Wednesday, July 11, 2012

PPACA Version 2.0

Common sense and innovation are missing from Version 1.0

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The Supreme Court's ruling on the Patient Protection and Affordable Care Act (PPACA) on June 28 gave us the constitutional boundaries of mandated health care and a baseline for moving forward.  Now comes the hard part.  One political party will scream "Repeal!" while the other digs in its heels. Instead, what we need now is revision and compromise to fashion PPACA Version 2.0 with a keener focus on cost reduction.

In delivering the opinion of the Court, Chief Justice Roberts noted, "Congress already possesses expansive power to regulate what people do ... The Framers [of the U.S. Constitution] knew the difference between doing something and doing nothing.  They gave Congress the power to regulate commerce, not to compel it."  And this is where Congress fell short in its first attempt to cover the uninsured. The first "A" in PPACA stands for "Affordable".  According to the Supreme Court, the current legislation and individual mandate attempt to do this by imposing a "tax" on the voluntarily uninsured and by establishing government-run state insurance exchanges.

I don't see the individual mandate – by itself – helping to lower the cost of insurance by enough to entice the uninsured to buy. The Urban Institute estimated in March 2012 that under the mandate about 18 million Americans or 6 percent of the total population will be required to purchase coverage or face a penalty.  And according to a recent report by CNBC, "Currently about one-fourth of the care provided by hospitals is never paid for, either because debts can't be collected or the patient is uninsured."  Increasing insurance participation by 6 percent is not much of a boon to affordability.  Reducing hospital costs will take some time to be reflected in reduced hospital prices and, ultimately, lower insurance prices.  Without further resolve to inject competition in health care provision, prices will continue to be "sticky downward".

A part of Congress's regulatory authority as granted by the Constitution can be seen as ensuring that nationwide markets are free and functioning.  Congress did not do that with PPACA Version 1.0.  Instead Congress chose to implement government-run statewide insurance markets via "Affordable Insurance Exchanges".  Statewide markets already exist.  As the manager of a small business in Virginia, I'm limited to the purchase of employee insurance plans offered within Virginia; I can't go shopping across all plans offered across the nation.  Limited markets drive up prices.  PPACA acts to institutionalize these limited, inefficient markets and handcuff competition's invisible hand in lowering prices. 

PPACA Version 2.0 must do three things:
  1. Prohibit government reimbursement to health care providers on a fee-for-service basis and move to integrated care where patient outcome is the focus for all programs that reimburse private providers including Medicare and Medicaid.  (Currently the federal government pays for 50% of all health care when including military health care.)
  2. Open up and secure nationwide insurance markets for individuals and businesses to encourage competition that lowers prices, scraping government-run state insurance exchanges that only institutionalize inefficient and incomplete markets.  Such action is in line with the Constitution's Commerce Clause and Congress's authority to regulate interstate commerce.
  3. Remove the tax-favored status of employer-provided health insurance, effectively removing a subsidy that drives up prices.  Aside from its price effect the tax break is the single largest tax expenditure, costing the U.S. Treasury $171 billion in tax revenue in 2012.
Further, as a matter of overall policy, the federal government must stop pushing mandates to states and individuals for implementation. If Congress wants a program – regardless of size or intended effect – it must find the fiscal means to pay for and administer that program at the federal level.

In choosing to pursue the individual mandate before making its own health care programs lean and getting free markets working, Congress did us all a disservice: it failed to find commonsense and innovative ways that encourage competition in health care provision and insurance; it failed to move away from continual overpayment via fee-for-service; and it failed to remove preferences and subsidies that increase prices.

But mostly – in a rush to secure a partisan victory – it failed to negotiate and compromise. That trait, above all, is the hallmark of the 111th and 112th Congress and that is how, in the end, the future of health care provision in the United States was determined by one jurist and one word.