March 22 (Bloomberg) -- Let’s play a game: I’ll describe a health-care bill to you. Then you tell me if I’m describing President Barack Obama’s Affordable Care Act or the budget released this week by Representative Paul Ryan.
The bill works like this: The federal government subsidizes Americans to participate in health insurance markets known as “exchanges.” Inside these exchanges, insurers can’t discriminate based on pre-existing conditions. Individuals can choose to go without insurance, but if they do so, they pay a penalty. To keep premium costs down, the government ties the size of the subsidy to the second-least-expensive plan in the market -- a process known as “competitive bidding,” which encourages consumers to choose cheaper plans.
This is, of course, a trick question. That paragraph describes both the Affordable Care Act and Ryan’s proposed Medicare reforms. The insurance markets in both plans are essentially identical. And for good reason.
The Affordable Care Act was based on two decades of Republican thinking about health care. The basic structure was first proposed by the conservative Heritage Foundation in 1989, first written into a bill by Senate Republicans in 1993, and first passed into law by a Republican governor by the name of Mitt Romney in 2005.
About 2008, Democrats decided they could live with a system based on private health insurers, federal subsidies and an individual mandate as long as it produced universal coverage. A year later, Republicans decided they couldn’t live with such a system, at least not if a Democratic president was proposing it.
‘Repeal and Replace’
The problem for the Republicans, however, is that they don’t have a better -- or even alternative -- idea. Since the passage of the Affordable Care Act, “repeal and replace” has been a reliable applause line at Tea Party rallies and an oft-uttered incantation on the floor of the House of Representatives. But while Republicans have united around “repeal” of health-care reform, they haven’t managed to come up with a policy for “replace.”
Instead, they’ve opted to apply their old policy framework -- the one the Democrats stole -- to Medicare. That has left the two parties in a somewhat odd position: Democrats support the Republicans’ old idea for the under-65 set, but oppose it for the over-65 set. Republicans support the Democrats’ new idea for the over-65 set, but oppose it for the under-65 set.
This isn’t quite as incoherent as it seems. Democrats say they would prefer Medicare-for-All for the under-65 set, but they’ll take whatever steps toward universal health insurance they can get. Republicans say they would prefer a more free-market approach for the over-65 set, but that a seniors’ version of “Obamacare” is nevertheless a step in the right direction. For both parties, it’s the direction of the policy, rather than the policy itself, that matters.
There’s an added complication for Republicans. They have assumed huge savings from applying the exchange-and-subsidies model to Medicare. But they don’t assume -- in fact they vehemently deny -- that those same savings would result from the identical policy mechanism in the Affordable Care Act. The Democrats haven’t assumed significant savings from the exchange-and-subsidies model in either case. If the concept works as well as Ryan says it will, then the Affordable Care Act will cost far, far less than is currently projected. There’s no compelling reason to believe competitive bidding will cut costs for seniors but fail among younger, healthier consumers who, if anything, are in a better position to change plans every few years and therefore pressure insurers to cut costs.
The discrepancy highlights another difference between Republicans and Democrats right now. Republicans have put all their eggs in the competitive-bidding basket. If that doesn’t work to control costs -- and versions of it have failed in the past -- they’re sunk.
Democrats, on the other hand, are promoting a slew of delivery-system reforms in the Affordable Care Act. They’re hoping competitive bidding works, but they’re also trying comparative-effectiveness review, pay-for-quality, accountable-care organizations, electronic health records, penalties for excessive readmissions and medical errors, and a host of other experiments to determine which treatments and processes actually work and how to reward the doctors and hospitals that adopt them.
It’s unlikely that the model in the Republican budget will prove sustainable. That legislation would repeal the Affordable Care Act, cut Medicaid by a third and adopt competitive bidding for Medicare. The likely result? The nation’s uninsured population would soar. In the long run -- and quite possibly in the short run -- that will increase the pressure for a universal system. Because Republicans don’t really have an idea for creating one, Democrats will step into the void.
As a result, Republicans’ long-term interests are probably best served by Democratic success. If the Affordable Care Act is repealed by the next president or rejected by the Supreme Court, Democrats will probably retrench, pursuing a strategy to expand Medicare and Medicaid on the way toward a single-payer system. That approach has, for them, two advantages that will loom quite large after the experience of the Affordable Care Act: It can be passed with 51 votes in the Senate through the budget reconciliation process, and it’s indisputably constitutional.
Conversely, if the Affordable Care Act not only survives but also succeeds, then Republicans have a good chance of exporting its private-insurers-and-exchanges model to Medicare and Medicaid, which would entrench the private health-insurance system in America.
That’s not the strategy Republicans are pursuing. Instead, they’re stuck fighting a war against a plan that they helped to conceive and, on a philosophical level, still believe in. No one has been more confounded by this turn of events than Alice Rivlin, the former White House budget director who supports the Affordable Care Act and helped Ryan design an early version of his Medicare premium-support proposal.
“I could never understand why Ryan didn’t support the exchanges in the Affordable Care Act,” Rivlin says. “In fact, I think he does, and he just doesn’t want to say so.”
(Ezra Klein is a Bloomberg View columnist. The opinions expressed are his own.)
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