Why There are No Republican Solutions for “Fixing” Obamacare – Wonkie

I have made the claim that Republicans have nothing to fix Obamacare, assuming fix is to make healthcare more affordable for everyone while maintaining minimum requirements for the things the plan covers to make it meaningful. Remember this is what Donald Trump promised as a candidate (No one will lose coverage. There will be insurance for everybody. Healthcare will be a “lot less expensive” for everyone — the government, consumers, providers.). In other words, strengthen what we have in Obamacare and fix the high co-pays, lower premiums, and make sure there are affordable plans in all exchanges. So why do I say Republicans have nothing to fix these problems? Well you need to first understand, which apparently most Republicans do not, a business plan and how insurance works.

Okay, let’s start with how insurance works. Remember those commercials on TV for term life insurance without a physical? How do they do that (assuming it is not a scam)? Well they play with statistics. At a certain age, say between 50-60 years of age, what are the odds you will keel over within a ten year period (term life insurance)? Say it is 1 in 50 for ten years at that age. If the payout is say $500,000 and you have only 50 plans then each plan is going to cost a minimum of $10,000 plus profit and admin fees so that when the 1 in 50 kicks off, they still made a profit ( 1 payout of $500,000 equals 50 people times $10,000). Okay, now what happens if you expand your pool of subscribers to be say the 40-60 age group? Then the numbers get better because someone 40-60 might have a 1 in 100 chance of keeling over in a ten-year period. So again to make the numbers simple say you have 50 people in that age range (40-60) then the cost to the buyer gets cut in half.

You get the drift? The larger the pool of enrollees, especially when you include more healthy people (less risk of a pay out), the less it cost the group. Take car insurance. While insurance is priced based upon your risk pool (teenagers and bad drivers pay more), it is still highly subsidized by the rest of us that have not had an accident in many years. With a larger pool of subscribers (required of everyone who drives a car), especially those that may not incur many costs, but still need the insurance, it drives the costs down for every one and makes it affordable. That is how insurance works

Now let’s look at a business plan for health insurance. First, what do we know about healthcare? Young people are basically healthy and will cost little, old people and poor people (with little care) will cost a ton. That is why we have Medicare/Medicaid. The private market place for insurance back in “the good old days” could not offer affordable plans for older people, so finally the government stepped in to do that.

Next, what is the goal of a private company/corporation? Maximize profits for share holders. Or said another way, maximize share value by maximizing profits. That is where all the incentives are in managing a company. Now it does not take a rocket scientist to figure out how to maximize profits. Insure healthy people and deny claims based upon existing conditions or said another way, maximize premium payments and minimize claim payouts.

That was basically the system we had before Obamacare. People with existing conditions could not get coverage, coverage for older people cost exorbitant amounts (until Medicare kicked in), and many plans, while very cheap, really did not cover much, and of course, many poor had no coverage at all. As noted earlier private insurance is not in this to maximize insuring people, they are in this to maximize profits for their share holders by limiting payouts. They are not a philanthropic organization, but a capitalist venture to make a profit. CEOs are rated by how they maximize share value for their company. Connect the dots yet? Many of us did not see the problem because our employer took care of our insurance*. But as cost grew in healthcare, companies started offloading these costs to employees, and when many more of us found ourselves forced to self insure, these problem became severe.

So along comes Obamacare to solve a giant crisis in healthcare, uninsured people, unaffordable plans, escalating healthcare costs, hollow plans, and out-of-pocket expenses that was the leading cause of bankruptcy in this country. It did it by regulating the insurance companies which is anathema to Republicans (regulations). Let’s take these one at a time (it did a lot more than this, but here is the gist):

  • First it established a baseline of what has to be covered to prevent hollow plans. Now this certainly raises costs since before insurance companies could sell plans that covered the common cold, but drug addiction, mental health, major hospitalization were written out in the small print. Most people thought they had great affordable plans until shit happened and they had to use them
  • Next it said you cannot exempt people for pre-existing conditions. Now this also raises costs because now you are bringing into the risk pool people who are actually going to use the benefits, and soon. It also said people could keep their kids on till age 26 recognizing the horrible job market we were now in adding some more costs
  • Then it capped out-of-pocket expenses. At some level of out-of-pocket expenses ($6000), the insurance companies could no longer charge you a co-pay for your costs. You were not going to go broke when shit happened.
  • Then to fund all this which included subsidies for the poor and high risk individuals to make their premiums affordable, it raised taxes (medical device manufacturers, and on wealthy) and did what every insurance company does, made everyone enroll so you had a much larger risk pool paying in to offset all those costs (see how insurance works above). That was the dreaded insurance mandate. And it started initiatives to try to lower the cost of healthcare live preventative care and end of life counseling that sent the Republicans into the stratosphere on “death panels”
  • It set up exchanges where health insurance companies could compete for your enrollment in each state hopefully reducing costs and giving the consumer some choice in plans
  • Finally it created subsidies for markets in high risk areas to keep the premiums down, and instituted cost control measures (focusing on outcomes, not services) to bend the growing cost curve of healthcare.

