Painful Question “Why Republican Health Reform?”

It is easier to discern the rationale for the Hilary Clinton candidacy than to explain the merits of the Republican healthcare plan.

Some economists, most notably Thomas Sowell, have noted that politicians routinely use the terms costs and prices interchangeably. You can’t understand health care, much less reform it, without knowing and respecting the difference.

The costs of producing medical treatments, diagnostic tools, drugs, orthotics, hearing aids etc. are the cumulative sacrifices in dollars, time and expertise necessary to develop and make these items available. In a free market, prices are the means by which the costs are recovered and supply and demand are balanced.

Health care costs are not rising inexplicably or uncontrollably. Some ambitious endeavors, such as curing a cancer, are very costly. That said, costs are mostly known and quantifiable. We know how much it costs for medical school education, to research, test and get approval for a new drug. We can calculate the costs of regulatory compliance, building a hospital or obtaining lithotripsy technology. The real issue is whether we are going to pay the costs or simply pretend to pay them.

Obamacare is a confidence game. It appears financially viable because the system is kept afloat through price control and cost-sharing mechanisms. Insurers losses are concealed and remedied with risk corridors. Medicaid expansion was achieved by the feds assuming the state’s Medicaid responsibilities for new enrollees. Exchange insurance premiums are massaged downward by subsidies and the mandatory participation of those enrollees conscripted by threat of penalty.

The prices ultimately charged to individual consumers bear little relation to the actual costs of insuring their risk. Understating costs through price control schemes is an effective means of securing voter loyalty. The individual consumer does not care much about costs generally; he cares only about the price he is charged. Still the gap between prices and costs must be bridged. We should debate whose dollars will close that gap. Failing that, Obamacare or the Trump alternative is the same fraud as Social Security.

Obamacare is house of cards. So, how does Republican reform differ?

Obamacare vastly increased the number of insureds. The ACA encouraged the Medicaid expansion by raising the income eligibility threshold and paying all of the state’s obligations for new enrollees from 2014 through 2017. But next year is 2018 and every state that expanded Medicaid now has higher enrollments plus financial obligations that the feds have been paying for the past several years.

74 million people are now covered by Medicaid and SCHIP. Most are exempt from premiums and the co-pays and deductibles, where applicable, are nominal. In the same vein, only 15 percent of the exchange subscribers pay their full premium without subsidy. Some of the exchange customers are also eligible for relief from their out-of-pocket obligations. So, we have a tsunami of consumers, many of whom pay only a fraction or nothing for their benefits.

With the exception of Rand Paul, there is an absence of brave talk coming from Republicans. Their secret plan seems to include additional funding for the Medicaid expansion, maintaining the subsidies, continued funding of the risk corridors, leaving much regulation intact etc. Basically, the Pelosi plan without the celebratory press conference.

Republicans have three choices: They can postpone or proceed divided to a vote, effectively defeating their own legislation and regroup. Second, they could pass a straight repeal and resign themselves to making bipartisan magic with the Democrats.

The third course is the most tempting.  Negotiate a Republican-only compromise to get to 50 votes and declare victory. But three months out, it will be painfully clear; while the sign above the bar reads Obamacare, the Republicans own it now.

I am sure of this much: If Republican health care reform leaves the individual mandate intact, precludes the purchase of catastrophic care and high deductible plans and fails to create a national market for health insurance, the die is cast for the GOP. Republicans will have morphed into Flyover Democrats.

There is no way to finesse this. Republicans bungled their signature issue from day one. Choose door number one.