Daniel Brockman: February 2017

CONTENTS

image: abetterway.speaker.gov

PAUL RYAN THREADS A POLITICAL NEEDLE
GOOD THINGS ABOUT THE GOP PROPOSAL
BAD THINGS ABOUT THE GOP PROPOSAL
OMISSIONS
CONCLUSION
SOURCES

PAUL RYAN THREADS A POLITICAL NEEDLE

How can we explain Paul Ryan’s choice of words in his proposal for “step-by-step repeal and replacement” of Obamacare? This is the story that makes sense to me.

Paul Ryan is Speaker of the House of Representatives and the leader of House Republicans. He is a practical gentleman striving mightily to hold together his party. He sees that outright and complete repeal of Obamacare, if passed by Congress, would cause the GOP to lose seats dramatically in both houses in the next election. Ryan prefers lower taxes and a balanced budget, which he wants to achieve by reducing federal expenditures. Getting the government out of health care would reduce federal expenditures. But he knows he can’t achieve that politically, however much he might personally prefer it. That ship sailed before Ryan was born, with confirmations and expansions in the history of CHIP Children’s Health Insurance Program, Medicaid for people of low income, Medicare for the old, and Obamacare’s regulatory encapsulation of all health care in the US. Ryan can’t repeal outright. He must “replace”.

President Trump made a campaign promise to “repeal and replace” Obamacare (Trump, “Crippled America”, 2015, p. 71) . If Ryan doesn’t do something he can call “repeal”, then he risks losing his support from Trump’s backers. Further, the Congressional Republicans have called for repeal of Obamacare since it was passed 6 years ago. To say today that Republicans didn’t really mean it would be admitting lying to the electorate for 6 years. Ryan must “repeal”.

Being a practical gentleman, Ryan knows US health care is a large, complex system, embraced by Obamacare in every aspect, on which the lives and well-being of many people literally depend. The health care system probably is more complex than anyone understands, and more complex than any one person can understand. Something might go wrong if Republicans try to turn Obamacare off one night and turn on the replacement the next morning. He remembers Obamacare’s rocky start and doesn’t want a repetition, or worse, on his watch.

To avoid the risk of large-scale failure in the health care system, Ryan favors what he calls “step-by-step repeal and replacement”. He expects, rightly, this euphemism will satisfy nearly all concerned parties. With acceptance of this language, the practical work of reconfiguring the US health care system can proceed without further disputes over “repeal” or “replacement” or “fixing” of Obamacare. His task force articulated “A Better Way”, a set of recommended changes described in some detail June 22, 2016.

Ryan’s “step-by-step” approach is consistent with the most modern “agile” methods for managing complex systems. Ryan envisions multiple articles of legislation, each sufficiently limited in scope to address a particular problem area in an understandable way. The method is good.

GOOD THINGS ABOUT THE GOP PROPOSAL

The GOP proposal for the multiple articles of legislation is Ryan’s task force report “A Better Way”. The proposal preserves some highly valued elements of the US health care system, including

No person will be denied insurance coverage, or required to pay higher than standard premiums, by reason of sickness or pre-existing conditions.
All persons will have access to health care and health care insurance.
Until age 26, children may have insurance coverage under their parents’ policies.
Private health insurers participate in competitive marketplaces to assure health care for everyone.

The stated goal is “everyone has access to quality, affordable health care.”

The proposal will give more extensive premium subsidies to people who don’t have access to employer insurance plans, Medicare, or Medicaid. The current system squeezes persons at income levels of about $45,000 to $50,000 per year. As a person in this income range earns a few dollars more, the premium subsidy suddenly drops from significant to zero. Having earned just a little more income, suddenly their health insurance costs twice or three times as much, depending on individual circumstance. The rapid premium increases in recent years hit them especially hard. A variety of perverse economic incentives result, hampering especially small businesses, sole proprietors and their employees.

The proposal calls for robust budgets for medical research, though without specifics.

GAO studies have found much fraud and waste in Medicaid, with questionable health outcomes for Medicaid patients. The proposal uses block grant funding to incentivize the states for improvement of outcomes and moderation of costs.

