Yesterday, Representative Paul Ryan (R–WI) shared his outlook for repealing and replacing Obamacare.
Ryan pointed out that rising health care costs not only make insurance unaffordable for many Americans; they are also a main driver of growing federal deficits. As medical inflation pushes the cost of insurance and medical goods and services sky high, the cost to taxpayers of Medicare, Medicaid, and the new open-ended entitlements created in Obamacare goes up as well.
Adequately addressing rising costs will require pinpointing the root causes of medical inflation. Ryan defined these as over-utilization, under-payments, and inefficiency stemming from the detachment of consumers from the costs of their health decisions in a third-party system. The irony, as Ryan put it, is that “the system that shields us from the cost of services has actually left us paying more.”
Rather than restoring much-needed market forces to the health care system, Obamacare doubles down on government price controls and open-ended entitlement spending. However, the left’s health care agenda is not inevitable. Ryan outlined an alternative plan that would allow for a fundamental shift in the incentives facing all key players in the health care system. As he put it, “Our plan is to empower patients; their plan is to empower bureaucrats.”
Ryan’s proposals would restore the patient as “the nucleus of the health economy,” since patients would no longer play a passive role in the decisions that determine their health benefits or the care they receive. The three main changes suggested by Ryan bear many similarities to reforms included in Heritage’s own Saving the American Dream proposal:
- Moving Medicare to a premium-support system. By transforming the way seniors receive their health benefits from the government, they would be able to “enroll in the health plans of their choice and receive a defined contribution (known as premium support) toward the cost of their plan…. The premium support will be sufficient for seniors to afford an adequate level of benefits, regardless of age or health care condition.”
- Moving Medicaid to a block grant system. “In exchange for the capped federal allotment, states are granted considerable new flexibility to manage and administer the restructured Medicaid program to meet its mutual federal and state objectives. This means that states are granted broad discretion and authority to meet general objectives and outcome measures. States that wish to try very different approaches to better serve and improve health care quality for these key populations would have additional authority beyond the normal waiver process.”
- Tax reform to replace the flawed tax treatment of insurance. “The current individual tax exclusion for employer-sponsored health insurance and other tax mechanisms are replaced with a non-refundable fixed tax credit for households to purchase health coverage…. This change is needed because under today’s system, the tax code provides unlimited tax breaks only to those workers who receive coverage through their employers. Workers cannot use this tax break if no plan is offered through their employers or if they simply prefer a plan other than their employer’s…. The exclusion provides little or no help to lower income workers who are struggling to afford coverage for their families.”
Structural flaws are to blame for making coverage unaffordable and inaccessible for millions of Americans. At the same time, no incentives exist to deliver the best quality of care available at the lowest price possible. The reforms Ryan outlines would start to reverse these fundamental shortcomings and put patients in charge of their care. His plan would offer, as Ryan put it, “real security instead of empty promises.