Wednesday, March 22, 2017

The Thelma and Louise Healthcare Bill

A 1966 Ford Thunderbird convertible is an awesome ride (…or so I’m told), but if you drive one off a cliff you’ll quickly find it makes a horrible airplane.  Similarly, our government was designed to do a few things well, but when we ask it to do other things, it’s like asking a car to fly.

That’s what happened with Obamacare.  Democrats duct-taped some wings on a car, and then drove it off a cliff with all of us onboard.  Republicans will ultimately fail if their fix is merely an improvement on that flying-car model.  That seems to be where they're headed.  

Instead, Republicans and Democrats should scrap the flying-car model entirely and perform a complete separation of car stuff from airplane stuff.  Then they should allow the people who design and build the best cars to do their job, and allow their counterparts in the airplane business to do theirs. 

Of course, I’m not suggesting Boeing or GM be involved in replacing Obamacare.  The point is, there are some things the public sector must do, and everything else should be left to the private sector. Any healthcare bill that continues blending those two dissimilar functions will be as successful as Thelma and Louise.  

Healthcare, being a dynamic, complex, service-oriented market is precisely the kind of thing governments are ill equipped to micro-manage.  Like an airplane, healthcare markets are moving at breakneck speed, must be able to change course instantaneously, and are operating in turbulent three-dimensional space.

On the other hand, providing a safety net, which is essential in healthcare, is precisely the kind of thing the public sector must do.  But like a car designed by bureaucratic committees, the public sector is perennially underpowered, overweight, low on fuel, and operates on a one-way dirt road that only allows direction changes every four years.  Public sectors work best if they keep things simple, realistic, and have a clearly defined mission.

Obamacare was nowhere near our first foray into the flying-car model.   We've been moving in that direction since WWII when Democrats under Franklin Roosevelt allowed the tax code to subsidize employer paid insurance while allowing no such subsidy for individuals.  Democrats under Lyndon Johnson in the 1960s made the next big misstep by creating socialized healthcare for seniors and the poor known as Medicare and Medicaid.  The only thing Obamacare did was to take those not covered by the existing socialized healthcare system, and put them under a new poorly designed government micro-managed system.     

The reason these socialized healthcare systems are unsustainable, especially in the U.S., is the same reason Thelma and Louise couldn't fly: our form of federal government was designed for other things. 

For any airplane to fly safely, there must be an instantaneous response from the controls to the flight surfaces.  Similarly, for markets to function there must be an instantaneous response from buyers to sellers.  Nothing like that can happen within our federal system of checks and balances and constitutional limitations.  

Since Obamacare, every single American covered by health insurance has at least two thick layers of bureaucracy between them, the buyers (patients), and the sellers (doctors, hospitals, providers).  All told, about 95% of Americans get their health insurance from either the government (federal, state, and local) or their employer.   That leaves only about 5% of the population that actually buys their own health insurance.  Thanks to Obamacare, even those in the individual market are now smothered in thick bureaucratic layers.    

Unless and until health care and health insurance become primarily consumer markets, something the vast majority of Americans pay for on their own, there will never be a true functioning market.  As long as there are a minimum of two levels of bureaucracy between buyers and sellers, price, quality, speed, access, and satisfaction will all suffer.

But that doesn't mean government cannot provide a proper safety net while allowing a functioning individual free market.  In fact, it points to the solution.   

You see, the idea of direct linkage applies to cars as well.  Like airplanes, cars must have instantaneous response to steering, brakes, and power, or they too will crash.   

When the federal government provides a safety net there is a critical break in the linkage between buyers and sellers.  The reason is, the federal government has access to what appears to be free money.  Having access to the world’s reserve currency makes borrowing and printing dollars deceptively easy.  Politicians can over-promise and under-fund without negative short-term consequences. This is an illusion that eventually backfires on every society that's ever tried it long term.

To avoid this problem states must be the safety net providers.  States are forced to be more realistic, more practical, and more skilled when providing safety nets.  They are closer to the facts on the ground and cannot access money without repercussions. If states want to provide a high-cost safety net, they must be willing to tax their citizens accordingly.  That forces a discipline that the feds can too easily cheat their way around.

In its current form, the AHCA slated to be voted on tomorrow, is a capitulation to the flying-car model. GOP leadership claims this is necessary because Senate rules place certain provisions of Obamacare out of reach due to the threat of Democrat filibuster.  Ted Cruz has put that excuse to rest by pointing out that VP Mike Pence, who is the President of the Senate, can overrule the parliamentarian.  Repeal and replace can be done through reconciliation in one fell swoop based on existing law.  

The real reason the GOP won't do this is that they do not have enough members who believe in the efficacy of free markets!  The GOP is NOT a majority free market party.  Despite that sad reality, here is the way to once-and-for-all end the Thelma and Louise approach to healthcare.  

As Ronald Reagan used to say, “There are simple solutions - just not easy ones.”  The following specific proposals are not meant to be what’s easy, just what’s simple: 

  • Repeal Obamacare entirely.     
  • Repeal Medicaid entirely.   
  • Repeal Medicare entirely.  
  • Give states a year to come up with their own solutions to provide coverage to those unable or unwilling to obtain care in the private market.  Until then, provide fully funded closed-end block grants. Give insurers a year to establish new plans.
These changes will place the safety net at the state level where it belongs, while at the same time allowing for the transition.  Federal taxes will go down and state taxes will necessarily go up, but overall, costs will go down because there will be less waste, fraud, and abuse when states are in- charge.  
  • Make the playing field between employer paid and individual paid insurance tilt towards the individual.  
This can be done by providing refundable federal tax credits to individuals as the AHCA does, and/or, change the tax law so that employees must declare the value of their health insurance as income for tax purposes, and/or, disallow companies from deducting healthcare costs and lower payroll taxes by a commensurate amount.  These changes will establish a competitive, individual, free market for health insurance and health care.  Costs will go down, people will be able to buy what they want, providers will be free to practice as they wish,  innovation will flourish, drug prices will go down, medical care will improve.  
  • Repeal The McCarran Ferguson Act.  
This will allow insurance to be sold across state lines.

  • Provide private insurance to replace the VA system.
  • Convert the vast VA system into a "caregiver of last resort" during the transition for anyone who falls through the cracks of the state safety nets.  After the transition, the states can use and fund their VA facilities in any way they wish.        
This will establish a "safety net for the safety net" during the transition and give the states valuable real estate and medical facilities. 

Those are the simple things we can do.  The problem is that we have two parties and two incompatible visions for the future of healthcare. 

Democrats have been dreaming of a federal government healthcare takeover for over a century.  Republicans tend to prefer a free market with a safety net, but they have capitulated to the idea that healthcare is a "right".  That impasse is how we’ve ended-up with the worst of both worlds - the flying-car healthcare system.

It’s time to be honest and separate the two functions.  Let the free market function in healthcare, and let state governments transparently tax and spend to provide a proper safety net.  Let planes be planes, and let cars be cars.

I never said it would be easy, but it really is quite simple.

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