Republicans Are Playing A Losing Hand In The Health Care Debate

03/24/2017 04:24 pm ET Updated Mar 24, 2017
NICHOLAS KAMM via Getty Images

House Republicans pulled their Ryancare proposal today, but this story is not over. They promise to try again to repeal and replace Obamacare in the coming months and years, but it will be no easier next time.

They are playing a losing hand. And playing it poorly.

I recently published an article focused on how the debate between Democrats and Republicans on health care is animated by fundamental differences in their respective core values (“Ryancare Sparks Debate Over Core Values”).

But it’s not just about values. Even when Democrats and Republicans share similar goals, they have sharply different views on how to get there.

Assume for the sake of argument that the goal of both Democrats and Republicans is to provide better health care to more people at an affordable cost. I say “for the sake of argument” because there are those who believe that the hidden Republican agenda around Ryancare is to cut taxes for the wealthy, not to provide health care. But that’s another story, and right now I want to focus on something else.

Republicans believe that the best path to the goal of fixing health care is to leave as much as possible to the “free market.” Republican belief in free market solutions is close to absolute, as much a religion as an ideology.

Applied to health care, that means that the sellers of health insurance (insurance companies) and the consumers of health insurance (you and me) should be left alone as much as possible. Free market forces will sort it all out. Government should stay out of it.

Republican belief in free market solutions is close to absolute, as much a religion as an ideology.

Democrats believe that the free market has never worked to optimize delivery of health care to Americans. And that the free market solutions proposed by Ryancare will make matters worse, not better.

Democrats believe that the market forces that deliver health care must be bent and shaped by government regulation.

Prior to the passage of Obamacare, the free market controlled delivery of health care to most people in the United States. The result was anything but optimal.

The pre-Obamacare market for health insurance, especially for those who didn’t receive coverage through their employer, existed in a kind of Hobbesian state of nature.

Tens of millions of Americans had no coverage at all. Some, mostly the young and healthy, were uninsured because they chose to be. They felt invulnerable to disease and therefore saw no reason to pay money for insurance they thought they were unlikely to need.

Too many, however, didn’t have insurance because they couldn’t afford it, or because they had “pre-existing conditions.” If you had a pre-existing medical condition, insurance companies could either refuse to sell you insurance at all, or sell you a policy that excluded coverage for whatever pre-existing condition afflicted you.

The pre-existing condition exclusion perfectly illustrates the inability of the free market to provide the kind of health care solutions that Americans want and need.

Because insurance companies understand that people with pre-existing conditions are going to make disproportionate claims on their health care policies, it has always been in their economic best interest to decline to insure them. The insurance pool in the individual market (those not covered through their employers) was not big enough, and did not contain enough young and healthy people to make insuring those with pre-existing conditions affordable.

President Donald Trump and Health and Human Services Secretary Tom Price arrive at the U.S. Capitol to meet with the Republic
MANDEL NGAN via Getty Images
President Donald Trump and Health and Human Services Secretary Tom Price arrive at the U.S. Capitol to meet with the Republican House Conference on March 12, 2017.

The pre-existing condition exclusion also exposes the cruel irony that underlies the insurance industry in general, and health insurance in particular.

Unlike most products, the business model that underlies the sale of health insurance is that its profits are maximized by marketing and selling to the people who are least likely to use it.

Because insurance companies collect premiums from all their customers, but only pay out claims to those who obtain medical care, their market incentive is to sell their product to as many healthy people, and as few sick people, as possible.

Most industries don’t work that way. They make their money by marketing products to people who will use them. The more people use their products, the more they will buy in the future to replace products consumed or worn out. Think of soap as a product consumed and replaced. Think of dishwashers as products worn out and replaced.

Not so the insurance industry.

The holy grail for insurance companies is to get you to buy, but not use, their product.

That’s why the pre-Obamacare free market did not offer a satisfactory solution for people with pre-existing conditions, among others.

When the free market fails to provide a workable solution in an area that profoundly impacts the well-being of entire generations of Americans, we often look to government to provide the answer.

For instance, in 1965, when it was obvious that the free market wasn’t providing adequate, affordable health care coverage to elderly Americans, Congress enacted Medicare, a federal insurance program that provides coverage to Americans aged 65 and older.

At the same time, Congress enacted Medicaid, a government insurance program for persons of all ages whose income and resources are insufficient to pay for health care.

