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GB: Let’s start with the House-passed bill, the American Health Care Act. It’s obviously going to change in the Senate one way or another -- [there] may be significant renovations, maybe minor renovations but as it stands right now, if you were making a case to a conservative audience about why it’s a good bill and why it accomplishes important, conservative goals, what would that case look like?
LC: There’s a couple things, first of all I think you have to look at the kinds of reforms that were in the bill particularly as it pertains to the entitlement systems, Medicaid in particular. Medicaid is a program that is growing rapidly, Obamacare expanded Medicaid significantly and it frankly is a program that many conservatives out to look at and say this is not, this is not my ideal program when I’m thinking about how to have a high performing healthcare system, very much mandate driven, very much driven by a sort of notion of the federal government knowing best what a healthcare plan should look like. So what the House passed bill does is it actually fundamentally reforms the Medicaid program in a way that I don’t think we’ve seen reform of entitlements this significant in modern history. It really rolls back a lot of the open-ended nature of Medicaid.
Medicaid as it is now basically is a program where states spend a certain amount of money, the federal government’s on the hook for a percentage of that amount of money, and states have no restrictions on how much money they spend so it’s an open-ended entitlement for the American taxpayer that the American taxpayer’s on the hook for and what the Republican bill does is it begins to restore some semblance of fiscal responsibility to the program by saying instead of giving states this incentive to spend as much money as they want on this program, we’re going to give states a set amount of money that we’re going to grow every year based on medical inflation and we’re going to calibrate that amount of money based on what kind of patients you have in your Medicaid programs so you’ve got sick people in Medicaid the feds will pay the states a little bit more than people who are healthy. And so this change in Medicaid is something I think every conservative should be for frankly it’s something that we in the conservative movement have talked about for a long time so that’s a very encouraging thing.
The second thing I’ll just say is that I think that the bill begins to take steps toward curbing a lot of the regulatory excess of Obamacare. What do I mean by that? It gives states the ability to opt out of Obamacare’s what I believe are some of the worst mandates and requirements in Obamacare that have driven up premiums, restricted competition on the individual market, and things like for example the requirement that plans have to cover a specific number of benefits that are determined by the federal government so the federal government says every plan has to include benefits across these ten categories of what are known as essential health benefits, the House passed bill gives states the options to opt out of that, it gives them the option to opt out of the requirement for example that you have to, as an insurer, charge everybody the same thing at the same age regardless of their health status. That also by the way has driven up costs. So it takes a lot of the regulatory requirements that I think a lot of people on the left have tried to sell as really important innovations when in actuality what they’ve done is restricted competition, increased cost, and frankly they’ve made it harder to get access to health insurance for people so those are the two things that I would point out, regulatory reform and reform of Medicaid that are really big accomplishments in the AHCA.
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GB: A lot of the national debate in the press about the bill touches on and surrounds covering people with pre-existing conditions. I’ve written extensively about how a lot of the rumors and claims about the bill aren’t true and that there are multiple layers of protections for people with pre-existing conditions in the Republican bill. But you argue that while of course it’s an important question overall, that we are spending a disproportionate amount of time discussing this issue which is actually quite narrow in terms of the number of people affected can you just explain in the broad base of the American people why is it strange in your mind that we are really fixated on this very narrow group, ultimately?
LC: Yeah so the vast majority of Americans, about 160 million Americans, get their health insurance through their employers and most of the people that are reading this probably will fall into that category, they’re going to get health insurance through their employers and Obamacare did very, very little frankly to help or to impact that coverage so if you’ve got a pre-existing condition and you work for an employer chances are it’s not a problem for you, even when you go from one employer to another employer. You’re going to remain covered in the vast majority of circumstances. The challenge arose for people who weren’t getting coverage through their employers or through Medicare or Medicaid, the two big government entitlement programs in healthcare. In that population of people on what we call the individual market, people who were buying health insurance on their own and by the way that
GB: Which is how many people?
