Pursuit of Truthiness

my gut tells me I know economics

How should Republicans respond to King v Burwell? The Judo solution for the ACA.

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Any time now the Supreme Court will rule on the legality of Affordable Care Act subsidies through federal health insurance marketplaces.

A ruling for the administration means we keep the status quo (barring some weird saving construction), so there is nothing for Republicans to respond to.

But what should they do if the court rules for the plaintiffs, and 37 states lose their ACA subsidies?

Cave

The caving option is to do a straight renewal of the subsidies; some Congressmen are discussing doing this at least temporarily. But this means giving up a great bargaining position.

Kick Over The Stool

The die-hard conservative option is to do nothing, and hope the ensuing chaos reflects worse on the Democrats. As Jon Gruber has said, the key components of the ACA stand together like a three-legged stool. Without the subsidies, the individual mandate becomes a cruel tax on the poor, and without the mandate (or if people choose to ignore it and pay the fine, as many will without the subsidies) guaranteed issue and community rating mean people can game the system (wait to sign up for insurance until you get sick), creating the mother of all adverse selection problems. If Democrats get more of the blame for the wreck that the health insurance system will become with ACA-minus-subsidies, then Republicans might get the votes to repeal the ACA entirely. But I doubt this would be the case.

One-for-One Trade

The more responsible solution is a compromise- reinstate the subsidies legislatively in return for getting rid of a different part of the ACA they find more offensive. But what would this be? Gruber is right that the major parts of the ACA hang together, and removing one major part by itself is worse than either repealing or keeping the whole thing. Removing only the individual mandate, or only guaranteed issue, or only community rating would be very bad ideas.

I think the employer mandate is the best candidate for one big piece that could be safely removed- and it is the one Democrats are unlikely to go to bat to fight (indeed, we’ve seen the absurd spectacle of the Obama administration trying to delay this part of their own health bill while Republicans sue them to implement it). But would this be such a big victory? It would help business and labor markets, but the employer-based system is still by far the largest alternative to government insurance, and politically it may be unwise for Republicans to weaken it- especially if they continue to attack the parts of the ACA that support the market for individual insurance.

One-for-Many Trade

Rather than killing one other big piece of the ACA in return for reinstating subsidies, Republicans could find more success by making many marginal changes to the ACA. Make the subsidies a bit less generous (it is kind of absurd that they currently go up to 400% of the poverty level), cut back a bit on the Medicaid expansion (as most Republicans at the state level have been doing anyway)- reduce Federal contributions a bit, and cut eligibility a bit. Allow a bit more rating in health insurance, especially for health behaviors that are partly in peoples control (like weight).

Add Instead of Subtract

Even better, in the unlikely event that Republicans are willing to spend this chance to do something constructive rather than go after a partial repeal, would be to move forward a new health policy proposal. This could be one of the oldie-but-goodie conservative health reform proposals, like making it easier to sell insurance across state lines, or equalizing the tax treatment of individual and employer insurance. It could be a random new proposal, like getting rid of innovation-hampering Certificate of Need laws. But, if I can be allowed to dream for a moment, they could take this chance to move forward the free-market elements of the ACA.

Judo Flip

The fact that many of the ACA ideas were first advanced by the conservative Heritage Foundation and enacted by Mitt Romney has become a political talking point for the left, but it wasn’t simply a coincidence or a big mistake. Before the ACA, the market for individual insurance was largely broken. It is a tough economic question how to apportion the blame for this across markets vs misguided government regulations- but the judgement of voters was clear, and the flaws of the market for individual insurance were a consistent impetus for left-wing solutions up to and including single-payer.

Despite the ACA’s many flaws, it has succeeded in making the market for individual insurance functional enough. Individual insurance could be more convenient, it could certainly be cheaper, but now it basically works. And this changes everything.

Why should the government operate a Medicaid program directly, providing insurance that many doctors refuse to take and that recipients hardly value, when for a similar cost they could give away vouchers for gold-level private insurance plans that doctors will actually accept? Arkansas realized this early on, and got permission from the feds to let Medicaid recipients choose real private plans, freeing them from a low-quality government monopoly.

Republicans should support this privatizing potential of the ACA, and change federal Medicaid rules to allow all states to do this. Or if they really want to push the envelope- and I’d want to study the Arkansas experience much more before supporting this- they could make vouchers for individual plans the new default for Medicaid, and require states to get waivers to do anything else. This would judo flip the ACA into a tool for a huge reduction in the role of government in health insurance.

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Written by James Bailey

June 23, 2015 at 10:49 am

One Response

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  1. […] my recent post on a way forward after a ruling for the plaintiffs in King vs Burwell, I suggested Republicans use […]


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