Roy and Holtz-Eakin: Keep Obamacare and Make It Worse

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By Josh Barro

Conservative policy researchers Avik Roy and Doug Holtz-Eakin say that Republicans can't repeal the Patient Protection and Affordable Care Act and should instead reform it into the free-market system of their dreams. It's a weird piece.

As Matt Yglesias notes, Roy and Holtz-Eakin basically offer a negotiated surrender that keeps the basic terms of PPACA, tinkers with its parameters and calls it a conservative victory. If conservatives could live with this, why didn't they cut a deal like this in 2009 instead of engaging in three years of scorched-earth tactics in a failed effort to stop reform?

And then the specific reforms Roy and Holtz-Eakin propose aren't very good. They call for abolishing "community rating," a rule that forces insurers to sell policies at the same price to everyone regardless of many characteristics, such as health status and sex. Price adjustments based on age are allowed within defined boundaries.

As Roy and Holtz-Eakin note, community rating raises premiums for people who are young and healthy. But that's sort of the point; it's a mechanism of redistribution from the healthy to the sick. Without it, health premiums would become unaffordable to many sick people. That's why the Swiss system, which Roy and Holtz-Eakin praise at the start of their piece as "the most market-oriented healthcare system in the West", has community rating.

Alternatives to community rating are problematic. For example, you could give bigger subsidies to sick people to ensure they can buy more expensive insurance policies, but that would be effectively equivalent to community rating.

Conservatives are often drawn to alternatives that guarantee reissue of insurance policies at affordable prices to people who maintain continuous coverage. The idea is that people wouldn't have to worry about being uninsurable so long as they keep buying insurance. But many people face periodic gaps in coverage, and some are sick before adulthood.

Mark Pauly, a professor at Wharton, sketched out a path to universal, private coverage without community rating that tries to deal with those issues, but it's full of caveats, trade-offs and other regulations that Roy and Holtz-Eakin don't propose. If they don't want community rating, they should explain their alternative and why it would work better. My guess is, like most conservative health proposals, their alternative would leave a major gap in coverage.

Roy and Holtz-Eakin also propose to move Medicare and Medicaid recipients onto PPACA-style exchanges. Doing so with Medicare would reduce public expenditure while increasing total health expenditure, because private insurance plans tend to be more expensive than Medicare. All fiscal savings would come from shifting health costs from the government to individual middle- and upper-income seniors. This is less desirable than the approach taken in PPACA, which seeks to reduce the actual cost of health care provided to seniors.

Moving Medicaid recipients to exchanges would likely improve the quality of care, but it would raise public expenditure on health care. This is because Medicaid is far cheaper than private health plans, and unlike with Medicare, there is little room to shift health costs onto Medicaid's poor recipients.

It's good to see conservatives realizing that they're going to have to live with PPACA or something like it. I'm still waiting for them to work on controlling total health spending, within the context of universal coverage, in a truly constructive manner.

(Josh Barro is lead writer for the Ticker. E-mail him and follow him on Twitter.)


-0- Feb/20/2013 22:35 GMT