LC: Well, the numbers vary but I think by and large you’re looking at tens of millions, you’re probably looking at somewhere around 20 million people. And it varies because there are different reasons why people are on the individual market, sometimes you might be between jobs and you might go an extended period of time of unemployment then you might be on the individual market. You might be a gig employee, right, you’re working in the gig economy so you don’t work for an employer that has health insurance. There’s all sorts of different reasons why you might be in that ballpark but to be clear it is not the majority of the American people. It’s actually a small percentage of the American people and then you can drill down even further which is what are, who are the people within that tens of millions, let’s say 20 million, who have a pre-existing condition that posed an issue for coverage before Obamacare then that number’s even smaller. Now the estimates vary, some of my colleagues at the American Enterprise Institute for example have concluded that we might be looking at 4 or 5 million people, other estimates put the number closer to 10 or 15 million.
Whatever the number is it is not the orders of magnitude that some of the supporters of Obamacare suggest so I’m not giving this analysis to suggest that pre-existing conditions are not an important issue, they are an important issue for people who suffer from them and they’re an important issue for people who weren’t able to get affordable coverage because of those conditions before. What I am saying though is that that number of people is smaller than most Americans realize so in designing a healthcare program to reform the system there are all sorts of different goals you can have. One of the stated goals of Obamacare, in fact one of the primary stated goals of Obamacare, I mean even if you look at the coverage recently around the Jimmy Kimmel monologue and Barack Obama reappearing and saying how important Obamacare was, what they really talk about is pre-existing conditions. My point is simply if they wanted to solve that problem they could’ve done it in a much more targeted, much more specific, and less costly way.
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GB: Way less costly.
LC: Oh not even close. I mean it’s, you’re talking about 150 billion dollars over ten years compared to 1.4 trillion. It’s not close and so we need to be clear about what this debate is over and conservatives need to be clear in particular when we’re having this debate with our friends on the other side about the fact that we would love to be able to address the issue of pre-existing conditions. We want to make sure that everyone has access to affordable coverage, we just don’t believe in upending the healthcare system to do it.
GB: The whole thing. So now we’re staring at this pile of paper, it’s the House passed bill, it’s over at the other end of the hallway on Capitol Hill and the Senate is now getting ready to do it’s thing. What do you believe are the most important things that need to be addressed that are flaws in the House passed bill? One thing that I know is widely accepted by economists and healthcare wonks on, across the spectrum, is there’s a certain subset of people on the individual market who are within ten years of retirement age -- so 55 years old to 64 years old -- who are working class. They aren’t Medicaid eligible...but they’re getting close to being Medicaid eligible, under the Republican bill that came out of the house, their tax credit to go buy healthcare is really inadequate in terms of what they would be charged and they would be priced out. How can that problem be fixed? And I assume it’s going to involve more money, how do you pay for that?
LC: So the challenge with the House passed bill, one of the challenges is that it does set up a system of tax credits to help people who are not getting health insurance from their employers and not getting it from Medicare or Medicaid, to help them acquire private health insurance coverage and those tax credits vary based on age. Obamacare has tax credits as well by the way but they vary based on income so the less you make the bigger your tax credit.
GB: Is there a meaningful difference between tax credits and subsidies?
LC: Not really, in the sense that you know they all come out of the federal taxpayer’s bottom line. We might characterize them differently for accounting purposes but at the end of the day, money spent is money spent so I don’t tend to see a huge difference but the tax credits in Obamacare vary based on income, the tax credits in the American Health Care Act which is the GOP bill, vary based on age. Now age is actually a pretty good proxy for how much you pay for healthcare generally speaking, even under Obamacare, the older you are the more you’re going to pay -- so what the House Republican bill does is it gives tax credits for seniors for example, near seniors, that are more generous than tax credits for people who are 21 and that makes sense because we would expect the healthcare for the near senior to cost more, the problem is is that that differential between how much the near senior gets and how much the 18 year old gets is not significant enough to compensate for the difference in premium that someone who’s younger would pay from someone who’s older. So the challenge is going to be primarily for people who are in their mid to late fifties who are making too much money to be on Medicaid, so they’re not super poor but they’re working poor. Their subsidy’s probably not going to be healthy enough to cover their insurance costs.
