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How to turn Obamacare into FreeMarketcare in 4 (sort of) easy steps

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If you posit that the Patient Protection and Affordable Care Act is here to stay, then what? One possibility for advocates of consumer-driven health reform is to embrace the health care reform law. Like, really embrace it. To the max.

Obamacare for All.

Look, we need real reform to stem health care inflation and efficiently and sustainably modernize America’s social safety net along market-friendly principles. In a recent blog post, Avik Roy outlines a fairly simple and straightforward way of doing this.

1. Deregulate the state exchanges, while capping subsidies.

2. Slowly shift Medicare patients into the exchanges.

3. Let more people buy insurance on their own rather than through their employer.

4. Move Medicaid patients into the exchanges.

The result would be a more coherent system where more Americans would be buying health insurance on their own from private insurers competing hard for their business. More Americans would be acting as involved consumers. “Under an Obamacare-ified Medicare system,” Roy writes, “upper-income seniors would no longer be eligible for the program, saving trillions of dollars. And growth in Medicare and Medicaid spending would be defined by a sustainable growth rate, rather than a blank check.”

It’s a system that would look a lot like Switzerland’s. And that’s a good thing. Roy:

The Swiss enjoy a unique combination of universal coverage and free-market health care that the U.S. could come to resemble. The Swiss use a premium-support model that is similar in many ways to the various Paul Ryan proposals for Medicare, and also to the Obamacare exchanges.

There are no government-run “public options” in Switzerland—everyone buys private-sector insurance in a regulated market. But the Swiss make sure everyone gets coverage by offering low-income citizens a subsidy, on a sliding scale, to buy coverage. The system works reasonably well, and the Swiss government spends less than 3% of GDP on health care, compared to nearly 8% for the United States.

Economist Regina Herzlinger also describes how the Swiss system works:

There are no government health insurance programs. Instead, the Swiss choose from about 85 private heath insurers. Rather than being stuffed into the degrading Medicaid program, the Swiss poor shop for health insurance like everyone else, using funds transferred to them by the government. The sick are not discriminated against either — they pay the same prices as everyone else in their demographic category. Like the US, Switzerland is a confederation of states that, as in the US, oversee the insurance system. Enforcement by the tax authorities has produced 99 percent enrollment.

This consumer-driven, universal coverage system provides excellent health care for the sick, tops the world in consumer satisfaction, and costs 40 percent less, as a percentage of GDP, than the system in the US. The Swiss could spend even less by choosing cheaper, high deductible health insurance policies, but they have opted against doing so. Swiss consumers reward insurers that offer the best value for the money. These competitive pressures cause Swiss insurers to spend only about 5 percent on general and administrative expenses, as compared to 12-15 percent in the US. And unlike Medicare, the private Swiss firms must function without incurring massive unfunded liabilities. Competition has also pushed Swiss providers to be more efficient than those in the US. Yet they remain well-compensated.

We can also learn from the mistakes made by the Swiss. For example, they pay providers for fragmented care, rather than for integrated treatments for diseases or disabilities. The Swiss sustain an inefficient hospital sector, and they aren’t transparent about the cost and quality of providers.

Under this system, there would be still be constant battles over regulations and benefits and subsidies. But bottom-up, market forces would be more involved in rationalizing the sector, particularly for poorer Americans and older Americans. The transformation would also would makes it less likely the US ever moves to a truly nationalized, government-run health care system since Medicare would morph into a de facto premium support system. And politically, it would automatically give Republicans a broad health care agenda beyond “repeal and replace with something or other.” Roy presents an intriguing plan worthy of more debate and study.

8 thoughts on “How to turn Obamacare into FreeMarketcare in 4 (sort of) easy steps

  1. While it begins to add competition back to the health care system, the other part of the inefficiency of th USA system is requiring prepaid health care administered by an insurance system. Move to a true insurance model with say an HSA based system and all of the administrative costs on both the MD and insurance co sides drop. If you keep prepaid health care the MD’s still have a 40-60% overhead to deal with in order to get paid. Once consumers are paying with HSA $ their incentive to shop around and the ability to pay as service is provided will drop prices and increase quality while making fraud more difficult to hide.

    • always found it curious since we already allow HSAs .. why they have not revolutionized health insurance in general and I can only surmise that tax-free, comprehensive health care benefits are “outcompeting” HSAs.

      no?

      so.. what would happen if the tax-free subsidy for employer-provided health insurance went away?

  2. Market forces work well in health care in many respects, but there is an 800-pound gorilla here which the Swiss understand (as does Avik Roy) but the author here seems to forget. Much of what goes into a health insurance premium is what the insurer has to pay the doctors and hospitals for services for its enrollees. When lots of insurers are trying to compete in a market with a few dominant hospitals, for example, the hospitals can essentially act as monopolies (“You insurance company X, I won’t take your subscribers unless you pay me $100,000 for a hip replacement surgery,”). Research has shown that premiums are actually lower in the US when you have fewer insurance companies competing for exactly this reason – they have more negotiating power vs. the hospitals.

    Switzerland has solved this problem (as has Medicare and Medicaid) by setting hospital and physician prices. They also set a basic benefit package. That frees up the insurers to compete on service, efficiency and lower administrative costs. In the US, until we solve that issue, dumping Medicare and Medicaid folks into the exchange will raise costs enormously because Medicaid pays hospitals and docs half of what private insurers do (and Medicare, about 3/4ths).

  3. Or would shifting to a “freemarket” system mean healthcare costs rise while quality decreases as greedy executives cut costs (cut corners) and award themselves with bonuses and raises while manipulating the regulatory system to benefit their industry.

    Not that history repeats itself or anything…

  4. One more thing: remove most mandated coverages. Allow consumers to self-insure the first $5000/year for all outlays. Don’t require policies to pay for acupuncture or talking psychotherapy or experimental (quack) therapies.

    It’s mandated coverage that is boosting my premium from $295/month now to $587 under PPACA.

    • What ACA is going to do – if it succeeds, is essentially destroy employer-provided health insurance and many companies are more than willing to let it happen because long before ObamaCare – the costs of providing health insurance as a “benefit” were skyrocketing – anyhow.

      Employer-provided health insurance is as much a dinosaur in the global economy as defined benefit pensions were.

      American companies are competing against global competitors that have no embedded health insurance costs in their products.

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