What Romney should do on health care

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Americans believe in second chances. Mitt Romney will get his if the Supreme Court rules to throw out part, or all, of the president’s federal health insurance law. Should Romney propose replacing it with a federal version of the Massachusetts health law or a federal mega-bill that mandates a one-size-fits-all free-market solution?

The question is now central to the election — the high court has made that certain — and eclipsed in importance only by the debate over jobs and the economy.

President Obama may cite Romney’s Massachusetts reform as an inspiration for his own efforts, but there are profound differences between the laws — the size and reach, financing, the underlying philosophy. Romney sought an open marketplace for individuals to purchase benefit plans ranging from catastrophic to generous. Romney’s successor, Democratic Governor Deval Patrick, has obscured those differences by taking a big-government approach to implementation, drastically limiting choices and mandating minimum coverage levels beyond private-market norms.

Even with weak implementation, the Massachusetts law has yielded some positive results, including broadening insurance coverage, especially for minorities, and decreasing premiums for individual purchasers of insurance.

Candidate Romney must, however, do more than defend the decisions made in Massachusetts as “a state solution to a state problem.” Last week Romney previewed some of his thoughts in a speech in Orlando, but he should go farther.

Romney needs to articulate a set of reforms that address key issues of fair treatment under the tax code, pre-existing conditions and the solvency of Medicaid; and he needs to do it in a way that leverages the strengths of our federal political system to lead the country toward a national consensus.

Any solid reform package should do the following:

Encourage individuals to become active participants in the health care they receive. Part of the solution is to break the preference in the federal tax code for individuals who purchase health insurance through their employers. We should stop penalizing individual insurance purchasers and small-business employees, and Romney should focus on letting these groups control their health care dollars by providing them with refundable tax credits.

Cover Americans with pre-existing conditions who may be denied affordable insurance when between jobs. Currently, between two and four million Americans have pre-existing conditions; only a small fraction of these Americans are between jobs. Past state experiences suggest that we can address this problem at a cost of $100 billion to $200 billion over 10 years, not the $1.75 trillion to $2.5 trillion required by Obamacare. Specifically, the federal government can fund high-risk pools administered by the states, and extend consumer protections already in place for millions on employer insurance to protect those who maintain continuous coverage and are purchasing insurance on their own.

Convert Medicaid into a per capita block grant. With broad authority over Medicaid, states can lift more people currently eligible for Medicaid into the mainstream market, and give non-elderly, non-disabled enrollees the ability to choose among plans, rather than be merely passive recipients of Medicaid services. The result is better coverage for the poor and lower costs.

And most importantly: Heed the lessons from the last major entitlement fix, welfare reform, which demonstrated that political settlements require respect for the states. The imposition of an unknown, nationalized health insurance program on the entire country has led to broad and durable popular opposition, and 26 state attorneys general acting as plaintiffs before the Supreme Court. The “Obamacare approach” will not gain political settlement (and be funded by Congress), even if it passes Supreme Court muster.

President Clinton built the Welfare Reform Act of 1996 on President Reagan’s strategy of granting waivers to states, allowing them to experiment with various alternatives but holding them accountable for results. Waivers allocated to governors from both parties catalyzed state innovation and produced empirical evidence about what worked — and what didn’t.

By 1996, while hotly contested in D.C., the public debate in the states was over: Citizens across the country had seen and read about these reforms and understood them. Romney should propose another “great experiment,” setting clear goals and granting states the flexibility to innovate based on their unique market structures and populations.

The federal health care law is doomed to fail either in the court of law or in the court of public opinion. If we are given a second chance, Romney would be wise to articulate federal fixes to the unfair federal tax preference for employer-based insurance and the problem of Americans with pre-existing conditions being unable to purchase affordable insurance. But he should resist the D.C. impulse to fix the whole problem, instead setting measurable goals and holding states accountable for innovating and delivering results.

Jim Stergios is executive director and Josh Archambault is director of health care policy at the Pioneer Institute in Boston, publisher of “The Great Experiment: The States, The Feds and Your Health Care.”