The proposal calls for unifying the Medicare and Medicaid subsidies to hospitals to mitigate the incentive to game the system at the expense of benificiaries in the current case of divided subsidies.

The task force report “A Better Way” cites numerous authoritative reports. It’s a practical, though not scholarly, work. It’s not a mere ideological rant, but a serious effort at resolving important problems with the US health care system.

BAD THINGS ABOUT THE GOP PROPOSAL

There is a concern that Ryan’s opposition will carry in their thoughts. In general, the GOP proposal fails to ask two important questions which arise for each particular recommendation: What does this mean for a rich person? And what does this mean for a poor person? The question immediately arises how these poor/rich questions are relevant to health care delivery. They are relevant because changes in policies have real effects on real people that can, and often do, vary with their levels of income. For example, an increase in deductibles on a government-subsidized insurance plan might reduce the government’s cost of the subsidy, which might eventually make possible a bit of reduction in income tax rates, which would benefit rich people, so we might expect rich people to favor this policy. At the same time, it would increase the difficulty of getting health care for poor people, so we might expect poor people to oppose. This isn’t merely a question of “What does the policy recommendation mean for health care delivery to people?” If we haven’t addressed the possible differences in effect by level of income, then we haven’t yet answered the health care delivery question.

The proposal would use waiting lists and enrollment caps on some users of Medicaid. This denies health care to some people of low incomes, for the benefit of insurance companies (“to help prevent crowd-out of private coverage”). This favors rich people by funneling money to the companies they own, and it disfavors the poor by depriving some of them of medical care.

The less comfortable changes proposed to Medicaid and Medicare are buried in pages 27 and 36 of “A Better Way”. These are serious difficulties worthy of full discussion.

The proposal calls for raising the age of eligibility for Medicare and lowering the income level qualifying for Medicaid. These curtailments would impose hardship on the poor and the aging. The curtailments favor rich people by reducing federal expenditures with the possibility of lowering their future tax rates, and disfavor poor people by diminishing the health care available to them.

The proposal seeks to lower costs for individuals via individual subsidies. This is, at best, a short term rigging. Subsidizing buyers causes provider prices to rise. To reduce the cost of health care, subsidize providers.

The proposal warns in several places of the funding crisis faced by Medicare, but the most significant remedies proposed are curtailments of service. Explicit tax increases aren’t mentioned.

The proposal allows insurance companies to sell policies across state lines, if the policies are licensed in some state. This will result in the companies shopping for the state most hospitable to the company for each policy. A few states will dominate. Montana may become the companies’ “easy” state for individual policies, Indiana for small business pools, Hawaii for managed care plans, etc. Insurance policies effectively available to the people will have been pre-selected as those most favorable for insurance companies without balanced consideration for the patients. This favors the rich by favoring the insurance companies they own.

The GOP proposal involves almost entirely insurance plans management and pricing. The proposal frequently conflates the cost of insurance premiums with the cost of health care.

The GOP proposal aims to promote innovation by “robust” research budgets. This we may suppose will improve quality of care and reduce costs. The proposal also shuts down (with no mention of replacement) the CMMI Center for Medicare and Medicaid Innovation that researches more efficient payment and treatment delivery methods. That is the extent of the proposal’s ideas for innovation.

The proposal’s repeal of the “Cadillac tax” removes disincentive for corporate management to reward themselves at the expense of workers’ incomes and benefits.

Broader use of HSAs Health Savings Accounts favors those with taxable incomes and does nothing for those with lesser incomes.

The GOP proposal recommends changing the age-rating ratio from three-to-one to five-to-one so that an old person will pay five times the premium of the young person. This will lower the premiums of the young person at the expense of the old person. The GOP proposal notably doesn’t call this a penalty. The GOP could achieve an equivalent effect by subsidizing the insurance company and charging all persons the same premium. However, the GOP proposal will allow states to set the age-rating ratio they choose, greater or less than the federal default. So insurance companies will shop the states for the ratio they consider most favorable, even if it’s twenty-to-one. That one ratio will apply to the buyers of insurance, nationwide.

