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Republicans Never Grasped the Healthcare Challenge

The problem is the insurance system.
mitch mcconnell

It was hard to get excited about the Republican plans for repealing and replacing Obamacare. And now that the effort has failed, it’s hard to feel especially sorrowful.

In typical fashion for the Republicans, there was never any solid message as to what exactly a repeal of Obamacare meant, or what should be done to replace it, if anything. The various bills offered up were a constantly-shifting myriad of suggested policies, most of them extremely milquetoast and wonkish. Not surprisingly, the public never managed to care about them.

Even casual observers could see that the so-called repeal was never anything more than some tinkering with policy meant to provide a political victory for Republicans while doing little to improve the lives of average Americans.

The Senate version, for example, only slightly trimmed Obamacare taxes while adding an onerous provision providing bailouts—paid for by taxpayers—to huge insurance companies. Rand Paul may have been right when he suggested the Senate plan was even worse than the Obamacare status quo.

The Senate leadership has now shifted to promoting a repeal-only plan, but the repeal-only proposals do little to actually address the problem of upward spiraling healthcare costs generated by government mandates and subsidies.

Obamacare was seen as a solution by many because it created new ways to subsidize healthcare, which would allow for the expansion of more government-subsidized medical services. Obamacare—in theory—paid for more subsidized healthcare by forcing young healthy people to buy insurance they didn’t want or need.

If the GOP managed to pass a repeal-only plan, costs would continue to increase rapidly, but the GOP would then be stuck with the blame for cutting subsidies and “reducing access” to healthcare. Thus, it’s not hard to see why many Republicans from swing states continue to be reluctant to support repeal.

The Pre-Obamacare World Is Nothing to Pine For

Thanks to more than 70 years of government meddling, the American healthcare system was already broken long before Obamacare came along. Decades of massive subsidy programs have accelerated price growth and favored certain monopolistic health care providers that cater to government programs. Governments have also limited supply of basic coverage by imposing an endlessly growing regime of regulations on the industry. Prior to the 1960s—before the introduction of Medicare and Medicaid—healthcare prices had been stable. They have since exploded.

The ways that the healthcare system is structured, regulated, and controlled by state intervention are so vast and varied as to be impossible to even describe in limited space. The very fact that we think of healthcare as a type of insurance is itself a government creation, as is the entire licensing and regulatory monolith that so severely limits services.

Because of this, returning to the status quo of eight years ago would hardly be a victory for freedom and free markets. Moreover, the United States has been one of the biggest spenders on healthcare in the world per capita. With the exception of Norway, Luxembourg, and the Netherlands, the United States tops every other nation in terms of the size of its healthcare welfare state. These trends pre-date Obamacare.

What the GOP Should be Doing

If GOP politicians really wanted to do something to improve access, reduce costs, and generally improve the lives of Americans, they’d quit with the grandiose repeal schemes. They’d simply focus on passing reforms that open up healthcare markets to competition, and allow consumers to circumvent the subsidized and regulated healthcare system.

It’s true that reducing subsidies—which themselves drive up prices by increasing demand—are still political suicide for many elected officials. But, the supply side of healthcare offers immediate opportunities for reform.

What can be done?

First of all, it is important to lessen the reliance on the insurance model of healthcare. The use of insurance as the primary means for distributing healthcare services is largely a post-World-War-II government invention, and thanks to government created tax and regulatory incentives, the insurance model has displaced ordinary market transactions in which consumers pay a fee for a service.

Many have been trained to recoil in horror at the thought of reducing the role of insurance, of course. Thanks to the power of the status quo, many now equate the idea of health insurance with healthcare itself. And yet, this is not true in any other industry—even those that are necessary for life’s basic necessities. There is no “food insurance” for example. Auto insurance exists, but is nothing like health insurance since it covers only rare accidental events.

Cash-for-service industries—whether groceries, or mobile phones, or dental case—continue to see increases in quality while prices remain far more stable than healthcare prices. Food budgets, for example, now take up less of our overall household spending than was true in the past. We certainly can’t say the same for healthcare.

To wean us off the insurance model, tax codes and regulations must be changed to stop giving preference to the use of insurance by employers. Tax-free health savings account must be expanded and tax credits for healthcare spending must spread. Flexibility for group coverage must be expanded beyond employer-based healthcare, and markets must be opened to more providers willing to be flexible and meet these needs.

Simultaneously, governments must get out of the way so service providers can compete and expand. We already know this will happen thanks to facilities like the Oklahoma Surgery Center which openly and competitively lists its prices for services.

Unfortunately, healthcare providers—and potential healthcare providers—are limited by government fiat in the number of facilities that can be built, the number of personnel that can be licensed, and the types of drugs that can be prescribed and imported. Americans will travel to other counties such as India to find lower-cost care from foreign doctors. But those same doctors are kept out of the United States by immigration and licensing laws. Healthcare facilities cannot be built in many places without special permission from state and local governments.

If one wanted to construct a system that kept healthcare prices high, this is a way to do it.

On the other hand, reducing costs, increasing flexibility, and moving beyond the insurance model should be the focus for healthcare reform going forward.

Ryan McMaken is an editor and economist with the Mises Institute.