Post-Obamacare Reform: Will Health Insurers Be Redeemed?

A version of this Health Alert appeared at Forbes.

Robert Pear of the New York Times recently described the “symbiotic” relationship between the Obama administration and health insurers. It was not always so:

But since the Affordable Care Act was enacted in 2010, the relationship between the Obama administration and insurers has evolved into a powerful, mutually beneficial partnership that has been a boon to the nation’s largest private health plans and led to a profitable surge in their Medicaid enrollment.

“Insurers and the government have developed a symbiotic relationship, nurtured by tens of billions of dollars that flow from the federal Treasury to insurers each year,” said Michael F. Cannon, director of health policy studies at the libertarian Cato Institute.

The entire article is a depressing read. And it is not just the fact that insurers are profiting from Obamacare. It’s that Obamacare is motivating health insurers to consider other harmful public policies. Most glaringly, health insurers appear to be inches away from endorsing price or profit controls on research-based pharmaceutical firms. (The pharmaceutical industry’s response to this threat is also somewhat short-sighted, but that is another story for another Health Alert.)

This poses quite a challenge for health reform after Obamacare is repealed by the next president in January 2017. Just as Ronald Reagan’s 1981 tax reforms did not drop out of the sky when he took office but had been developed in Congress for years by Jack Kemp and William V. Roth, the newly elected Congress has the opportunity and responsibility to pursue a consensus on post-Obamacare health reform that puts patients’ needs in front of politicians’ delusions, so the next president has something with which to replace Obamacare. 

Will health insurers resist, focused on consolidating their Obamacare gains, or will they accept the need for real reform? Although not immediately apparent, there is hope that health insurers will be ready to move beyond Obamacare.

All proposed reforms that decrease the power of the federal government seek, to varying degrees, to allow people portable, individually chosen and owned health insurance that is independent of their employers or government. The NCPA’s is the most striking: Exchanging the exclusion of employer-based health benefits from taxable income for a refundable, universal tax credit (with which one could buy at minimum Medicaid coverage), which dovetails into fixed contributions (disparagingly labeled “vouchers”) for Medicare beneficiaries. This reform combines the artificially segmented markets that the government has created, simplifying and empowering people’s choices.

Health insurers are now able to succeed in all market segments because those segments have evolved — in very perverse and twisted ways — toward such models. Consider:

• Medicare Advantage, offered by private insurers, is thriving despite Obamacare’s threats;
• Private insurers have won the battle for Medicaid, now dominating markets in most states (although with managed, not consumer-driven, care);
• Private exchanges are growing in the employer-based market;
• Insurers have become comfortable with selling to individuals who have tax credits to buy health insurance in the (extremely flawed) Obamacare exchanges.

The latter is important, because people’s attachment to employer-based benefits has proven very difficult to overcome. Now, this dam has been breached. The now infamous Professor Jonathan Gruber has thrown his body into it:

In pitching the ACA, Democrats had been adamant that the law would support and sustain the employer-based system, not erode it. But Gruber knew better and he told me so, likening workers being kicked off job-based health plans to people “falling off a building,” an outcome that architects of the ACA knew was likely and had planned for.

So far, those who have been dumped onto Obamacare exchanges are likely to be mostly part-timers. While the middle class salary-earners will see premiums increase at the highest rate in four years, it does not appear that broad-based employer coverage is collapsing.

So, one big difference between Obamacare and the NCPA’s proposal appears to be that Democrats lied about the consequences of Obamacare, whereas the NCPA has always been forthcoming that moving beyond employers’ monopoly control of employees’ health benefits would result in change. In fact, when Senator John McCain made this his proposed reform in the 2008 presidential campaign, then-Senator Obama attacked it for including employer-based benefits in taxable income.

The NCPA’s health reform blurs the lines between markets in which insurers already succeed, but does not threaten their ability to compete. Indeed, by empowering individuals to choose health plans that they prefer, such reform would increase insurers’ opportunities to offer new services that will satisfy beneficiaries, instead of frustrating them like Obamacare does.

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