Okay now enter the problems, affordability and availability.

  1. Depending on the local markets, some exchanges had a majority of older enrollees in rural areas. Now think about this: Fewer people (smaller risk pool), and sicker people (larger pay outs). So plans offered were expensive and had large copays. They depended on subsidies to be affordable and some enrollees did not qualify for the subsidies based upon income.
  2. Subsidies earmarked to recognize this situation were not large enough to control the cost of plans in some areas
  3. Add to this that many young and healthy people were not fazed by the penalties for not having insurance, so they did not get it, reducing the pool for subsidizing higher risk enrollees.
  4. Throw in the Republicans who have been on a crusade to repeal and replace, a President who threatens to not pay the subsidies or enforce enrollment in the program, and blocking measures that would allow Medicare to negotiate drug prices or to allow the government to effectively incentivize cost-effective treatments, and what you have is insurance providers either pulling out of these markets because they cannot adequately price the risk with these unknowns or applying rapidly rising premium prices to cover their risk.

So finally, how do we fix it, and why won’t Republican solutions work. To answer that we have to draw from our analysis of what is the basis of a functioning system? they are:

  1. Large (universal?) risk pool (mandates for insurance) to reduce average premium and make them affordable. Everyone contributes and subsidizes the sicker enrollees
  2. Minimum basic insurance coverage (Regulations) and copay limits to prevent catastrophic events that bankrupt enrollees
  3. Stable subsidies for high risk markets to encourage private insurance participation where risk is high or unknown
  4. Tax base to afford these subsidies and expansion of the coverage in Medicaid
  5. Policies that start to curb the cost of healthcare and bring it more in line with the rest of the world

Okay, lets take what the Republicans are offering and show why they don’t address or in fact undermine the basis of a functioning system (which is maybe what they mean by fixing it):

  1. More Choice driving down the cost – That would be the Cruz Amendment to allow the removal of minimum coverage so plans could be tailored to individual needs. Gee, that seems reasonable. I don’t need maternity care, drug counseling, a heart transplant, so why should I pay for it? So yes, the plans for this group would be cheap. The plans for everyone else would get way more expensive because you have done is reduced the amount of enrollees subsidizing those other services (item 1 in a functioning system). Second for some, shit will happen, and when their insurance won’t cover it, you will be dHow removing the individual manadate willestroyed financially. That would be a violation of item 2 in a functioning system above. Some choice. In many ways this idea is logically identical to the idea that after your kids have grown why should you have to pay taxes that pays for schools. So Republican.
  2. Remove Covering Existing Conditions Mandate – Yes this adds cost to the whole risk pool, and removing it will certainly reduce costs for those who don’t have any existing conditions and can get insurance, but do we really want to go back to the days where people could not get insurance for minor ailments in their youth, or denied further coverage as insurance companies argue whatever is wrong with you now is related to something earlier in your life not fully disclosed? Violates item 1 and 2 in a functioning system above and drives the cost for those who do have existing conditions through the roof if they can get coverage at all.
  3. Removing the Individual Mandate – This is universal from Republicans in that from their point of view, the mandate to have insurance is just big government taking over everything. Well, first of all if you own or drive a car, you have to be insured. How is this different? We all breath and will get sick so why should you not contribute to healthcare so when you do need it, you have helped subsidize your costs? But that is the moral argument, lost on I got mine generation (Conservatives). By having everyone pay in, this is how lower premiums are subsidized by item 1 by creating large risk pools. If the healthy can opt out, you have far fewer to pay the bills and when they do get older and have issues, then they can’t buy insurance because they have a pre-existing condition and if they can get in, they have not paid into the system to offset their costs later raising the costs for everyone. Again item 1 in a functioning system above and affects item 3 because it reduces pool of resources (premiums) to subsidize those who can’t afford insurance.
  4. Deregulate Healthcare and let the market place respond to needs – This is the holy grail of Republican ideology where the high priest of competition will solve all problems. It is a combination of Republican solutions 1, 2, and 3 above. Now go back to understanding the business plan of insurance companies to maximize profits/share price. It destroys large multi-varied risk pools because then the market is incentivized to go after low risk enrollees, those enrollees that don’t cost very much, but those elderly or sick get ignored or are offered plans they can’t afford unless they cover nothing. Why would health insurance companies compete by lowering prices in high risk pools where they are going to have a minimal profit margin? The other part of this is let healthcare companies compete nationwide instead of controlled by state markets. Okay, then who regulates them, makes sure they offer real services for premiums, and does not deny claims capriciously? We know this will happen because it did before Obamacare and then is it the Feds Republicans want to step in? This is the just repeal Obamacare option, send the poor back to the emergency rooms, and if they are sick, they must have deserved it. Flown lately? How well did deregulation work out in that market? This violates 1 an 2 in a functioning system above.
  5. Removing the Taxes on the Wealthy and Medical Device Manufacturers – This really has no bearing on healthcare except that it guts the funding available to fund the program including subsidies and allows Republicans to cut taxes, their other Holy Grail (Market Place solves all problems, and Tax cuts raises all boats). This destroys items 3 and 4 above in a functioning system. They are starving the beast.
  6. Block Grants to the States – This an old GOP strategy for managing Medicaid, the federal-state insurance plan that covers low-income people — turning control of the program to the states and capping what the Federal government will pay each year. Again, Republicans make an argument that who better than local control to decide how to spend Medicaid dollars since the states know their own needs best. Now on local control I could make an argument that who needed the Feds to breakup segregation in the South back in the 60s, since the South was doing just fine with local control. More recently, watch local control of school boards and curriculum which allow local jurisdictions to dumb down education and put religion back in the curriculum. Sometimes it works sometimes it does not and becomes the tyranny of the majority. In the present system, federal funding is open-ended, but in return states must cover certain services and people — for instance, children, pregnant women who meet income criteria and parents with dependent children. Under a block grant, states would have more freedom to decide who qualifies, and for what services. And what happens when things get tight in a state, where do they steal money from? A better description of the failure of this idea is here, but you get the drift. It is just away to unload the costs onto the states and eventually put the system in crisis, but it is the state’s problem then.

