The Republican leadership of the Senate is trying to draft a replacement for Obamacare, again. They are not going to succeed, again. We should all show them some respect. This is especially true of their donors. Traditional Republican donors should be impressed by the fact that no really bad replacement for Obamacare has been adopted by the Senate.
Mostly, senators are very smart people, and they’re working very hard, and they simply cannot complete the job they promised to complete. We should be sympathetic, and not contemptuous. It’s not a lack of effort that has resulted in their failure to complete a job they promised to finish on day one. They cannot complete the job they assigned themselves because it is impossible. They have gained our respect by actually not doing it. Now it’s time to get back to work.
Let’s see why there is no easy way to replace Obamacare. Again, it is not the fault of the Senate leadership that there is no easy solution.
We all want a few simple things from health care system:
1. It should be affordable for everyone, young and old, healthy and not so healthy. That would make it in some sense fair.
2. No one should be forced to pay for anyone else’s health care coverage. That would make it fair in another sense.
3. No one should be forced to participate. That would make it fair in yet another sense.
Unfortunately, it’s not possible to design a health insurance system that maintains the first bullet without requiring the second. That is, health care cannot be affordable for the very old, or for those who already suffer from serious preexisting conditions. Insurance companies know with certainty that these people are going to be very expensive to serve. Someone with diabetes or black lung disease, or with the medical conditions that come with old age, is expensive to serve. Either they are charged more than they can afford for their insurance, or someone else provides part of the cost of their insurance, or someone else provides part of the cost of their care. Under Obamacare some of that is handled by charging the young more than they should be charged. The rest of the deficit is covered by explicit subsidies paid by wealthy taxpayers.
There is no way around this simple fact that the first two bullets are incompatible. Either the elderly and the sick are forced out of the market by higher prices, or we subsidize them one way or another.
Moreover, dropping the third bullet makes the first one even harder to maintain. Without the Individual Mandate healthy people can duck out of the insurance market and pay no premiums at all. If they later become sick, they can jump back into the market and get insurance with a price that is not permitted to include the cost of their new “preexisting condition.” These people destroy affordability in two ways. They are not paying premiums when they don’t need care, so they are not contributing to the system in a normal way. They then demand expensive care, even when they have not paid premiums.
So what would be fair? No one knows. That’s not even a well-structured question. Do you want to be fair to the young or the old? To the healthy or the sick? To people who don’t want to buy insurance yet because they don’t need health care yet, or people who want to buy insurance right now because they need health care right now?
So what should the Senate do? That’s easier to answer than any question about fairness. The Senate should honestly acknowledge that it is not possible for Americans to take far more money out of the system than Americans put in.
After that, everything else about the design of health care is a matter of individual preferences. The Senate should find out what Americans actually believe — rich and poor, young and old, Red State and Blue State.
1. Do Americans believe that health care should be affordable, even for the elderly, and even for those who are truly ill and expensive to treat?
2. Do Americans believe that the young should not be charged too much to pay for the elderly?
If so, we probably need federal subsidies and the Individual Mandate. This is not changed by shifting money from the federal government to the states.
The Senate needs to tackle this debate honestly or agreement on Repeal and Replace will remain impossible. First, the Senate should acknowledge that we cannot take more money out of the system than we put in, and that is not changed by where the system is managed. Second, the Senate should take the time to learn what Americans really want, and take the time to design a plan that will deliver it at manageable cost.
If voters in different states truly have different preferences, the replacement for Obamacare can ensure that this is reflected in the individual states’ health care systems. But nothing changes the fact that the system cannot spend more than it collects.
 See “Why is health care so complicated? An information economics prof navigates the current confusion,” for a much more detailed treatment of this analysis.