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GB: Under the Republican plan?
LC: Under the Republican plan.
GB: The tax credit just isn’t big enough
LC: It’s not big enough. So what they’re going to have to do in the Senate is they’re going to have to figure out a way to beef up those tax credits to help those people buy coverage. Now you ask a very good question, Guy, which is how are you going to pay for it? In the House bill, when the Congressional Budget Office looked at the House bill. They found that the House bill would actually create a 350 billion dollar or so surplus over the next 10 years so we would actually be spending 350 billion dollars less over the next ten years than we’d take in because of the House Republican bill. So some of that surplus could be devoted for example to paying for these tax credits. The other answer which I’m less fond of but some Republicans have even suggested we might look at is are there certain tax increases in Obamacare that you would keep, tax increases that are targeted at certain industries, the health insurance industry, the medical device industry. Let me just say I don’t think we need to go there, I would prefer that we not go there but this is a critical enough of a problem that Republicans have to figure out how to address it in the Senate.
GB: The other element, and I’ve been writing about this for a while now, that concerns me is the fundamental problem with Obamacare is you have too few healthy, young people signing up. Mostly because they can’t afford it. The Afforable Care Act is a failure on its own terms because it’s so expensive because of some of the regulations that you referred to earlier. That problem creates more expensive risk pools because people who are more likely to sign up for Obamacare are older and sicker and more expensive to cover and if you then have a bunch of younger, healthier people not balancing that out and not sort of making the risk pool more sustainable because they don’t want to participate and they can’t afford to participate, the risk pools are disproportionately older and sicker and that creates this downward spiral where to cover that the insurers keep raising premiums because they’re losing money and the more you raise premiums the more the younger people say no thank you and stay away and the process goes on. The backdrop to this being if you’re a young, healthy person under Obamacare you say okay if I become a not healthy person, if I get into a car accident or if I get some sort of real illness, under Obamacare they have to take me, they being the health insurance companies. They have to...allow me to purchase coverage at the same cost as everyone else and so there’s really no reason to sign up for something that you can’t afford and don’t want and can get anyway when you need it.
I don’t see how the Republican bill fixes that bottom line problem. I know that there’s this surcharge that they’ve said they’d get rid of the individual mandate which isn’t working under Obamacare and they replace it with this thing where they say alright if you are uninsured and you have a pre-existing condition or not, if you’re an uninsured person and you show up to get insured that’s fine, the companies have to take you on and they have to take you on at the same amount as everyone else plus 30 percent surcharge for one year. Okay, it’s a one year slap on the wrist penalty, yes that’s going to cost money but in my mind I’m struggling to figure out how that dynamic changes the problem that I just described of risk pools and adverse selection with healthy people under Obamacare. Do you agree that that’s an insufficient mechanism and if you do then what? Because if we don’t fix that every problem with Obamacare just continues except now it has a Republican label.
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LC: So I think there are two points here. One is ideally what you want to do and what I think the House Republican bill will help move toward is a situation where you have more plans selected, lower costs, and therefore that will be appealing for people to sign up and how do you do that? Well the House Republican bill says states can opt out of a lot of Obamacare’s regulatory requirements that have driven costs and declined competition and they can opt out of that which I do think will result in greater plan competition, lower costs, all that good stuff. The challenge is you do raise a good point which is the one time 30 percent surcharge is not going to be necessarily sufficient to address the problem of people signing up only when they need coverage. There’s a concept in economics known as moral hazard where people basically free ride and when they need to they take advantage of a benefit that’s offered to them and that’s what Obamacare did by the way that’s one of the reasons costs have gone up under Obamacare because as you say because people just they don’t, they don’t sign up for coverage till they need it. The way that you could address this potentially is is a couple different ways, first of all you could put a waiting period in effect basically which says if you sign up for coverage after having not had coverage you don’t get benefits in effect for 30 to 60 day until after you sign up for coverage. That may seem a bit punitive to people but I can guarantee you that’ll get people’s attention. The other thing you can consider doing is to calibrate the penalties such that if you’ve been uninsured for longer you would pay larger penalties so it would be like a 50 percent one time charge or a 60 percent one time charge if you’d been uninsured for 6 months.