The GOP proposal isn’t clear on determination of the premiums to be paid by persons enrolled in the high-risk pools.

The GOP proposal repeatedly uses a phrase something like “... helping ensure all Americans have access to affordable health care.” Why not say “... helping ensure all Americans have health care.”? I feel there’s something too clever in the wording, and I’m suspicious.

Incidentally, the documents of the GOP proposal require the reader to wade through vast quantities of political hot air and gratuitous anti-Obamacare propaganda, and the first 12 pages of the task force report are nothing else. More of this nonsense litters the remainder of the report. The Fact Sheet contains no facts. The expression “step-by-step repeal and replacement” is the first of countless euphemisms. “Deductible" and “co-pay” become “cost-sharing”, taxes and disincentives Ryan doesn’t like become “penalties”, concepts and opinions Ryan agrees with become “common sense”. The report tells us the voucher program for Medicare privatization isn’t a voucher program. The quality of diction and syntax severely erodes in the section on Medicare.

There are many other problems with the GOP policy proposal, with billions of dollars of significance, and not just diction and syntax. Just pick a paragraph in “A Better Way” and ask How does this benefit a rich person? and How does this benefit a poor person?

OMISSIONS

No proposal can address every issue. Otherwise we could enact the ultimate law and be done with it. We might agree that what the GOP proposal does is more significant than what it does not do. The “step-by-step” method allows for more steps, and important issues remain.

There is no discussion whatever regarding the medical insurance plans of members of Congress. In my opinion, if the members of Congress retain special aristocratic health care plans, then they live in a bubble without experience of the real world their constituents inhabit. They will be served well, and the rest of us will be underserved. I would require the members and their staffs to experience directly the health care system that results from their legislation. I would require them to have Medicaid coverage, regardless (the Congressional exception) of their level of income, dovetailing with Medicare for older persons, and they could not have coverage under any other health insurance, and they would pay no premium, just like their least wealthy constituents. If it’s good enough for poor people, then it’s good enough for a United States Senator.

The GOP proposal presents interstate sales of insurance policies as the enabler of competition in the health insurance markets. But what prevents the evolution of a national monopoly or duopoly, repeating at large scale the non-competitive markets that have evolved in many states? The proposal omits any provision for the breakup of monopolies or duopolies or other situations of undesirable national market dominance by a small number of insurers. This favors the rich who own the companies collecting rents from market dominance, and disfavors those who pay the premiums. I would submit that fewer than seven insurers in any state or comparable region is too few.

The proposal omits mention of several powerful cost drivers in the existing US health care system. For example, it doesn’t mention allowing doctors and nurses licensed in one state to practice in other states. It doesn’t mention relicensing of foreign doctors and nurses to practice in the US. The proposal mentions nothing about reforming intellectual property laws to take the excess profits out of pharmaceutical businesses (I give some suggestions in my article “Intellectual Property and The King of Denmark’s Rule”). It doesn’t mention removing drug discovery research from the pharmaceutical companies to the National Institutes of Health, putting resulting patents in the public domain.

The proposal doesn’t mention taxing wealthy people more. If the Republicans had not such a strong taboo on taxing the rich, then they could propose to tax the rich to mitigate shortfalls in expected future Medicare funding. In my opinion, there is no value in depriving a poor or sick person of health care so that a rich person might enjoy a couple percentage points’ lower income tax rate.

CONCLUSION

Ryan’s basic process of addressing modifications with multiple understandable legislative bills is good. Ryan’s goal of affordable universal health care is good.

The GOP proposal contains good provisions for modifying the US health care system, more than I have identified above. It also contains numerous problems that we shouldn’t accept without adjustments.

In many respects the GOP proposal seems vague or incomplete. But there is an explanation. I think Ryan invites the strong agreements that can result from discussion.

I want to acknowledge and express my gratitude to the several friends who read advanced drafts of this article and contributed their valuable comments and ideas.