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Republicans Have a Shot at Replacing Obamacare

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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One can imagine all sorts of Republican health-care plans that might now be under consideration if John McCain had won the election in 2008, or if Obamacare had failed to pass. (Of course, one can also imagine that there would be no plan at all, other than “Let’s not talk about it.”)

Few of these plans -- including “Let’s not talk about it”  -- are now feasible. Taking something away from people is several orders of magnitude more difficult, politically, than giving them a new benefit. Which is why the Obama administration had to engage in … er … lies seems so bald … let’s say exorbitant exaggerations such as “If you like your plan, you can keep it.”

So if the Republicans want to get rid of Obamacare, they have to actually come up with something that can semi-plausibly be presented as a replacement. Over the last few years, they’ve settled on a bunch of pieces that make up the cornerstone of their approach:

  1. Limiting the tax subsidy for employer-sponsored health insurance;
  2. Selling health insurance across state lines;
  3. Tort reform;
  4. Tax-advantaged health savings accounts;
  5. Flat (though age-rated) refundable tax credits for purchasing health insurance;
  6. Allowing insurers more flexibility to charge different prices by age group;
  7. Getting rid of the mandates (individual and employer), community rating, and guaranteed issue, as well as a lot of the regulatory mandates for benefit levels;
  8. Guaranteeing renewal and portability -- which is to say, if you had insurance, and you get sick, you can still buy insurance at normal rates, not rates that are risk-rated for your illness;
  9. High-risk pools for people who didn’t have insurance when they got sick, but now want to buy it;
  10. Block granting Medicaid for states who want it.

These things form the core of the new Republican plan released Wednesday. Though “new” is kind of a strong word; most of this stuff has been around for a while.

Some of these proposals are good ideas, like relaxing the mandated benefits -- which had sounded great at first, until you realized that every one of those benefits needs to be paid for in the form of higher premiums -- and breaking some of the links between employment and insurance.

Some of them, like replacing the “Cadillac tax” on high-cost plans with a cap on the tax subsidies for employer-sponsored health insurance, represent a regression from what Obamacare achieved. (While I’d prefer a cap to the unwieldy and opaque Cadillac tax, the Republican plan seems to set the cap too high, meaning it will do less than the Cadillac tax does to move America away from this ridiculous tax boondoggle).

Would the Republican plan work? Define “work.” If this plan passed, could it operate roughly as described? Probably, yes. I would have some worries about adverse selection with the mandate gone -- but given that being able to obtain cheap coverage in the future relies on obtaining it now, not that many worries. Of course, the numbers are not very specific, so we don’t know how much it would cost.

Could such a plan win approval by Congress? Ummm, maybe. Two factors weigh in its favor: first, the fact that after selling Obamacare as a program for middle-class families who were anxious about losing their coverage if something went wrong, Democrats delivered a plan that made a lot of middle-class families worse off, and few of them better off.

Most of the benefits have flowed to people making less than 250% of the poverty line, while most of the costs -- in the form of taxes, more expensive and less generous insurance plans, and reduced consumer choice -- were borne by folks above that level, including folks who aren’t really all that far above that level. Those people are angry, and they’re more likely to vote than the program’s beneficiaries.

The second thing that might make such a plan politically viable is the continuing problems in the insurance exchanges. Until prices stabilize, we remain at risk of seeing the number of uninsured start to march back upward, as unsubsidized consumers start to drop their high-priced, high-deductible, narrow-network insurance. Those drops will be concentrated in people who don’t qualify for subsidies, and as mentioned in the paragraph above, those folks are more likely to vote than the beneficiaries.

Consider a reader who recently wrote to me. He's seen premiums and deductibles spike to the point where he has to spend more than $25,000 in a year on healthcare to break even on his insurance. It now makes more financial sense for his family to carry heavy accident insurance, and bank on being able to get back into the exchanges next year if one of them gets cancer.

He’s still probably vulnerable if he or his wife has a bad heart attack, but given the odds, and the price of unsubsidized insurance in his state, I couldn’t really fault his choice. He’s not the only one who’s written me a letter like that, and those people would probably be very interested in a program that offered their family substantial subsidies for insurance -- and interested in the politicians who promised one.

That said, we should be clear about what the Republican plan would do: it would offer a better deal to people who are healthier, more affluent, and more conscientious about maintaining their insurance; it would be a worse deal for the prematurely retired, the reckless, the sick and the poor. Even leaving moral considerations aside, that will be hard to hide if Republicans ever put an actual bill on the table. Voters might balk at taking money from single moms  -- or even from young idiots who went without insurance before their massive car accident -- in order to give it to successful businesspeople.

Unfortunately, the enactment of Obamacare has left Republicans with few good options. The Medicaid piece seems to be working about like you’d expect, but the individual market component is, I think it’s safe to say, working considerably less well than was either promised or hoped by its architects.

Nor is there any good and obvious way to fix it, short of simply shoveling money into the exchanges as fast as insurers can spend it. Last year brought me a lot of outraged e-mail from unsubsidized buyers who couldn’t believe their Obamacare premiums. If the requested rate increases are granted this year, I expect to see even more outrage, along with more folks describing why and how they decided to drop their insurance.

And if the only improvement that Democrats can come up with is shoveling more money into subsidies, the Republican plan could well start looking like an attractive alternative -- at least to enough of the Republican base for them to have a fair run at passing it.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor responsible for this story:
Susan Warren at susanwarren@bloomberg.net