Medicare and Medicaid were enormous steps forward, but they only covered, respectively, the elderly and low income people who could not afford health care.

That still left the vast majority of Americans at the mercy of the free market for their health care.

Enter, some 50 years later, Obamacare.

Obamacare provided a health care solution for those who were not already covered by Medicare and Medicaid. It was intended to fix many of the problems that the free market couldn’t solve:

  • It prohibited insurance companies from refusing to cover pre-existing conditions.

  • It established standards of essential coverage that stopped insurance companies from bilking their clients by selling cut-rate policies that provided no real coverage at all.

  • It reduced insurance costs for elderly and less healthy people by broadening the insurance pool to include millions of additional younger, healthier people.

  • It required businesses of a certain size to provide health insurance to their employees.

  • It enacted taxes, fees and penalties to pay for it all.

And more.

None of this came without a cost. There were, of course, the direct costs of the program that were borne by the people through payment of additional taxes. But there were also indirect costs that impacted a lot of people.

For instance, the establishment of minimum coverage standards meant that people who had been buying low-cost policies that provided little useful coverage would have to pay more for a policy that met the Obamacare standards. And the many young people who previously had no health insurance policies would now have to pay money to purchase coverage or pay a fine for failing to do so.

Republicans now want to repeal and replace Obamacare with a more market-driven solution. They want to reduce the costs of Obamacare. Their real passion, however, is to eliminate the taxes and regulation that underlie it.

But they have run into a major snag. Seven years of rhetoric about repealing “every word” of Obamacare now has them tied in knots because that’s not what Americans want. For instance, Americans don’t want insurance companies to refuse to cover pre-existing conditions. They don’t want to be forced to pay good money for bad coverage. They want their children to stay on their policies until they are 26. And more.

Easy, right? Just keep the good stuff and repeal everything else.

Sorry. Doesn’t work that way.

Obamacare is a complex ecosystem in which you cannot remove or alter one element without affecting all of the others.

Take the pre-existing condition exclusion. That provision cannot stand alone without other key elements of Obamacare. Requiring insurance companies to insure people with pre-existing conditions doesn’t work without broadening the insurance pool and establishing minimum coverage standards.

In fact, repealing everything in Obamacare except the pre-existing condition provision would be a disaster. Healthy people would then buy cheap sub-standard insurance, or no insurance at all, until they needed it. Only those already suffering with pre-existing conditions would buy full coverage.

One of two results would follow. Either the cost of full coverage would be so high that nobody could afford it, or insurance companies would stop offering coverage altogether.

So Republicans can’t cherry-pick the popular features of Obamacare, jettison the rest, and then rely on the “free market” to sort it all out.

The free market will sort it out by collapsing.

The pre-existing condition exclusion perfectly illustrates the inability of the free market...

The only sensible solution would be for Republicans to tamp down their blind faith in free markets, accept the fact that the free market alone has never worked well to provide health care to Americans, and propose constructive legislation to smooth the rough edges of Obamacare and bring down the cost of health care.

But they can’t and won’t do that because they have backed themselves into an ideological and rhetorical corner. They have promised to repeal Obamacare. They have shouted that promise from the rooftops for seven years, and their constituents believed them. There will be a heavy political price to be paid if they fail to keep that promise.

One of two things is going to happen.

The first possibility is that the Republican efforts to repeal and replace Obamacare will fail. Combined resistance from the right wing of their party, the small but important group of moderates in their party, and Democrats may be sufficient to block Ryancare in its present and any future form.

That would be bad for Congressional Republicans, who will have failed to keep their promise to their constituents, but good for the country.

Maybe it would lead to constructive reforms of Obamacare. But even if it leaves Obamacare untouched, that would be far better than returning to the pre-Obamacare state of nature. Or moving to a “free market” solution that would result in tens of millions of Americans losing their insurance, and others having to settle for cut-rate policies that provide little or no real coverage.

The second possibility is that Ryancare, or something like it, will be enacted into law.

That would be bad for Republicans, and even worse for the country.

The free market in health care will not work any better after Obamacare than it worked before Obamacare.

And the Republicans will own it.

Philip Rotner is an attorney and an engaged citizen who has spent over 40 years practicing law. His views are his own and do not reflect the views of any organization with which he has been associated. Follow Philip on Twitter at @PhilipRotner

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