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A realistic plan for reforming health care
Repeal isn't going to happen. Instead, Republicans should focus on fixing financing and over-regulation
 
David Frum
David Frum

Next week, Republicans in the House of Representatives will vote to repeal Democratic health reform. Promise kept!

Then the "Repeal-the-Job-Killing-Health-Care-Act of 2011" will proceed to the Senate. Where nothing will happen.

What then?

What should happen then is a Republican focus on the most immediately dangerous aspects of the 2010 health care law.

Let me point to two.

First, the health care reform enacted last year is financed in almost the most destructive possible way, with new taxes on payrolls and investment. Precisely at a time when we should be encouraging more payroll and more investment, the health care reform penalizes both.

There's a lot to like about the basic architecture of the health reform law: universal private health insurance, subsidies for those who cannot afford it, regulation against the worst insurance abuses.

But the devil always is in the details, and it's the details again and again that are the problem. Our highest national priority should be to slow and even reverse the direction of healthcare spending. But by appearing to load the costs of the program onto higher-income taxpayers, the Democratic plan will tempt politicians to focus on extending benefits  which go to lots of voters  without regard to costs, which appear to be paid only by a few.

If Republicans cannot repeal the healthcare law, and they cannot, they should fight at least to make that law’s costs as visible as possible. How about a health care VAT? Every time you go to the store, you'd pay the full cost of health care subsidies, right up front, where nobody can miss them. Suddenly that abstract talking point in the president's speeches  the one about spending 17 percent of national income on health when most other industrial nations spend between 10 percent and 13 percent — will become a whole lot less abstract.

The devil always is in the details, and it's the details that are the problem

A second focus for Republicans should be this: 2011 is the year in which health-insurance companies begin to get penalized if they spend "too much" on administration or retain "too much" profit. Why is this bad?

Imagine this: You are the Sam Walton Health Insurance Company. Right now you have 100,000 customers from whom you collect $10,000 each in premiums. Wowza, that’s $10 billion in revenues, of which you disburse $8.5 billion to providers. Out of the remaining $1.5 billion you must pay your overhead of $500 million. The rest is your profit: $1 billion.

A keen-eyed analyst discovers an opportunity to force down the prices charged by a hospital chain. She claims that this squeeze could push down costs by as much as $500 million. Boom! Straight to the bottom line, a 50 percent profit opportunity!

But that mucks up your pay-out ratios doesn't it? Instead of paying 85 percent of revenues, you are now paying only 80 percent. So either you increase spending somewhere else  or you face fines and penalties. So why get into a hassle with the hospitals? Pay the money, take your cut, do your business the easy way.

Government determines the appropriate profit level for regulated utilities. And utilities have hardened into notoriously non-innovative businesses.

Republicans should not of course act as the defenders of the insurance companies. They have to take their chances in the competitive marketplace. Instead, the Republican goal in 2011 should be to act to enhance the competitiveness of that marketplace, not restrict it  and to ensure that the costs of publicly provided health are made transparent and immediate, not concealed and postponed.

 

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