RUTHFULLY YOURS

For a generation of Republican political candidates, Obamacare was a gift that kept on giving. The Democrats’ enactment of the Affordable Care Act in 2010 gave the GOP historic gains in that year’s midterms; its bungled implementation handed them the Senate in 2014; and soaring premiums helped Donald Trump capture the White House in 2016.

But the Trump administration fell well short of its promises to replace Obamacare with “something terrific,” and many Republicans have become wary of entering a complex policy minefield. This aversion has had electoral consequences: Voters who cited health care as their most important issue cast their ballots three to one for Biden over Trump in November 2020 — accounting for much of the swing from 2016.

Any Republican hoping to win the White House in 2024 cannot simply run against Obamacare, but must have a health-care agenda that is compelling to voters — and, once in office, will need the ability to deliver on it.

With a combination of $1.2 trillion per year in private insurance and $1.9 trillion per year of public spending on health care, Americans enjoy the best access to cutting-edge medical care in the world — without comprehensive rationing of drugs, physician services, or hospital procedures. Yet America’s great willingness to pay for access to ever-improving medical capabilities has led it to neglect keeping costs under control. In November 2021, while 82 percent of Americans rated the quality of the health care they received “excellent” or “good” (only 3 percent judged it “poor”), 77 percent were dissatisfied with the nation’s health-care costs.

Employer-sponsored insurance has long been the bedrock of private health-care finance in the United States. After the exemption of employer-sponsored health care from income and payroll taxes was introduced during the Second World War, the share of Americans covered by private health insurance increased from 9 percent in 1940 to 51 percent in 1950. Employer-sponsored insurance is responsive to the rising demand of an affluent population for improvements in medical services and has succeeded in protecting much of the population from high costs without inflating taxes, undermining incentives for work, or rationing access to care.

But the shortcomings of employer-sponsored insurance have become increasingly evident in recent years. The average premium for employers to cover a worker and her family increased from $6,438 in 2000 to $22,221 in 2021 — slowing the growth of wages and diminishing the share of firms offering coverage to their staff. This has, in turn, increased the proportion of the population that is uninsured and put pressure on politicians to expand entitlements to fill the gaps.

Workers tend to resist the inclusion of cost controls in their health-care benefits because the savings accrue to the firm, while the workers bear the associated inconveniences. This resistance has impeded the development of managed care, which has significantly reduced the use of wasteful services. It has also hobbled the capacity of insurers to negotiate low prices from medical providers. While 73 percent of individuals opt for narrow networks when purchasing their own plans, only 9 percent of employers offer narrow-network plans.

To give workers control over their health insurance, the Trump administration allowed employers to deposit pre-tax funds in a Health Reimbursement Account for employees to purchase their own plans. Selling plans directly to individuals, rather than to employers, makes insurers more responsive to patients’ varied needs and priorities and allows them to benefit by opting for more cost-effective plans. It also allows people to keep their preferred coverage as they move from job to job — averting the risk of coverage denials due to preexisting conditions.

But the Affordable Care Act did much to destroy the appeal of insurance sold on the individual market by prohibiting plans from being priced in proportion to medical risks. As a result, insurance was hugely overpriced for individuals with typical medical risks, leading millions to drop coverage, but it remained attractive to those who were seriously ill — causing premiums to soar by 105 percent as the legislation came into effect.

The most important health-care priority for any new administration would be to fix this problem by allowing insurers to offer lower premiums to individuals who first signed up before they got sick and subsequently maintained coverage. This would allow people to purchase insurance that offers them good value while they are healthy and reward them for remaining enrolled in case they get sick — lowering premiums and increasing coverage.

Yet instead of fixing insurance-market rules to reduce costs, the Biden administration and the 117th Congress have simply thrown money at a broken system. Instead of targeting assistance at a small group of patients with preexisting conditions that made them uninsurable, they have greatly expanded the share of premiums covered by subsidies, which has served to further inflate insurance premiums. But since any worker with an offer of employer-sponsored coverage is prohibited from receiving such subsidies, they only make the individual market less appealing for the 88 percent of full-time workers who receive such an offer.

