Repeal-Obsessed Republicans Don’t Understand Obamacare Is Kind Of A Gift

angrydoctor1“In Dallas, Texas Blue Cross, in its Exchange plan, is paying 10 percent less than what Medicaid pays. So these are low rates. They take all the doctors who accept that fee—and that typically doesn’t include the best doctors, by the way—and that’s how they get their premiums down. They’re convinced that healthy people buy on price.” – John Goodman

Editor’s Note: Nothing in the ACA mandates the reimbursement levels paid to medical care givers. In this case BCBSTX is paying less than Medicaid on their narrow network If BCBSTX can pay an arbitrary number which is less than Medicaid reimbursement rates, what prevents an employer doing the same thing? The employer could build a Base Plan with reimbursement rates half of Medicaid’s and thus limit risk while complying with the ACA. The employer could then offer a Buy Up Plan for those who want “real” insurance

By John C Goodman

First of all, they (Republicans) don’t understand what the problem is that needs to be solved.

Even if we abolished ObamaCare, we would not have a free market for health care. We would have a health care system shaped and molded by government policy and the worst of those policies are ones that encourage us all to have group insurance, rather than individual insurance. Those policies are tax law policies. With group insurance, when we leave our employer, we lose our health insurance and that creates all the problems of pre-existing conditions. Then we’re encouraged to have third-party insurance rather than self-insurance through health savings accounts. And then, because the tax subsidy is open ended, we’re encouraged to over-insure. At the end of the day we have third-party payers paying almost all of the medical bills. When third-party payers pay almost all the medical bills, providers are not going to compete for our patronage based on price and quality and access. Instead they’re going to maximize against the payment formulas.

Now what does it mean to have a free-enterprise reform? What it means is undo all those perverse incentives. So for me it’s not a matter of spending, it’s not a matter of government’s role in health care, it’s a matter of getting rid of perverse incentives which cause you and me and everybody else to do things which cause costs to be higher, quality lower and access more difficult. If you’re not willing to take on the tax system and change those perverse incentives, I don’t think you’re really serious about health reform.

The second problem we have on our side of the spectrum is this obsessiveness about repealing ObamaCare.

For me the goal is not to repeal ObamaCare. The goal is to move from where we are now to a health care system in which the role of government is minimized, in which all the perverse incentives government creates go away, in which individual choice of markets can begin to solve problems.

The third problem we have on our side of the aisle is a failure to recognize thatObamaCare has been in one sense a gift to Republicans and conservatives and libertarians.

Think of ObamaCare as having two parts. There’s a spending/regulatory part and all that should be repealed. That should all go away. That’s fine. But the other part of ObamaCare is the revenue part. Two thirds or more of the ObamaCare revenue comes from special interests who agreed to pay higher taxes, accept lower benefits and other cuts because they wanted to promote ObamaCare. Over the next 10 years, let’s call it $2 trillion.

So two thirds of that is coming from the drug companies, from the health insurance companies, from the Business Roundtable companies, from the labor unions. They all agree to be taxed, they all agree to take less because they expected for some special interest reason to profit from ObamaCare. And, they’re not asking for their money back. I’d say more than a third of the money funding ObamaCare comes from cuts in Medicare. AARP went along with those cuts. AARP is not saying undo this. The health insurance companies aren’t saying that. The drug companies aren’t saying that. I know of one company that told me that ObamaCare is costing them a $1 billion a year and they agreed to it. They promoted ObamaCare. I said, “Do you want your money back?” They said, “No, we’re not asking for our money back.”

So what we need to understand is there’s a lot of money on the table, put there by special interests which, if you like, sold you all out for their own special interest purposes. They’re not asking for their money back and all this money sitting on the table.

What’s a conservative, libertarian thing to do with $2 trillion? I would say it is to have a tax cut. It’s got to be a tax cut tied to health care. I would like to see it be like the child credit, where everybody gets $1,000 per child. We all should get a certain number of dollars for health care health insurance. Then government should stand out of the way and we let markets work.

Now, in A Better Choice: Healthcare Solutions for America, I’m focusing on major problems with ObamaCare that are so severe that they can’t be solved in the White House or by executive order. They’re going to require Congress to act. Let me just mention three of them quickly. These are problems that aren’t going away.

Number one, you are mandated to buy insurance whose cost is going to grow faster than your income.

The basic problem here was not created by Barack Obama or by the current Congress. It has been going on for 40 years. Real per capita health care spending has been growing at twice the rate of growth of our income. It may slow down a little bit, but no one is predicting that health care costs are going to grow at the rate of growth of our income. Everyone knows it’s going to grow faster. If you’re buying something and it’s growing faster than your income, with each passing year it’s going to be crowding out other consumption. In fact, if we stay on the path that we’re on, by the time today’s college students reach retirement age there will be nothing left but health care. They will have nothing to eat, no place to live, nothing to wear, but they will have really great health care. Obviously we can’t stay on that path forever.

Meanwhile—and I’ve not seen this discussed anywhere—there are three, what I would call, global budgets embedded in ObamaCare that protect the government from what I just described. One is in Medicare. As part of the Affordable Care Act, Medicare will grow just a tiny bit faster than national income. So going on forever, we basically solved the problem of Medicare. No real reform is there to control costs. It is just that Medicare spending has been capped.

After 2018, the subsidies in Exchanges are also capped. So all the government’s contributions are flat, growing at the rate of growth of our income, whereas private sector health care costs are growing at twice that rate.

