Fixing Obamacare – an Open Letter to the Republican Congress

Congratulations to the Republicans on their impressive showing in the 2014 election. Rumor has it that the overly complex Patient Protection and Affordable Healthcare Act (aka “Obamacare”) has something to do with it. You might want to get busy fixing its many bugs once in office.

That said, simple repeal is not the optimal option. Any attempt to do so will face filibuster and Presidential veto. Defund key provisions and you will add confusion and uncertainty to an already complex situation. This would be bad for the economy.

The way out is to go forward. The Act passed because the old system had serious problems. We did not have a proper market for healthcare and we did not have a proper safety net. We had a system which encouraged wage serfdom and a stupid mix of overtime and unemployment for unskilled laborers. Believe it or not, there are some good ideas buried in the hundreds of pages of bureaucratic prose within the Affordable Healthcare Act – good from a conservative perspective. This should not be surprising, given that Obamacare was a liberal attempt at compromise; it is built upon ideas developed at the Heritage Foundation and implemented by Mitt Romney. If the far left in this country had its way we would have Medicare for All.

And if you don’t offer something better soon, we will get it.

Allow me suggest something better: an idea more market-based and more progressive than the old system, an idea that would lift a huge burden from small business owners across the land, and allow workers to safely shop for the ideal employer or even go into business for themselves. Allow me to suggest replacing the employer-provided health insurance tax break, the employer mandate, and Obamacare subsidies with:

Free Money for Health Insurance!

Tax breaks are valuable to those who pay taxes, those who have good jobs. These are the very people who could afford to pay more of their medical bills out of pocket. We need more people paying their doctors directly, so insurance companies (and the government) have pricing information to work with. With the subsidy in the form of a tax break, firms which hire mostly high paid professionals had an incentive to buy “Cadillac” insurance policies, leaving the insurance companies to do all the shopping. Ideally, we want the well-paid to have less insurance than most.

OK, so penalizing the well off is not the Republican Way, so let us not go there. But how about giving every American citizen the same subsidy for health insurance?

For example, under the pre-Obamacare system, I as a well paid scientist was on an employer provided plan that worked out to $1,800/month for a family of three. With a 25% tax bracket, that works out to a federal subsidy of ($1,800 * 12 * .25)/3 = $1,800 per family member per year. Why not just give every U.S. citizen a voucher worth this much to go towards buying health insurance and be done with it?

Your colleagues across the aisle may complain that this is not enough. Very well, negotiate. Up the amount as need be to get past a filibuster or Presidential veto. What you get in return for a more progressive system is enormous benefits for Republicans.

Benefits for Republicans

Free money for health insurance completely disconnects federal subsidies for health insurance and employment status. Employer-provided insurance becomes just another taxable perk. Most businesses would opt to do away with this headache.

For small business, health insurance benefits are a major chunk of overhead.

For big business, health insurance is yet another item to haggle over with the labor unions.

Money for services rendered is a simpler arrangement.

And by decoupling employment from health insurance, changing jobs becomes far less traumatic. Free agency becomes more normal; at will employment more humane. Going into business for yourself becomes a more viable option.

And when more people become free agents and business owners, you get more Republicans. You might find that useful.

Furthermore, you will reduce the number of full time welfare recipients. The transition from Medicaid recipient to working poor becomes smoother. Employers will hire more low wage workers for decent hours. Under the old system, employer provided health insurance was a significant tax benefit to management only. For the line employees, employer-provided insurance was an overhead burden. This encouraged employers to use a mix of grueling overtime for full time employees and part time employees who did not receive coverage. This resulted in sad stories in Mother Jones which make capitalists look bad.

The Parts of Obamacare Worth Keeping

A free agent society requires some degree of community rating. Different rates for age groups may be acceptable, but higher rates for preexisting conditions lock people into current policies – which today are employer-provided policies. True, there remains some moral hazard for insurance companies to deal with, but we are talking about an enormous subsidy for the industry in return for on this burden.

Ye Republicans might also want to keep the maternity care mandate. Yes, this is a burden on women who do not intend to have any more children, but accidents happen. With maternity coverage in hand, there is less pressure to opt for abortion. Rumor has it that many Republicans voters oppose abortion…

Ditto for the mental health mandate. True, this rider adds significant costs to health insurance premiums – but that’s what the subsidy is for. And much of what we spend in additional health insurance we get back in lower taxes. Today, as state governments close mental asylums, the prison system ends up holding many of the mentally ill. This is expensive and cruel. Many of the remaining mentally ill haunt the sidewalks begging for beer money – which is a major drag on commerce. Finally, some of the under-treated mentally ill go on berserker shooting rampages. This leads to calls for gun control. Rumor has it that many Republicans favor the Second Amendment. Keep this provision.

A Definition of Insurance

There is one major bit of bureaucratic meddling that we need to maintain: a definition as to what constitutes “insurance.” We don’t need the full set of Obamacare mandates, and we don’t need to reduce health insurance marketing into a paint-by-numbers approach classifying policies as “Bronze,” “Silver,” “Gold,” etc.

But some health insurance policies under the old system were not really insurance. They were pre-paid medical disguised as insurance.

Imagine a homeowner’s insurance policy which covers furnace filters, termite spraying and such like, but caps the payout if your home burns down to $20,000. Or imagine auto insurance which pays for oil changes, tuneups, and tire rotations, but caps payout to $5,000 if you total your new car in an accident.

These are evil. They fail to do what insurance is supposed to do: average out the cost of unlikely events. Yet they provide the unfortunate price distortion of real insurance by hiding costs from the consumer.

The health insurance marketplace was polluted with such policies. For dental insurance it still is. Were it not for the tax advantages, dental insurance as we now know it would either not exist, or be identified by consumer advocates as bad on par with the overpriced warranty coverage sold at electronics stores.

When people get scammed with such fake insurance policies for general healthcare, they end up bankrupt and/or on welfare should get truly sick. Obamacare includes overly-complicated measures to stamp out the practice.

Here is a simpler rule: copay rates as a percentage cannot go up as expenses go up. This is a far less stringent rule than imposing a maximum out of pocket value. But it does crack down on insurance that stops paying out if you get cancer, or insurance that targets the healthy by offering generous coverage for basic care along with mediocre coverage for serious problems.

Such a rule would get people shopping for basic medicine again, and the insurance companies getting involved only where individual shopping is not a realistic option. And it wouldn’t take hundreds of pages of legalese to define.

Progressive Enough to Pass?

There you have it, Republicans: ideas to restore a true market in healthcare, yet progressive enough that the President would be seriously embarrassed not to sign it. Try giving a bit of across-the-aisle negotiations a real chance. If you succeed, you help employers and the working poor, and save the country from a Medicare for All future. If you fail, you at least look good trying. This could be useful in 2016…