How to Turn Obamacare into FreeMarketcare in Four (Sort of) Easy Steps

If you posit that the Patient Protection and Affordable Care Act is here to stay, then what? One possibility for advocates of consumer-driven health reform is to embrace the health care reform law. Like, really embrace it. To the max.

Obamacare for All.

Look, we need real reform to stem health care inflation and efficiently and sustainably modernize America’s social safety net along market-friendly principles. In a recent blog post, Avik Roy outlines a fairly simple and straightforward way of doing this.

1. Deregulate the state exchanges, while capping subsidies.

2. Slowly shift Medicare patients into the exchanges.

3. Let more people buy insurance on their own rather than through their employer.

4. Move Medicaid patients into the exchanges.

The result would be a more coherent system where more Americans would be buying health insurance on their own from private insurers competing hard for their business. More Americans would be acting as involved consumers. “Under an Obamacare-ified Medicare system,” Roy writes, “upper-income seniors would no longer be eligible for the program, saving trillions of dollars. And growth in Medicare and Medicaid spending would be defined by a sustainable growth rate, rather than a blank check.”

It’s a system that would look a lot like Switzerland’s. And that’s a good thing. Roy:

The Swiss enjoy a unique combination of universal coverage and free-market health care that the U.S. could come to resemble. The Swiss use a premium-support model that is similar in many ways to the various Paul Ryan proposals for Medicare, and also to the Obamacare exchanges.

There are no government-run “public options” in Switzerland—everyone buys private-sector insurance in a regulated market. But the Swiss make sure everyone gets coverage by offering low-income citizens a subsidy, on a sliding scale, to buy coverage. The system works reasonably well, and the Swiss government spends less than 3% of GDP on health care, compared to nearly 8% for the United States.

Economist Regina Herzlinger also describes how the Swiss system works:

There are no government health insurance programs. Instead, the Swiss choose from about 85 private heath insurers. Rather than being stuffed into the degrading Medicaid program, the Swiss poor shop for health insurance like everyone else, using funds transferred to them by the government. The sick are not discriminated against either — they pay the same prices as everyone else in their demographic category. Like the US, Switzerland is a confederation of states that, as in the US, oversee the insurance system. Enforcement by the tax authorities has produced 99 percent enrollment.

This consumer-driven, universal coverage system provides excellent health care for the sick, tops the world in consumer satisfaction, and costs 40 percent less, as a percentage of GDP, than the system in the US. The Swiss could spend even less by choosing cheaper, high deductible health insurance policies, but they have opted against doing so. Swiss consumers reward insurers that offer the best value for the money. These competitive pressures cause Swiss insurers to spend only about 5 percent on general and administrative expenses, as compared to 12-15 percent in the US. And unlike Medicare, the private Swiss firms must function without incurring massive unfunded liabilities. Competition has also pushed Swiss providers to be more efficient than those in the US. Yet they remain well-compensated.

We can also learn from the mistakes made by the Swiss. For example, they pay providers for fragmented care, rather than for integrated treatments for diseases or disabilities. The Swiss sustain an inefficient hospital sector, and they aren’t transparent about the cost and quality of providers.

Under this system, there would be still be constant battles over regulations and benefits and subsidies. But bottom-up, market forces would be more involved in rationalizing the sector, particularly for poorer Americans and older Americans. The transformation would also would makes it less likely the US ever moves to a truly nationalized, government-run health care system since Medicare would morph into a de facto premium support system. And politically, it would automatically give Republicans a broad health care agenda beyond “repeal and replace with something or other.” Roy presents an intriguing plan worthy of more debate and study.

  1. Valiuth

    My qustion about the Swiss system is how do mandates for coverage work? I see in the US there is a strong move to just demand that insurance companies cover the cost of any procedure, but that would only encourage providers to raise costs. How do the Swiss handle that? DO the insurance companies shop around for providers instead of the patient doing it?

  2. Crow

    Jim: Thanks for calling this to our attention–these are exactly the sorts of practical steps that we can be encouraging red state governors and legislatures to take to make the best of the exchanges that are, at least for the next four years, here to stay.

    If we can’t repeal it, we should be pushing for the greatest amount of competition and individual consumer/family choice possible.

  3. Pat in Obamaland

    Would this require the US leave in place the tax system imposed by Obamacare? For instance, would implementation still require the gross receipts tax for medical device manufacturers (including manufacturers of toothbrushes, band aids, and rubber surgical gloves)?

  4. DocJay

    Medicare is a fiscal cliff unto itself.  Most folks are truly ignorant that this issue is paramount.  Anything that transforms it in to something actually affordable is going to be better than offering Cadillacs to people instead of Ford Focuses will be welcomed by me. 

  5. Mendel

    I like the ideas behind this (and Avik Roy’s) post, but I fear public fear will be a nearly insurmountable hurdle.

