Can Obamacare Be Fixed?

This should be a banner year for Republicans.

The Democrat’s plan to insure the uninsured has turned out to be a disaster. After hearing again and again “if you like your plan you can keep it,” millions of people got cancellation notices last fall. More cancellations are in the offing — about 15 million of them in total — before this year is over. After hearing again and again “if you like your doctor you can keep your doctor,” millions of people have discovered that standard policies in the health insurance exchanges have narrow networks that omit the best doctors and the best hospitals. And major cuts in Medicare Advantage plans that insure about 30 percent of all seniors are just around the corner.

After all that, the fall elections should be little more than a mopping up operation for the GOP. So what are Republicans doing? Arguing among themselves. Arguing? Yes, arguing. They’re busily attacking each other.

For example, here is Ramesh Ponnuru taking to task Dr. Monica Wehby, an Oregon Republican who is running for the Senate:

“If she got elected, she could suddenly discover that her proposals don’t add up and decide to go a different route. In that case, I’d hope she would support replacing Obamacare with a health-care plan that uses other means to help people with pre-existing conditions. But I’d prefer if she didn’t emulate Obama’s example at all. And other Republican Senate candidates should avoid hers.”

What did Dr. Wehby do to deserve all that? She is proposing to “fix” Obama Care rather than “replace” it. Ponnuru thinks that is unacceptable. But is it? By November there will be between 10 and 15 million people who have insurance through a health insurance exchange or through expanded Medicaid. Are Republicans going to take their insurance away from them and toss them out on the street to manage on their own? If so, they will be giving as many as 15 million people a strong incentive to vote for the other party.

ObamaCare has created a big mess. Republicans need to say how they will transition from the mess we are in to a better place. Dr. Wehby has made a first step.

In addition to opposing “fixes” in general, Ponnuru objects to the way Dr. Wehby would repair ObamaCare. Specifically, she wants to get rid of the ObamaCare mandate, but she wants to keep the ban on discriminating against people with pre-existing conditions. He writes:

“President Barack Obama, remember, campaigned against an individual mandate in 2008. He changed his mind because without a mandate, the ban on discrimination against sick people would destabilize insurance markets. The ban means that healthy people have less reason to buy insurance, because they can wait until they get sick. But if fewer healthy people buy insurance, prices have to go up — which will drive other healthy people away. That’s a formula for destroying the insurance market.

Obama tried to solve the problem he created by making people buy insurance. Wehby’s plan would keep the problem but weaken the attempted solution.”

Really? Perhaps Ponnuru should take a look at how we handle this problem with seniors. There is a ban on discriminating against enrollees with pre-existing conditions in Medicare Part B (doctors services), Medicare Part D (drug coverage) and in medigap plans (which supplement Medicare). Yet there is no mandate for any of these plans!

How do they do it? Simple. Seniors have to enroll when they are first eligible. If they don’t they are penalized with higher premiums. In many places, medigap insurers can underwrite applicants who wait too long to enroll. That means that the ban on discriminating against pre-existing conditions goes away if you try to game the system and wait until you get sick to enroll. I hope this approach becomes part of the Wehby plan.

Ponnuru also dismisses Dr. Wehby’s idea of letting people buy less expensive catastrophic insurance.

“The rest of her plan works at cross-purposes with itself. Let people buy catastrophic options, and healthier people will buy them. The more extensive plans that sick people want will have to get more expensive or go off the market.”

This is the same issue under a different guise. If you allow people to choose skimpy insurance when they are healthy and then switch to more generous insurance after they get sick, that’s what many people will do. In other words, if people are allowed to game the system, they will game it. But we don’t allow that in any other insurance market and we shouldn’t allow it in health care either.

Here is what I would do: First, deregulate and denationalize the (ObamaCare) exchanges. Then, create a real market for health insurance with real protections for people with pre-existing conditions. Once again I would look carefully at how we are handling these very same problems with seniors.

Right now insurers in the health insurance exchanges have perverse incentives to attract the healthy (on whom they expect to make a profit) and avoid the sick (on whom they expect to incur losses). Once people enroll, they will face perverse incentives to over-provide to the healthy (in order to keep the ones they have and attract more of them) and under provide to the sick (in order to encourage the exodus of the ones they have and discourage the enrollment of any more of them). These perverse incentives are producing a race to the bottom — with very narrow networks that exclude the best doctors and the best hospitals.

How could things be different? Seniors in the Medicare Advantage program pay a community rated premium. But then Medicare adds to that based on an estimate of the senior’s expected health care costs — using a formula with as many as 70 variables. That means that the health plans receive an actuarially fair premium for each enrollee and it means they no longer have perverse incentives to attract the healthy and avoid the sick. We need to use this methodology within the health insurance exchanges. But instead of Medicare doing the risk adjustment, let the private insurers do it themselves.

Once people are in a plan, they can always switch plans. But they should not be able to switch to more generous coverage after they get sick without paying the full price, just as seniors cannot add on medigap coverage without paying an actuarially fair premium once they have passed on the first opportunity to acquire it.

Bottom line: over many years Medicare has honed and refined some of the tools needed to convert ObamaCare into a real market with real insurance, but without a mandate. Let’s take advantage of them.