Where did it all go wrong for repeal-and-replacement of the Affordable Care Act?
Short answer: pre-existing conditions (PECs). The PEC solution in the ACA is the one part of the law that most people want to rescue, the one that represents financial protection of people who are unable to obtain healthcare insurance because their health issues make insurance unavailable or prohibitively expensive. But the Republican Congress was unable to agree on a PEC fix.
Longer answer: the conservative mantra, a big factor in the Republican wins last November, was that healthcare insurance (and healthcare itself) should be offered and purchased in a free market, where the competitive forces of supply and demand would drive down the prices of insurance and care. But after the dog chased the car for 7 years and finally caught up with it, the dog had no idea what to do with it. Republicans seemed stunned to learn that the public cared more about taking care of people with PECs than it did about free-market competition for the pricing of healthcare and insurance..
The problem: after 85 years of living with ever-increasing governmental regulation and price controls, America no longer remembers how markets work. The ACA solution fixed prices and had people with PECs paying the same prices for insurance as everyone else, which amounted to a cross-subsidy – people without PECs would pay more than they should, in order to allow people with PECs to pay less.
Conservative Republicans in Congress were put-off by the price-fixing/cross-subsidy apostasies. Recalling the 1970s oil-price debacle, they knew that price-fixing never yields sustainably-lower prices. Recalling Economics 101, they regarded cross-subsidies as “re-distribution of income,” a sad relic of communism. But only Sen. Ted Cruz seemed to consider that there might be a way to avoid price-fixing and automatic re-distributions while still taking care of people with PECs. The Cruz amendment would have been the gateway to a format that Nobel economist Milton Friedman had discussed decades earlier, vouchers: first you free up the markets for healthcare and insurance, which drives down prices, and then you give money (or vouchers) directly to people who cannot afford to pay market prices – whether because they are broke or because their PECs put the cost of insurance beyond their means.
It is clear that Americans want to help those in need. The stumbling block is not a flaw in our moral character, it is a flaw in our governmental approach. The Cruz approach was to separate the pricing of healthcare and insurance from the granting of assistance to people with PECs. To those who might ask whether this would induce everyone to put off buying insurance until he or she developed a condition that required healthcare services, the answer is simple: put the feds in charge of deciding who is entitled to assistance, when, how much, and for how long, and make sure no one gets any money without first having substantially exhausted his or her financial resources. Gaming the system, as people have been gaming the ACA, would be minimized.
A pair of concise summations of this approach: “If we’re going to subsidize Americans who can’t afford health insurance, do it directly. Don’t do it through the premiums of others,” said Sen. Jeff Flake (R., Ariz.). “The obvious compromise, the only good solution, is to do both: free-market pricing of healthcare and insurance in order to drive down prices, coupled with government subsidies for the needy to enable them to buy care and insurance at market prices,” said your humble scribe in an earlier blog post.
So, why was the Cruz model rejected? Were the Republican resisters just under-informed, or should we be more cynical about their motives? Did the insurance industry or anyone in the “swamp” really want a free-market solution? Why didn’t the Trump administration endorse and sell the Cruz draft proposal? Does anyone believe that repealing ACA or letting it die on its own would be anything but a meaningless stunt, possibly an invitation to financial or civic chaos, with no way to sustain American healthcare without massive infusions of new money our government does not have?