A response to what might have been (and still could be)

I attempted to “live-tweet” my commentary on an article by Avik Roy last night on Twitter rather than writing here, but quickly realized I was just spamming whatever followers were paying attention. Thus here we are, whereby I take advantage of the freedom of living in punditocracy by taking pot-shots (my emphasis are non-italisized and in bold).

The piece primarily concerns a policy initiative by George W. Bush in 2007 to reform the health care system – an initiative that was effectively dead on arrival given the recent Democratic electoral gains. Avik Roy laments the fact…

[…] It’s long-forgotten now, because Democrats had just regained control of Congress, and these newly-empowered legislators pronounced the Bush plan “dead on arrival.” In many ways, though, the Bush proposal was impressive and credible. It would have expanded coverage while reducing the deficit. Should it serve as the starting point for replacing Obamacare?

And he begins to list the features:

Equalizing the tax treatment of individually-purchased health insurance

Bush’s proposal sought to eliminate the unlimited tax break for employer-sponsored insurance, replacing it with a standard deduction for everyone. Under the plan, anyone—employed or not—who bought at least catastrophic insurance would not pay income or payroll taxes on the first $7,500 of their income, or the first $15,000 for a family plan.

I’m skeptical of tax deductions, especially through the payroll system, as a way to achieve universal (or near universal) health care coverage. While nearly everyone agrees that the current favorable tax-treatment of employer-provided health insurance was/is a terrible idea, that doesn’t necessarily make all alternatives equal or better than the status quo. I guess it’s a win for portability, but given the existence of the ACA it’s a lesser alternative.


In contrast to Obamacare, however, the Bush plan would have turbocharged the market for consumer-driven health plans, tied to health savings accounts, because the most economically efficient use of the deduction would be to purchase a sufficiently generous consumer-driven plan that allowed individuals to put a maximal amount of money into HSAs. Obamacare significantly constrains the use of HSAs in its regulated insurance markets.

I’m also doubtful about the effectiveness of health savings accounts. While he and others have advocated raising limits on HSA’s, unless your willing to raise them substantially you’re still addressing the part of the population that spends the least (annually) anyway:

Which is to say that it’s rather disingenuous to claim HSA’s are a panacea to cost growth. As to “turbo-charging” the market for consumer driven health care (which, btw, makes little sense to me define the market in such a way), well, it rests on a rather big assumption – namely, that consumers make smart choices in health care. Yet we’re bounded by imperfect information with all consumption choices, and given that we often make the least aggregate rational decision even in the mundane things, erecting a system based on such an assumption strikes me as folly.


Expanding coverage by redirecting federal health dollars

President Bush also proposed an “Affordable Choices Initiative,” which would redirect existing federal spending in states that sought to expand coverage to the uninsured.

[…] the federal government gives most urban hospitals “disproportionate share hospital,” or DSH, payments. Bush proposed to shift these dollars away from hospitals and toward uninsured individuals directly.

States would design their own programs for expanding coverage, subject to approval by the HHS secretary, such as offering direct subsidies for insurance premiums, expanding or creating high-risk pools, or setting up Massachusetts-style exchanges.

Again, there’s nothing inherently illegitimate about redirecting DSH payments to subsidize low-income health consumption, but not all alternatives are equal. Such an initiative paves the way for a complicated mess of differences – essentially a state-centered solution to a national problem – and doesn’t “shift these dollars away from hospitals and toward uninsured individuals directly” as Roy claims but effectively allows states to implement less efficient health care delivery methods. If we wanted to shift those dollars towards the uninsured directly, well, we end up with something like the Affordable Care Act.

The Bush plan would have expanded coverage and reduced the deficit

The Lewin Group analyzed the Bush tax reform using its Health Benefits Simulation Model, and estimated that equalizing the tax treatment of health insurance would expand coverage by 9.2 million people. In addition, the Bush administration estimated that the Affordable Choices Initiative would expand coverage by an additional 2 million or so, for a total of about 11 million.

[…] In addition, Obamacare’s 30-million coverage expansion figure may be substantially inflated. If the individual mandate gets struck down by the Supreme Court, the Congressional Budget Office projects that the law would expand coverage by only about 17 million, despite trillions of additional federal spending.

Even more impressively, the Joint Committee on Taxation—the government agency responsible for the CBO’s estimates of the impact of tax legislation—projected that the Bush proposal would reduce the deficit by $334 billion from 2008 to 2017, and by trillions more in later decades, because the tax deduction would grow at the rate of inflation, whereas the tax exclusion of employer-sponsored health insurance isn’t capped by law, and grows along with overall, and higher, health inflation.

Yeah, well, duh Roy. If the the mandate is overturned tomorrow then yes the coverage figure under the ACA will be incorrect. That doesn’t equal “inflated.” Furthermore, if the policy dynamics (cost tied to general inflation) under this proposal would have resulted in a reduced deficit then the similarly-structured policy dynamics in IPAB will have the same result in Medicare cost growth.

He then moves on to address criticisms (I won’t list them all):

A fourth criticism encompasses the generic left-wing opposition to market-oriented reforms. These would include: (1) individuals aren’t competent to choose their own insurance plans, because plans are too complicated, and that experts should choose on their behalf; (2) comprehensive insurance is better than consumer-driven plans that pair high-deductible insurance with health savings accounts, because individual consumers don’t make good health-care choices; and (3) the tax deduction would be indexed to inflation, which will increasingly expose people to rising health costs.

Criticisms (1) and (2) are ideological. You either believe consumers are capable of making choices for themselves through market mechanisms, or you don’t. Criticism (3) assumes that market forces won’t do anything to retard growth in health expenditures, when in fact there is plenty of reason to believe that people will be much more mindful of their health spending once they are in a position to economically benefit from greater frugality.

Those criticisms are not lackadaisically aimed towards any market-oriented reform – the Affordable Care Act is a market-oriented reform – but are specifically to ones that incorrectly assume how behavior will affect markets. Moreover, these aren’t generic criticisms, Mr. Roy, but substantive criticisms based on observed behavior.

He concludes with the implications for replacing the ACA:

But universal coverage is hardly incompatible with market-oriented health care. Indeed, Switzerland shows us that a wholly-private, market-based health insurance system can achieve universal coverage while spending far less money than the United States spends today. It would be a tremendous achievement for conservatives to install a market-based system for universal coverage, one that would stabilize our deficit while solving a genuinely pressing public-policy problem, a problem that today provides unnecessary fodder for socialized solutions.

Sure, except there is one critical aspect of the market-oriented universal system in Switzerland that Roy seems to ignore – a strong mandate. Something tells me, oh I don’t know, that conservatives might fundamentally object to that framework.

Despite the purpose of this post I actually like Roy a lot – I and others take him seriously as a conservative voice on health care reform. Moreover, I appreciate his willingness to tackle health care problems in this country with an eye towards actually addressing public-policy issues – not just simply getting the government out of the way. He’s not entirely off in thinking that that ’07’s proposal is a legitimate starting point for Republicans on the “replace” part of their promise to voters. Yet as this post shows such legitimacy is only a starting point, and whether or not the ACA is invalidated by SCOTUS we’ve still got a lot of work to do.


One response to “A response to what might have been (and still could be)

  1. Pingback: Reasonable Doubt | Punditocracy·

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