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Moderates Are Screwing Up Health Care Reform

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(Bloomberg View) — For most of the last decade, moderate Republicans have sounded just like their conservative colleagues on Obamacare: The law was a disaster and had to be replaced. Once Republicans were in a position to do something about the law, though, they were forced to think, apparently for the first time, about specific health-policy decisions. At that point the moderates decided that they want to keep Obamacare but make it cheaper.

(Related: Senate Republicans Unveil Health Care Plan)

That’s what the Senate Republicans’ bill, the Better Care Reconciliation Act, does. It is not a repeal or replacement of Obamacare. If it passes, taxes, spending and premiums would be lower. But Obamacare’s basic regulatory structure would remain in place, more so than under the House version of the plan. The Senate bill kept that structure to keep moderate Republicans on board. They either think that structure is good policy or that it’s too politically risky to scrap it.

But what the senators have come up with is politically risky, too, and hard to defend as policy. The bill gets rid of Obamacare’s unpopular fines on people who go without health insurance: the “individual mandate.” But it keeps the law’s regulation that forces insurers to treat healthy and sick people alike. Doing both of those things creates a problem: It allows healthy people to go without insurance and then wait until they’re sick to buy insurance at favorable rates. But if only sick people buy insurance, it will have to be expensive. And the more expensive it is, the sicker the people who want to buy it will be. It’s a recipe, in other words, for unstable insurance markets.

One alternative would be to get rid of the individual mandate and find a different way to protect people who, because of their chronic health conditions, would have trouble getting health insurance on an open market. The government could offer tax credits sufficient to help nearly everyone buy at least catastrophic coverage, require insurers to take care of sick people at favorable rates if they had kept their insurance current, and provide adequately funded high-risk pools for anyone who fell through the cracks. That way it would be impossible to game the system by going without insurance and then buying it once sick.

Confused man (Image: Thinkstock)

(Image: Thinkstock)

But few Republicans understood these policy questions and were not prepared to defend any alteration to Obamacare’s coverage guarantee for people with preexisting conditions. So moderate Republicans pushed for keeping Obamacare’s popular preexisting conditions provision and scrapping its unpopular individual mandate—even though this combination does not make sense.

It would be irresponsible to pass the Senate bill without finding some way to fix this problem. One solution might be to let insurers impose a 30% surcharge on people who go without insurance, develop a health condition and then buy insurance. Another would be to impose a waiting period for people who want to use federal subsidies to come back on the insurance rolls.

If this problem were fixed, I would favor Obamacare Lite over Obamacare. Lower premiums would probably entice younger people to buy health insurance, making the individual insurance market more stable. More people would be staying insured because they value the benefits of insurance over its cost, and fewer because they would pay a fine if they refrained.

The Senate bill is right to cap federal payments to states for Medicaid beneficiaries, although the details—especially the absurdly long phase-in—are debatable. It’s also right to make it easier for beneficiaries to join the private insurance market. But Obamacare Lite also has drawbacks that a true replacement of Obamacare would avoid. Even if the Senate bill were modified to avoid destabilizing markets, it would leave many people in the middle class still paying higher premiums as a result of Obamacare’s regulations but now receiving less federal help.

It is hard to avoid the conclusion that Republicans, especially moderate Republicans, have given these issues the bare minimum of thought they could get away with. Which helps to explain why so few people are enthusiastic about this health care bill.

— Check out Senate GOP Writing ACA Change Bill Behind Closed Doors on ThinkAdvisor.