reimbursement a home health provider can receive if they are providing services or charging fees that are higher than average.
In short, the mechanisms in place to control costs are not socialist in nature at all and any Republican should be thrilled with the way the bill sets the rules for the system. It controls cost and keeps the government out of it for the most part. If Republicans were controlling Congress and decided that they wanted to pass a healthcare plan (two big ifs!), these types of mechanisms are almost identical to what we would pass.
So hopefully we can safely answer “Yes” to question #2 – as Republicans, we’re pretty happy with the way the bill sets up the rules of the game. That leaves us with the question you’ve all been waiting for:
#3 Do we agree with how the bill funds the new entitlement program?
If you made it this far without screaming at the screen: “Yes, but what about all of the redistributed income!,” I appreciate your patience. There is no question that the way this bill funds changes to the healthcare system is highly progressive. Any piece of legislation that sets up a massive subsidy for 30M people is going to cost money, and will require taxes. This one is no different. How these taxes are distributed across the population and what types of taxes/fees are levied is where this bill falls short.
I’ve previously posted the following three graphics on my blog, but I think it’s important to repeat them here for the purposes of the conversation:
1) This chart shows where the funding comes from. Roughly half comes from new taxes and fees and the other half comes from Medicare savings. Note that almost all of the new taxes/fees are on wealthy families and big business.
2) This chart breaks down the households in the U.S. by income. Families in green represent 74% of households and 42% of income. These are the families that will be eligible for subsidies if they do not have employer-based healthcare. Households in red represent the 2% of households that make more than $250K per year. These are the families that will be paying for the subsidies the families in green receive.
3) The expected cost of a yearly health insurance plan is $9,400 ($783/mo). Depending on a household’s income, they will be eligible for different amounts of subsidy from the government. Yellow represents the government subsidy, blue represents the share paid by families. Households with greater than $250K of income will have higher taxes, denoted by the orange box. (Please note that families with $251K of income will pay considerably less than this and families with $10M in income will pay considerably more. The increased tax rate only applies for income earned over $250K)
In general, I strongly believe that it is bad public policy to pass a bill that benefits 40% of the country and require 2% of the country to pay for it. It’s one thing for the American people to decide they want a government back-stop to reign in healthcare costs. It’s another thing to pay for it on the backs of 2% of the population. I believe that a debate about whether or not the top 2% pay enough in taxes is not very relevant when it comes to healthcare (or any other bill). If Congress wants tax reform, they should do that directly and change the income tax amounts that are levied on various income brackets.
I believe there are (at least) six things that can be done differently to fund the entitlement program that would more equitably spread the cost across the population:
1) Tax/surcharge on the fast food industry and “unhealthy” products such as soda and chips. The bill already taxes tanning salons, which are clearly bad for you… and the food we eat is a much worse culprit. The tobacco industry could also be taxed further, however I think that the taxes in place already more than compensate for the long-term healthcare costs associated with smoking. This is fairly regressive in nature, so it will hit the poor as well as the rich. But hopefully it will provide an incentive for people to eat more healthy foods. Even if it does not, it will help pay for the long-term care required for people that do not pay close enough attention to the types of foods they eat.
2) People making $100K-$250K get taxed higher to help cover the bottom 40%. It’s very likely that this would be an unpopular measure politically. Nobody likes to pay more taxes. If the provisions of this bill are truly worthy of its cost, then the middle class should share the burden.
3) Taxes on all families making more than $100K should be highly progressive and include more brackets. Rather than all households with greater than $250K of income paying an additional 0.9% in income tax and 3.9% on investment income (a relatively blunt instrument), families making $50M per year should pay a much higher rate than families making $100K. A sample proposal for how I would divide the tax brackets is as follows:
(Note: I’m not a policy expert or a tax expert, so I really don’t know exactly what the % income taxes should be in each bracket. My gut instinct tells me that it should range from 0.1% to 3.0%)
4) Everyone pays something for their insurance, even if it is only $100 per year. Essentially this would mean that people living below the poverty line would still be asked to contribute to their health expenses, if only in a nominal way. Note that this amount should always be less than the amount somebody would get fined if they did not buy the mandated coverage. Frankly, this wouldn’t raise an enormous amount of revenue, however it would go a long way to end the perception that healthcare is all about free hand-outs.
5) Any individual participating in a gov’t subsidized plan must pay out of pocket for the first $X of healthcare related expenses they have in a year ($500 feels like the right amount, but again, I’m not a policy expert. You could also have different amounts based on income, but that could get complicated). The goal here is to keep people from getting unnecessary treatments. If an individual needs to pay for the first $500 out of pocket, they are more likely to think carefully about when they really need a doctor. This is especially important for people that are paying little/nothing for their policy in the first place.
6) In addition to these measures, I would also eliminate healthcare savings accounts entirely and eliminate tax deductions for medical expenses. If all Americans are required to purchase insurance, the need for these vehicles will be greatly diminished.
A better political strategy for Republicans
Republicans have spent considerable effort blocking the healthcare bill and lost the battle. But the war is not yet over. During the past year, I frequently thought the Republicans could be much more effective if they focused on improving the healthcare legislation rather than universally voting “no” on every proposal. Now that healthcare has been signed into law, it is time to re-focus on improving the legislation. There are still 4 years before the vast majority of the bill goes into effect.
2010 is a fantastic opportunity for Republicans to regain a number of seats in the House and Senate, however wasting time attempting to repeal healthcare legislation is a losing battle. Once the average American begins to experience this healthcare legislation, they are going to like it and Republicans will be on the wrong side of the argument. Instead, Republicans should focus their attention on making healthcare as financially stable as possible. Nobody wants to see the U.S. expand the federal deficit, and using their political capital to push for a more fiscally responsible system will put Republicans on the right side of the argument. Furthermore, it will reposition Republicans from being the party of “no” to the party of ideas.
Of course, this will require Republicans coming to terms with the fact that taxes need to go up. Let me be clear – I’m not fan of high government taxes. There are two parts to the equation when it comes to balancing a budget – reigning in spending and bringing in more revenue. There is no question that Republicans should continue to focus on reigning in spending, however to gain credibility it will be important to advocate for both aspects of the formula.
Closing
I’d be very interested in hearing thoughts from other fiscal conservatives about my ideas above. Additionally, I’d like to know your thoughts about a) the current plan for funding healthcare and b) any additional ideas that you have to make healthcare more financially stable.
