April 6, 2012

The right prescription

GOP fixation on repealing Affordable Care Act misses its market-friendly qualities.

The oral arguments at the Supreme Court last week about the constitutionality of the Patient Protection and Affordable Care Act (PPACA) have brought new prominence to the fierce debate over the 2010 health care law, which President Obama sees as his signature domestic policy achievement. A defining feature of that debate, in those proceedings and on the campaign trail, has been an insistence by prominent conservatives on treating their opposition to the law not as an ordinary political disagreement, but rather as a heroic stand against a monstrous example of federal overreach which must be repealed entirely. This position could generate serious problems, especially if the high court strikes down provisions needed to prevent the rest of the measure from disrupting the insurance market and Republicans who lack the votes for repeal are unwilling to help replace them. However, the GOP’s view of PPACA is misguided. Despite its flaws, it addresses an important problem that the right has long been concerned about in a relatively market-friendly way, and those aspects of it which do conflict with conservative principles could be removed without wholesale repeal.

The central conservative critique of our health care system is that its high costs are the result of government-created distortions that prevent market forces from lowering prices. Many on the right tend to identify two main culprits. One is the Medicare program, which pays for much of the health care consumed by the elderly. Since Medicare charges no or minimal premiums (depending on the type of care in question) and seniors generally use supplemental insurance to deal with its modest cost-sharing requirements, they bear very little of the cost of the care they receive.

The other culprit is the stipulation in the federal tax code that the value of the insurance coverage that many companies buy for their employees does not count as taxable income, which has generated similar problems by creating a situation in which most working-age Americans get insurance through their employers. This makes it difficult for them to figure out how much their care costs, since they pay for it through a complicated system of intermediaries rather than dealing with insurers and doctors directly. Both policies, then, give consumers little incentive to comparison shop, and, in turn, health care providers have little incentive to make themselves more efficient. Under these conditions, the main mechanism a market economy uses to make goods and services less expensive over time cannot operate.

However, the health care law includes two major provisions that promise to eliminate these distortions. First, one of the main funding sources for the programs the law creates is a tax on the value of employer-provided insurance plans, which effectively phases out the exemption just discussed over time. Since it will likely be too expensive for many companies to provide coverage once the tax subsidy is removed, their employees will enter the individual market and so will face the incentives to economize that will ultimately lead to cheaper health care. While many on the right have sensibly questioned the idea that the Obama administration will actually be willing to implement this highly unpopular measure and criticized the exceptions that have been made for some Democratic interest groups, their points would seem to constitute an argument for strengthening the administration’s spine by promising Republican votes for the phase-out rather than attacking the law that includes it. It would be very difficult for those workers to find affordable coverage in the individual insurance market that currently exists, since insurance companies are generally free to deny coverage or vary prices for any reason and so do their best to identify people who might be health risks, whom they either refuse to sell to or charge exorbitant premiums. PPACA attempts to deal with this problem by requiring insurers to offer coverage to anyone willing to pay and placing limits on how much they can increase a policyholder’s premium if he or she has a pre-existing health condition.

Of course, these rules create the risk that many might wait until they are sick to buy insurance, thereby driving insurance companies out of business by depriving them of the steady revenue stream they need to pay claims. The law addresses this problem through the infamous individual mandate to purchase health insurance, but conservatives who share the broad goal of creating a functioning individual insurance market could easily do so in a less coercive way. For instance, they might add an amendment that only requires insurers to accept all comers during certain fixed periods of time, which recur every few years.

The same is true for most other features of PPACA that the right dislikes; there are ways of achieving those provisions’ goals without violating conservative principles. These changes could be made through amending the law while leaving its basic structure intact. And that structure, which will eventually make it possible for all working-age Americans to pay for health insurance with their own money (with subsidies for the less well-off), advances one of the right’s key health policy goals. Indeed, if a viable individual insurance market could be established, it might be possible to integrate Medicare (which was created because the elderly have higher health risks and so could not afford their own coverage) into that system as well. Therefore, while conservatives should of course continue to oppose specific features of the law that they dislike, their overall aim should not be to reverse the halting steps their opponents have taken in their direction, but to build on them.

Ajay Ravichandran is a fourth-year in the College majoring in philosophy.