Thoughts on the Republican Health Insurance Reform
By David Henderson
I’ve held back on commenting in a big-picture sense on the Republicans’ plan for repealing and replacing Obamacare. I’ve found comments by Megan McArdle, Peter Suderman, co-blogger Scott Sumner, and Steven Landsburg, among others, useful. They’ve tended to focus on many of the negative aspects of the plan.
I asked my health analyst friend Merrill Matthews of the Texas-based Institute for Policy Innovation what he thinks, and he sent me links to four of his pieces on the plan. They are here, here, here, and here. I notice from his bio that he has a 6th degree black belt in Tae Kwon Do, so I will be careful in my criticisms, if any.
Seriously, though, I tend to agree with Merrill. As I wrote over 20 years ago, the combination of guaranteed issue and community rating, a key feature of Obamacare, leads to the destruction of insurance markets. No one would advocate forcing insurance companies to issue house insurance policies to people whose houses are burning, at premiums equal to those paid by others whose houses aren’t burning. And the twin requirements would cause more and more people to refrain from buying insurance until their houses are on fire. Insurance companies, knowing this, would charge astronomically high premiums.
As Merrill Matthews points out, the Republicans had a good plan for getting rid of guaranteed issue, but caved:
But in the past week or two, Republicans apparently abandoned actuarial principles–just as Obamacare did. Under their new plan, if a person wants to buy coverage in the individual market during an open enrollment period, insurers have a 12-month “look back.” If the person has been uninsured more than 63 days in that period, the insurer will charge the applicant 30 percent more than the standard premium for the next 12 months. Apparently, that 30 percent increase will happen even if the applicant is perfectly healthy.
One thing I would like to see more discussion of in the commentary is how/whether we could adopt some of the best elements of Singapore’s plan. No, it would not pass a libertarian test, but it would pass an incentive test. Co-blogger Bryan Caplan has written here, here, and here about what is so good about Singapore’s system. When I covered Bryan’s pieces in my fall economics class, two of my students were from Singapore. They emphasized that virtually everyone, rich or poor, has skin in the game, that is, pays something for any given health care service.