Health Care Reform: Death by a Thousand Cuts or Repeal and Replace?

The vote to repeal the health care reform bill in the House scheduled for Wednesday was postponed due to the shooting of Congresswoman Gabrielle Giffords. At some future date, the repeal effort will pass the House and be defeated in the Senate. Republicans are talking about myriad other ways to attack the legislation, including refusing to fund certain expenditures required by the Department of Health and Human Services (DHHS) to keep the program on track for its full implementation in 2014. Here are just a few of the bills that will be introduced:

• Rep. Scott Garrett (R-N.J.) has a bill to repeal the individual mandate, and Rep. Ted Poe (R-Texas) would prohibit federal funds to be used to enforce it.

• Rep. Dan Burton (R-Ind.) would replace the health care reform law with "incentives to encourage health insurance coverage."

• Rep. John Fleming (R-La.) has two bills -- one would amend the law to allow states to elect not to establish a health exchange, while the other would prohibit the hiring of additional employees by the Internal Revenue Service to "implement, administer, or enforce" the law. He also proposes to rescind funds for the law's Health Insurance Reform Implementation Fund.

• Rep. Tom Graves (R-Ga.) would deauthorize appropriation of funds to carry out the law.

• Rep. Dan Lungren (R-Calif.) has a bill to repeal the law's 1099 tax reporting requirement.

• Rep. Marsha Blackburn (R-Tenn.) wants to allow Medicare beneficiaries the option of choosing a voucher for a health savings account or a high-deductible health insurance plan while eliminating the late enrollment penalties for people who wait until they're 70 to enroll in Medicare. And Rep. Ron Paul (R-Texas) has a bill to "provide greater health care freedom for seniors."

There are, I think, several problems with the GOP’s approach. Passing a series of small bore bills in the House that die in the Senate seems like a scattershot plan. The Democrats will also continue to rely on and promote to their media allies CBO estimates of the cost of repeal -- namely that for the next ten years, the health care reform bill  results in overall deficit reduction (new taxes, plus Medicare cuts, exceeding new program expenditures by over $200 billion).

Even though the CBO estimate is nothing more than a product of what the Reid/Pelosi team asked them to score last year, the $200 billion in added deficits that CBO says would result from the repeal effort will be thrown in the face of the Republicans every time they attempt to reduce spending or the deficit in other areas in the coming session. The Democrats will also attempt to focus on all the goodies in the bill -- especially those that are already in effect, such as elimination of lifetime caps in insurance coverage, coverage for children with pre-existing conditions, closing part of the “donut hole” in Medicare drug coverage, and enabling children up to age 26 to remain on their parents’ policies.

Of course, all of the new features will add to the cost of insurance, though DHHS is already signaling it will challenge rate increases of over 10% this year, regardless of the fact that the reform bill may be a major factor in the added cost of existing policies. If one did not know better, one might think that one of the goals of the reform effort is to destroy the private insurance business.

ObamaCare was sold as a three-pronged effort: 1. Change the insurance business to protect individuals from being dropped or denied coverage when they are very sick, 2. Require most of the uninsured to buy coverage or pay a penalty, in order to expand the pool with healthier people so as to cover the very high costs of the individuals now covered by the insurance reforms in #1 above, and 3. Subsidize the cost of the new policies for individuals covered by #1 or #2. Of course, the bill, in its 2,000 pages, did far more than that. It limits the profit margins for insurance companies, and limits the kinds of policies they can sell (rich with mandates, but restrictions on HSA type high-deductible plans). It cuts Medicare Advantage, creating a long-term insurance policy that was (conveniently) deficit-reducing only in the first ten years, and adds a slew of new taxes.

The GOP will have a real opportunity to repeal much of the health care bill , but only in 2013. And even in that year, they will be able to do so only if they capture the White House in 2012, maintain their advantage in the House of Representatives in that election, and take control of the Senate in 2012, picking up at least four seats. This is far from a lay-down, of course.

And even if the Republicans are successful in the elections, they will need to rely on the budget reconciliation process, since they will not have the 60 votes in the Senate to block a Democratic filibuster of a complete repeal effort. The reconciliation process will enable Republicans to deal only with spending provisions in the bill, and will need to be scored as a net deficit reduction by the CBO. This will limit how much of the legislation can actually be addressed.

Of course, the U.S. Supreme Court could invalidate the individual mandate in the health care reform legislation, potentially leaving the bill in a chaotic state without a significant funding source. Even as currently formulated, many analysts believe that corporations, and even states, will be heavily incentivized to drop their insurance coverage and dump their workforce  onto the exchanges, since the penalty for doing so will be far less than their cost of providing health insurance. If that occurs, the cost of the program will grow much more rapidly than currently scored.

But assuming the GOP is successful in the election of 2012, they will need to be able to offer a replacement for the health care reform bill, not just its repeal or modification.That begins with acknowledging that the bill does provide goodies -- but they are not free. In fact, they are very expensive: at least $2.7 trillion over the first ten years of full implementation of the program. Anyone who thinks that level of expenditure is paid for in the bill, or that ObamaCare is a deficit reduction program, is deluded, or propagandizing. The Democrats are selling dependency to a large new swath of the population with the health care bill. The Republicans need to sell freedom, independence, and responsibility, and that if the nation’s fiscal recklessness is to end, the gravy train has to be stopped, not topped off. But more than that, the GOP needs to sensibly use the next year to craft a better reform bill.

Wisconsin Congressman Paul Ryan has made a major effort to begin this process, and should be the voice of Republicans on this issue. Many Americans believe that insurance companies practice cherry-picking as far as their insured population. They do. How should this be addressed for the few million who are truly denied coverage, without creating the new ObamaCare-like behemoth for tens of millions of others who choose not to buy coverage because it is too expensive?

The failure of the Democrats to include cross-state selling of insurance policies is evidence that their goal was not to lower the cost of insurance through real competition, but to control what insurance must provide (mandates), and to standardize that coverage -- a waystation to a single-payer national program.

There is a reason why Medicaid cost per enrollee in New York State is multiples of the cost of Medicaid coverage in other states: the state is much more generous in what has to be provided (the mandates). The same holds true in the private market. If insurance companies can sell policies that put more first dollar risk on the individual, maybe behavior changes will result from coverages where individuals regard health care as “free” if they are insured, especially since everything is covered. Why not allow the states to produce models for better cost control, as they did in advancing welfare reform?

The cost of health care is volume times price. Providing new coverage for 32 million people under the current system where providers are paid on a fee-for-service basis and individuals who are insured regard health care as free is bound to significantly increase volume and overall cost. Cutting the price per unit provided can not occur at a rate fast enough to cover that volume related cost increase to keep many doctors and some other providers in business.

The “doc fix” is like the alternative minimum tax. It  will be kicked down the road each year, and the supposed savings from the fee reductions will not occur. The $250 billion cost of the doc fix was removed from the reform bill by Democrats, precisely to produce a positive number on  deficit reduction. That “score” is a sham.

Republicans need to do better -- to treat the citizens as adults who can understand the tradeoffs between more coverage and higher costs and bigger deficits. People spend hours in stores and online searching for the best price for new big screen TVs. Why can’t we be smarter consumers for health care? We are not covered for oil changes, and gasoline, and routine maintenance after the warranty period ends with our auto insurance policies. We are not covered for new filters for our heating system, or the cost of gas, oil, or electricity with our home insurance policies. Why should health insurance cover “everything"?

Republicans would be wise to launch an intellectual offensive that goes beyond repeal of ObamaCare and sets the tone for repealing it with something better and smarter.