GB: Or potentially a 30 percent charge not just for one year, it could be for a couple years. You sort of pro-rate it based on how long someone has been free-riding.
LC: But your basic point is fair which is I am not convinced that a one-time 30 percent charge is going to get us away from the kinds of problems we’ve seen with people free riding on the system.
GB: Okay. The last question on this similar challenge is you co-wrote a piece with James Capretta about another idea which is an auto enrollment scenario. Explain what that means, who would be affected by it, and how it would work.
LC: So this is primarily for people who don’t get their coverage through employers or through Medicare or Medicaid
GB: So again that individual market -- 20 million people, give or take.
LC: So there’s a number of people that would qualify for a tax credit but they’re not using it for whatever reason maybe they decide they don’t want health insurance, or maybe they decide they don’t need health insurance, or maybe they forgot for whatever reason. The idea is very simply this, every state would have a competitive process where insurers would bid and the state would select an insurer to essentially provide a default health insurance plan and it would be a health insurance plan structured like real insurance, if you think about what insurance should be it should be a backstop against catastrophic events. You get hit by a bus, God forbid you get diagnosed with cancer, whatever it is you want insurance to be there so it doesn’t bankrupt you to have that condition but it also that there are a lot of things that we might consider ordinary expenses that you would be responsible for on the front end.
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GB: Out of pocket?
LC: Out of pocket, against what’s known as a deductible so
GB: Which is true under Obamacare plans, deductibles are a big issue under Obamacare. Everyone has deductibles in healthcare
LC: This continues to be a problem. So the point is every state would have this default health insurance plan which would be equivalent, the premiums for this would be equivalent to the tax credit you’d be getting under the Republican proposal. Therefore you don’t pay a premium, you would still pay the cost sharing, you’d be responsible for the deductible, but you’d be automatically enrolled into a true health insurance plan and if you didn’t want it you could opt out of it, you don’t have to have it, you could opt out of it but for a lot of people...
GB: And if you didn’t want it, in other words, you would have to go out of your way to opt out whereas otherwise, by default, you’d be in?
LC: Correct. So we do this a lot in the retirement, security context. We automatically enroll people in 401Ks and we automatically enroll them in retirement security vehicles because people don’t save enough money for retirement, right. In healthcare it could be the same way, now why would you do this because one of the challenges Republicans are having is their health insurance plan, excuse me, their reform proposal doesn’t seem to insure as many people as Obamacare did so the progressive Left has used this as a talking point against Republicans repeatedly. Well the reality is if you have this sort of auto enrollment proposal, you do end up with more robust coverage numbers, more people get covered, but the benefit is you’re introducing more people now to the concept of insurance and the health insurance market place and that I think is a critically important development.
GB: If you’re auto-insuring and auto-enrolling millions and millions of people that means they are basically all using this tax credit, as opposed to under another scenario, they wouldn’t all use it, it would be less expensive. This sort of maximizes expense because everyone’s using their tax credits to the full amount. Doesn’t that create a much higher expense for taxpayers?
LC: It’s going to be more expensive, but bear in mind our original point, this is a small part of the population. We’re not talking about 160 million, we’re talking about 10, 15 million max and so the idea simply is is it going to cost more? It is going to cost more cause people are using their subsidy but at the end of the day we’ve got people covered and we’re putting them into insurance plans that are true insurance plans that will bend the cost curve in a good way. It will begin to reduce healthcare costs in the long run.
GB: Will it also still cost less than Obamacare costs?
LC: Oh I absolutely think it will cost less than Obamacare costs. I mean Obamacare has so many different components I talked about the Medicaid piece, the big subsidies in Obamacare an other things. Clearly to me we can solve some of the problems Obamacare tried to solve in a much less intrusive way and in a much more cost efficient manner which I do think the AHCA begins to do.
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