Medicaid has similarly sprawled beyond its core purpose as a safety net for those who lack alternative sources of affordable coverage, and has grown to cover a fifth of the U.S. population. Medicaid operates by providing between one and nine dollars in federal funds for every dollar a state spends on health-care services for eligible beneficiaries. This has encouraged states to spend an ever-increasing share of their budgets on Medicaid by expanding its benefit packages and enrollments alike.

Yet even though the federal government offers slightly more to poorer states for every dollar they spend, aid has gone disproportionately to the wealthiest states, as they have the deepest tax bases and are able to go furthest in claiming federal matching funds. These, not coincidentally, tend to be left-leaning states. New York in 2019 was therefore given far more ($16,305) in federal Medicaid funding per resident under the poverty line than Oklahoma ($6,310), even though both had similarly expanded eligibility to able-bodied adults. The current system is viewed by states as a cash cow that provides little incentive to control spending and whose rules are easily gamed. For instance, all 50 states impose taxes on hospitals in order to inflate the cost of procedures, for which they may claim reimbursements from the federal government.

To limit the indiscriminate growth of Medicaid costs, Republicans have for over 40 years tried and failed to cap the matching funds that states may claim. The proposal has repeatedly run into pushback from governors, who fear being short of funds in recessions as caseloads increase. Medicaid caps, more than insurance-market reform, were the reason Congress blocked Trump’s proposed Obamacare replacement. Yet the status quo does a poor job of meeting state fiscal needs. Congress has already bailed out the existing program with ad hoc payments in 2001, 2003, 2009, and 2020.

The federal government could rein in the costs of Medicaid better, and ensure that assistance goes to those who need it most, by assuming full responsibility over the program — for which it already defines mandatory benefits and eligibility. The states’ role in Medicaid currently serves only to expand the program beyond congressional intentions while adding an impediment to cost controls that could otherwise pass through Congress on their merits.

The rising cost of Medicare has similarly threatened to bust the federal budget. Republicans have often hurt themselves politically by proposing unilateral cuts to the program, which Democrats have enthusiastically turned into election attack ads. Yet over recent decades, bipartisan legislation has repeatedly cut Medicare spending, so that the program cost 3.1 percent of GDP in 2021, rather than the 4.1 percent of GDP that the Congressional Budget Office had forecast 20 years earlier. Cuts to Medicare have typically happened because the program uses a lot of money that both parties would prefer to spend on other things. Democrats object to having Republicans controlling the savings, not to the idea of Medicare cuts as such.

Instead of making unilateral threats to deprive seniors of benefits, Republicans should view Medicare reform as an opportunity to showcase how individual control over insurance can improve the quality of benefits without increasing costs. Indeed, the rapidly growing popularity of privately managed Medicare Advantage benefits suggests that Americans will embrace health-care plans with effective cost controls if they can capture the associated savings for themselves. By switching to Medicare Advantage plans, seniors can benefit from better-coordinated care, lower out-of-pocket costs, and additional benefits, such as dental care. Since 2010, the share of Medicare beneficiaries opting for Medicare Advantage has leapt from 26 percent to 46 percent.

This growth is projected to continue, and Medicare Advantage can be further improved. Currently, when Medicare Advantage plans are able to deliver the basic Medicare benefit package to seniors at lower cost than the government, they are allowed to return 50 percent to 70 percent of the savings to beneficiaries in the form of reduced premiums or expanded benefits. This limit imposes an unnecessary impediment. Instead, full scope should be given to competition, with plans allowed to spend 100 percent of whatever savings they generate to attract enrollees with enhanced benefits.

Free enterprise is generally popular with Americans because it allows them control over their own lives. American health care proves so frustrating because control over insurance is in the hands of employers and lobbyists rather than those of patients. There is political profit to be had in setting that right.