So what does that mean? It means with each passing year we’re shifting more and more of the burden of ObamaCare to the private sector. That’s a problem that’s not going away.

The quick solution is we need to go from a defined benefit system, where we tell you what you have to buy, to a defined contribution, where government can pay part of the cost of health insurance, but then the market what it can provide for the money you have to spend.

The second problem is a bizarre system of subsidies.

In most places, a family at 138 percent of poverty is able to go into Medicaid. For a family of four, the cost of that is about $8,000. They pay nothing. Let’s call that an $8,000 gift.

If this same family earns one dollar more they’re no longer eligible for Medicaid, have to go into the Exchange where they will get heavily subsidized insurance. Let’s say the insurance they get is $12,000 they have to pay about $900 out of their own pockets. Let’s call that an $11,000 gift.

But consider the employees of the hotel down the street making $15-$20 an hour—the maids, the busboys, the waiters, the waitresses, the car parkers, the baggage handlers, the custodians, the gardener—all those folks you normally see in a hotel. ObamaCare is trying to force those workers to buy insurance through their employer that’s a third to a half of their annual income. And if they don’t do it they get a $2,000 fine.

So we have an $8,000 gift, we have an $11,000 gift and we have a $2,000 fine. Now that obviously isn’t even. When employers think about this most of them are finding loopholes. But if the loopholes get stopped or plugged, then we’re going to have a serious economic effect on the part of the economy that employees below average income workers.

The third problem I want to point out to you that’s not going away is the perverse incentives of the health insurers in the Exchanges.

You don’t have to even be in the insurance industry to know that if everybody pays a community-rated premium, regardless of health care costs, then you’re going to make money off of healthy people and you’re going to lose money on sick people. We have all these complicated risk-adjustment mechanisms, that I’m not sure anybody understands, but it’s clear that the insurance companies have concluded that they want the healthy and they don’t want the sick.

So what are they doing? They’re offering products that appeal to the healthy, don’t appeal to the sick. Then after you enroll, the perverse incentives are to over-provide to the healthy and under-provide to the sick. And what are these strategies? They have decided that they can push down the fees that they pay to providers. In Dallas, Texas Blue Cross, in its Exchange plan, is paying 10 percent less than what Medicaid pays. So these are low rates. They take all the doctors who accept that fee—and that typically doesn’t include the best doctors, by the way—and that’s how they get their premiums down. They’re convinced that healthy people buy on price. The only thing a healthy person is going to do is look at the premium. The only people who look at networks are people who are sick. So, if I’m an insurer and you’re asking about my network, I know automatically I probably don’t want you in my pool. So we’re getting a race to the bottom. We have insurers with terribly perverse incentives and that is not going to change until we change the way Exchanges operate.

So those are my three problems.

For the cost control, we need to go to defined contribution. Let government give us each a certain number of dollars—that’s our subsidy—and let the market decide what it can provide for that.

For the problem of the diverse subsidies we need a tax credit that is the same for everyone no matter where you get your insurance—at work, in the marketplace, or in the Exchange.

And to make insurance markets work, we are borrowing an idea that actually was first publicized here at the Cato Institute by an economist at the University of Chicago, named John Cochrane. He called it health-status insurance. Cochrane and I sat down and we figured out a way to have Exchanges where the people are protected against discrimination for pre-existing conditions. People enter paying a community-rated premium. But then we have a risk adjustment that is based on the Medicare Advantage program, which works pretty well. That’s the starting point. But then insurers are free to improve on it. And so over time we get what I call free-market risk adjustment.

That’s my summary.

Click here to continue to part two of my conversation with John Goodman, “Obamacare Exchanges, Medicaid Expansion Degrade Health Care Quality.”

Click here to read part three, “Health-Insurance Tax Credits Are ‘A Financial Mandate.’

Goodman, Part I: Repeal-Obsessed Republicans Don’t Understand Obamacare Is Kind Of A Gift


Michael F. Cannon ,


I blog about health, freedom, and other uncertainties.


Opinions expressed by Forbes Contributors are their own.


John C. Goodman is president of the Goodman Institute for Public Policy Research and a senior fellow at the Independent Institute.

John C. Goodman, Ph.D., is the dean of conservative health policy wonks, and my co-blogger here at Forbes. He founded and for decades was president and chief executive officer of the National Center for Policy Analysis, based in Dallas, Texas. The Wall Street Journal and other media outlets have called him “the father of health savings accounts.” He is currently president of the Goodman Institute for Public Policy Research and a senior fellow at theIndependent Institute.

Last year, I sat down with Goodman in the Cato Institute’s Hayek Auditorium to discuss his latest book on health reform: A Better Choice: Healthcare Solutions for America (Independent Institute, 2015). Video of the event is available here

This is part one of a (lightly edited) transcript of our conversation. Click here for parts two and three.

JOHN C. GOODMAN: It has been five years since we passed the ObamaCare bill and in all that five years there’s not been a single Republican on Capitol Hill that has been willing to stand up and say we have a different vision of the health care system and here’s our vision and if we had our way this is how we would make costs lower, quality higher and access easier. Probably the closest to it is Sen. Bill Cassidy’s (R-LA) bill (S. 1531), but he only has eight co-sponsors of his bill. So that’s a pretty poor track record for people who are representing voters who are very angry about ObamaCare and would like a different vision.

Let me go over why I think Republicans and conservatives don’t have an answer to ObamaCare, or one they can all agree on.

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Goodman, Part II: Obamacare Exchanges, Medicaid Expansion Degrade Health Care…




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