    Let’s be honest: 99% of the people who vociferously support Obamacare have no idea how it really works.  For them the key criterion is more government control over healthcare = better healthcare for all. 

    Even if some liberalizing reforms are legally feasible in the current structure of the law, as soon as the public figures out that individuals will be required to make their own choices, the backlash will begin.  Too many people, sadly, are too afraid of paying for their own healthcare, even when they do it with someone else’s money.

  6. Mendel
    The Swiss could spend even less by choosing cheaper, high deductible health insurance policies, but they have opted against doing so.

    This is interesting.

    I have often suspected that even in a free market system, individuals would be so overwhelmed by the complexity and gravity of medical purchasing decisions that they might willingly overpay for third-payer healthcare (i.e. “insurance” for non-catastrophic care) to alleviate the burden of making all those decisions.  This factoid seems to confirm that suspicion.

  7. ConservativeWanderer
    Mendel: Too many people, sadly, are too afraid of paying for their own healthcare, even when they do it with someone else’s money. · 6 minutes ago

    Edited 5 minutes ago

    As I quoted yesterday:

    “Wizard’s First Rule: people are stupid. People are stupid; given proper motivation, almost anyone will believe almost anything. Because people are stupid, they will believe a lie because they want to believe it’s true, or because they are afraid it might be true. People’s heads are full of knowledge, facts, and beliefs, and most of it is false, yet they think it all true. People are stupid; they can only rarely tell the difference between a lie and the truth, and yet they are confident they can, and so are all the easier to fool.”

    I would add, people are lazy too.

  8. dittoheadadt

    As for #3, why incrementalism?  Why not just get rid of tax-free employer-provided health care altogether?  If an employer pays for an employee’s homeowner’s insurance, that’s taxable income to the employee.  Same with paying the employee’s disability insurance, life insurance, renter’s insurance, auto insurance, etc.  Not coincidentally, NONE of those insurances is in crisis.

    But there’s a health insurance crisis, and it’s because of the disconnect between the payer and the consumer, a disconnect that doesn’t exist with ANY other insurance.  Put health insurance on equal footing with all other insurances.  Make it cover only catastrophic things, like the other insurances do.  Make the user of the insurance be the consumer/payer as well.  And much of the crisis will fade away pretty quickly, as market forces drive down cost, wasted consumption, and unneeded coverages.

  9. Mendel
    dittoheadadt: Why not just get rid of tax-free employer-provided health care altogether?

    I imagine the reason this wasn’t suggested is because it’s politically unfeasible and possibly destabilizing.

    Currently employer-sponsored insurance (in aggregate) is the biggest payer for healthcare (I think).  Lots of voters and big insurance lobbies would probably put the kibbosh on the plan, and even if enacted the shake-up in the market might mean lots of people falling through cracks. 

    Also, my understanding is that many people with pre-existing conditions can only afford treatment because they have group insurance through their employer – these people would be priced out of treatment if we made a quick switch away from the employer tax deduction.

    But I absolutely agree that this point must be the main long-term goal.

  10. Lucy Pevensie

    Can you clarify what would happen to higher-income seniors?  I ask because right now they are essentially uninsurable outside of Medicare.  My father always wanted to avoid being on Medicare. He had private insurance through his job–he is still working part-time, more than two decades after any normal retirement age–but the cost of having him get private insurance through a group plan became prohibitive to all his coworkers and so, reluctantly, he got Medicare a few years ago. 

  11. Nanda Panjandrum

    Sounds like a good place to start…What impact might ‘decoupling’ Social Security and Medicare have on the well-known problems? 

  12. Scott R

    Short-term goal: Flipping the mandate from cover-everything-under-the-sun insurance to catastrophic-care-only insurance.

    Longterm, we should have two goals: 1) Decoupling health insurance from employment. 2) Getting as many people as possible– especially young people — into HSA’s. Unfortunately, as it stands now Obamacare is perfectly designed to undermine both these goals.

  13. MLH

    I think I heard Ms. Herzlinger speak at The Cato Institute a few years ago. She thought then that medical care should be delivered through Mayo Clinic-type facilities. I don’t think she’s been very far west.

    When one speaks of “efficiency” in health care the “art” goes missing and patients are treated by “best practices,” or flow-charts, rather like numbers.

    South Africa and Indonesia, I think, have two-tier systems, as well. Never heard these spoken of during the “debate” on O-care. Hhmmm? 

  14. MLH
    Mendel: 

    Let’s be honest: 99% of the people who vociferously support Obamacare have no idea how it really works.  For them the key criterion is more government control over healthcare = better healthcare for all. 

    I think they support it because it’s “free.”

  15. ConservativeWanderer
    MLH

    Mendel: 

    Let’s be honest: 99% of the people who vociferously support Obamacare have no idea how it really works.  For them the key criterion is more government control over healthcare = better healthcare for all. 

    I think they support it because it’s “free.” · 3 minutes ago

    TANSTAAFL.

    This generation has no idea what that means.