After The Individual Mandate, What Now?

Let’s assume for the moment that the Supreme Court strikes down ObamaCare’s individual mandate, or a future Republican Administration and Congress repeal it. What’s the next step after that? Whether or not the entire bill is struck down, or just the mandate, the American health insurance system is pretty badly broken right now, so we need to do something to fix it.

Politico asked that question, and came up with a few answers:

The backup plan could be automatic enrollment in your employer’s health insurance, a lot like the way you get signed up for the 401(k) plan.

If Congress decides to act to repair that hole in the Affordable Care Act — and that’s a big if — an auto-enrollment requirement is the option that’s getting the most attention from health policy experts. It’s a more low-key way to reach at least some of the uninsured people who would be covered by the individual mandate.

It’s an idea that could even appeal to Rep. Paul Ryan (R-Wis.) — because it’s straight out of the health reform alternative he sponsored in 2009.

Despite having Ryan’s name attached to it, I’m not really sure I like the idea of being forced to opt out… I don’t like deliberately having to opt-out when signing up for something online, whether it’s someone’s newsletter or opting out of a service I don’t use after a free trial. Online marketers love it, especially for free trials, because they know most people won’t opt out right away, and so they can get at least a month or two of membership fees before the customer catches on and cancels it. I’m not convinced that such a tactic is really the way conservatives want to go.

Another alternative comes from Princeton sociologist Paul Starr, who was a senior health care adviser to President Bill Clinton. Under his proposal, people would have three options, not including the poor, who would be covered under health reform’s Medicaid expansion.

They could buy insurance, with subsidies if they qualify. They could pay an annual tax penalty for going uninsured. Or they could opt out with no penalty — but they couldn’t opt back in for five years. And those who opt out wouldn’t have the protections under the health reform law, meaning any insurance — if they could get it at all — could be prohibitively expensive.

This is basically just a fancy way to enforce the individual mandate, while proclaiming loudly that they’re not — just what you’d expect from a Clinton adviser. Going 5 years without being able to opt back in is a pretty serious penalty, so we’re back to “buy insurance or be penalized,” which is also a pretty good summary of the individual mandate it would presumably replace.

So what do we do? Despite not liking Ryan’s 2009 automatic sign-up proposal, last year Heritage reported on another Ryan idea that I like a lot more: introduce market forces into healthcare.

• Moving Medicare to a premium-support system. By transforming the way seniors receive their health benefits from the government, they would be able to “enroll in the health plans of their choice and receive a defined contribution (known as premium support) toward the cost of their plan…. The premium support will be sufficient for seniors to afford an adequate level of benefits, regardless of age or health care condition.”
• Moving Medicaid to a block grant system. “In exchange for the capped federal allotment, states are granted considerable new flexibility to manage and administer the restructured Medicaid program to meet its mutual federal and state objectives. This means that states are granted broad discretion and authority to meet general objectives and outcome measures. States that wish to try very different approaches to better serve and improve health care quality for these key populations would have additional authority beyond the normal waiver process.”
• Tax reform to replace the flawed tax treatment of insurance. “The current individual tax exclusion for employer-sponsored health insurance and other tax mechanisms are replaced with a non-refundable fixed tax credit for households to purchase health coverage…. This change is needed because under today’s system, the tax code provides unlimited tax breaks only to those workers who receive coverage through their employers. Workers cannot use this tax break if no plan is offered through their employers or if they simply prefer a plan other than their employer’s…. The exclusion provides little or no help to lower income workers who are struggling to afford coverage for their families.”

And, as I myself wrote back in 2008:

There is very little ability for consumers to cost-compare in the current system. Think about it… when you get your oil changed, you know the cost up front and can shop around. When you buy a new pair of shoes you know the cost up front and can shop around. When you buy a sack of potatoes you know the cost up front and can shop around. But when you go to the doctor you most often don’t know the cost up front, and would have a lot of trouble shopping around.

[snip]

If you don’t think this will work, just consider what you do when you shop for anything else. You generally either choose solely based on price or, if one store (restaurant, hotel, gas station) is much friendlier than another, you don’t mind paying a little extra for those little extra touches. The important part is, you have made an informed choice to pay more for what you feel is more value. You can’t do that in the current health care system, because there’s no way to compare.

Let people shop for a doctor the same way they shop for the latest Toby Keith CD, and costs will go down.

There’s even more evidence that market forces will work in health care than I mentioned in 2008, even self-identified Democrat David Goldhill admitted, also in 2008, that it’s worked for laser eye surgery:

But most health-care technologies don’t exist in the same world as other technologies. Recall the MRI my wife needed a few years ago: $1,200 for 20 minutes’ use of a then 20-year-old technology, requiring a little electricity and a little labor from a single technician and a radiologist. Why was the price so high? Most MRIs in this country are reimbursed by insurance or Medicare, and operate in the limited-competition, nontransparent world of insurance pricing. I don’t even know the price of many of the diagnostic services I’ve needed over the years—usually I’ve just gone to whatever provider my physician recommended, without asking (my personal contribution to the moral-hazard economy).

By contrast, consider LASIK surgery. I still lack the (small amount of) courage required to get LASIK. But I’ve been considering it since it was introduced commercially in the 1990s. The surgery is seldom covered by insurance, and exists in the competitive economy typical of most other industries. So people who get LASIK surgery—or for that matter most cosmetic surgeries, dental procedures, or other mostly uninsured treatments—act like consumers. If you do an Internet search today, you can find LASIK procedures quoted as low as $499 per eye—a decline of roughly 80 percent since the procedure was introduced. You’ll also find sites where doctors advertise their own higher-priced surgeries (which more typically cost about $2,000 per eye) and warn against the dangers of discount LASIK. Many ads specify the quality of equipment being used and the performance record of the doctor, in addition to price. In other words, there’s been an active, competitive market for LASIK surgery of the same sort we’re used to seeing for most goods and services.

The history of LASIK fits well with the pattern of all capital-intensive services outside the health-insurance economy. If you’re one of the first ophthalmologists in your community to perform the procedure, you can charge a high price. But once you’ve acquired the machine, the actual cost of performing a single procedure (the marginal cost) is relatively low. So, as additional ophthalmologists in the neighborhood invest in LASIK equipment, the first provider can meet new competition by cutting price. In a fully competitive marketplace, the procedure’s price will tend toward that low marginal cost, and ophthalmologists looking to buy new machines will exert downward pressure on both equipment and procedure prices.

So, after the individual mandate is gone — whether by the Supreme Court or by a Republican Congress and President’s repeal — we need to work at re-introducing market forces to health insurance and health care (they’re not the same thing). It won’t be easy, but it needs to be done.