What’s wrong with the new conservative answer to Obamacare

The best sign that conservatives have finally given up their campaign to repeal the Affordable Care Act is that they’ve been cooking up proposals to keep some of the ACA’s most important provisions in place, without fully abandoning Republican nostrums like tort reform.

Most of these proposals are what social policy expert Harold Pollack aptly calls “vaporware� -- schemes designed to show that the GOP has something to offer, but that are essentially unworkable structurally or politically.

But the most serious effort yet has now arrived from Avik Roy of Forbes and the conservative Manhattan Institute. Titled “Transcending Obamacare,� Roy’s plan has lately been receiving respectful attention from ACA experts and progressives. There are several reasons for that. One is that Roy, who was a healthcare advisor to the Romney presidential campaign, is knowledgeable about the subject. He understands that repeal isn’t going to happen, so his aim is to reconcile that reality with conservative principle.

Also, if the GOP gains control of the Senate in November, it might feel constrained to stop prattling about repealing the ACA and try to enact changes. In that event, “Transcending Obamacare� may well be its template.

As several analysts have observed, Roy has some good ideas and some palatable ones. He would scrap the employer mandate, an option that even some progressives would accept. He would tinker with the annual open-enrollment standard for individuals, which is a workable idea, depending on the details.

But in other respects, “Transcending Obamacare� is revealing for what it says about the conservative mind-set when it comes to social insurance. That mind-set amounts to shifting more costs onto individuals, especially to the middle class and working class, in the name of cutting the federal budget, even if that means higher spending on a national level. Roy asserts that his plan will save money overall, but he doesn’t fully document how.

The best analyses of Roy’s plan have come from Timothy S. Jost of Washington and Lee University; Richard Mayhew, a pseudonymous health insurance analyst blogging at balloon-juice.com; and Pollack (of whose penetrating three-part dialogue with Roy only parts one and two have appeared as of this writing). They’re all worth reading, as is Roy’s plan itself.

Let’s take a look at some of the details.

The centerpiece of Roy’s proposal, as Jost observes, is a “universal exchange� program to move many Medicare and Medicaid enrollees into reconfigured individual plans similar to those sold now by ACA exchanges.

How would the new exchange plans differ from those mandated by the ACA? For one thing, they would allow a broader range of premiums based on age, changing from the ACA’s 3-to-1 limit to as much as 6-to-1. This would make the plans much more expensive for older customers.

Roy would make all the plans stingier. The “actuarial value� of the current ACA plans ranges from 60% for the bronze tier -- that’s the percentage of average healthcare costs covered by the plan -- to 90% for a gold plan. Roy would cut that to 40% to 85%. The benchmark silver plans would fall from 70% actuarial value to 55%. Roy would set the annual deductible for those plans at $7,000 for individuals and $14,000 for families. That could mean a huge expense for many families -- in California, the standard silver-tier deductible is $2,000 per person and $4,000 per family.

That expense would be moderated by subsidies for lower-income Americans, but Roy would cut those too -- instead of subsidies available to households up to 400% of the federal poverty line, he would stop them at 317%.

Roy would also eliminate some of the mandates for minimum coverage benefits, though he’s vague about which ones. He writes of expanding “insurer flexibility around benefit design,� for instance, saying his plan “minimizes the prescriptiveness� of the ACA’s minimum benefit requirements.

Mayhew points out that this can conceal a lot of negatives: It could mean that plans “don’t have to offer maternity coverage, they don’t have to offer mental health coverage at parity, they don’t have to offer preventative care at no cost share,� he writes. “This reverts back to the 2009 status quo of good luck on figuring out which is actually covered.�

Roy is especially hostile to Medicare and Medicaid. This is entirely consistent with conservative hostility to all social insurance, including Social Security. He proposes that the enrollment age for Medicare be raised by four months per year over a period of 30 years. This would save, he claims, $5.1 trillion in that period.

But would it? People closed out of Medicare would end up on exchange plans, which might be more costly -- and most of which provide lower benefits, under Roy’s scheme, than Medicare does today. Roy suggests that the enrollment change won’t be much of a burden, because life expectancy has soared -- “when Medicare was enacted, in 1965, the average life expectancy at birth was 70.2 years... In 2010, the average American lived to the age of 78.4.�

But this is a bogus argument; the key figure for social insurance programs is life expectancy from the age of eligibility, which is about 65. And that figure has risen only by a little more than four years, not eight, since Medicare’s enactment. Moreover, it’s unequally distributed by race and socioeconomic class. Black males, for example, have gained only about three years in life expectancy from age 65 in that time frame. Raise the Medicare age as Roy proposes, and you’re widening the gulf in health and welfare between the races and between economic strata.

Roy told Pollack that his goal in writing “Transcending Obamacare� was “to deregulate the exchanges to a degree, or reform exchanges, so that the cost of insurance plans on the exchange can be more affordable. And then gradually migrate people on other programs like Medicaid and Medicare onto these reformed exchanges as a means of entitlement reform.�

That’s the rub. Roy’s plan doesn’t necessarily make healthcare delivery in the U.S. more efficient or cheaper overall. It reduces the burden on the federal budget by shifting costs to individuals, who may not be able to shoulder them.

Instead of an individual mandate, Roy would allow people to opt out of coverage in the name of individual liberty, but as Jost observes, that leaves a glaring question unanswered: “Who would cover the costs of care for those who opted out and then had a catastrophic illness or accident.� The ACA addresses that question by not allowing anyone to opt out (unless they pay a penalty that, ideally, makes it more sensible to stay in).

Roy suggests that insurance on the whole would be more affordable under his scheme, but that appears to be mostly the result of making it less comprehensive and by shifting costs from premiums, which are very visible, to deductibles and co-pays, which are hidden. The process resembles a conjuror’s trick. Sure, premiums are lower, but it’s only when you feel for your wallet do you realize your pocket’s been picked.

“Transcending Obamacare� is a plan to be reckoned with largely because of the handful of sensible proposals buried within what is, at its core, a conservative program to cut assistance for the middle class and the working class.

As a first attempt to craft a conservative alternative to the ACA, Roy’s plan is interesting and certainly worth pondering. In a rational political environment it might be a solid platform for discussion and negotiation from the conservative side.

But that environment doesn’t exist, and if the GOP takes the Senate in November, the political air in Washington is likely to become more acrid, not less. And that will make the task of separating Roy’s good proposals from his bad ones only harder. So it’s a decent start, but he’ll need to go back to the drawing board if he wants to see any of it happen.

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