So are you getting the drift? There are no Republican solutions for fixing Obamacare if you truly want to improve it and make it better. And have you heard anything from the Republicans about ways to set policy to actually reduce the cost of delivering health care services (we have the most expensive system in the world by a factor of 2) like incentivizing outcomes not fee for service or allowing Medicare to negotiate with big Pharma to reduce drug costs? These and many more ideas are out there to reduce the actual cost of care, but that would require someone setting policy and incentivizing it and that again is anathema to Republicans. That would be big government. The market place will solve it, except it won’t, it will go for easy big profits unless government forces it to compete in all markets with defined standards. That is the fatal flaw in everything they are proposing.

So if you want to fix it, and by that I mean improve it, the Republicans got nothing. That is why the plans they presented were so unpopular. The way to fix it is fairly straight forward but anathema to Republicans:

  • We need to increase the risk pool and we do that by enforcing and strengthening the mandate. In the best of possible worlds we expand the risk pools to universal coverage.
  • Where you can’t get the private insurance markets to compete, you bring in Medicare for everyone. In a way this is the real “choice” solution. Let Medicare compete with the private insurance providers.
  • You strengthen the subsidies for the poor (Medicare for everyone will take care of markets where there is too much risk) through fair taxes.
  • You stabilize the markets by making clear you are going to make it work, not make it fail.
  • Finally you start to take initiatives to make healthcare affordable by reducing the cost of services like negotiating with Big Pharma and implementing incentives to utilize more effective and efficient treatments.

None of this is in the Republicans bag of what I call “free-ride” tricks, which is the market place left alone will solve the problem. There are tons of systems out there operating universal health care systems with and without single payer, with or without private insurance companies. They are all highly regulated. Couldn’t we learn something from them? But the one thing we do know is that after 8 years, Republicans got nothing and they won’t let real solutions even get on the table. When you finally recognize how the system works, you know that nothing is going to change because Republicans cannot accept the solutions that will work. We will have a failing system until voters finally throw these people out of office.

*Note: Ever wonder why most of us get insurance from our employer (mostly through health insurance companies) while that is not the model in the rest of the world? Back in the days of WWII, the United States was gearing up a massive industrial military complex to produce ships, planes, tanks, bullets, bombs, etc., etc., etc. So there was high demand for workers. In those days the government had taken over the economy to prevent wages and prices from spiraling out of control (inflation) so wages were fixed. What is a company to do to make working at their bomb making factory more attractive than someone else’s if wages are fixed by the government. Offer them benefits, healthcare in particular. And that is how we got a system of employer based healthcare, and the only one in the modern world. Given that this is a cost that makes our goods and services more expensive to consumers than foreign products, you would think that most corporations would be chomping at the bit to offload health insurance to the government.

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