This story appears in the Septemper 7, 2014 issue of Forbes. Subscribe
For all the endless talk about reforming the health care system these past five years, it's remarkable how little we've done to solve its actual problems. Spending hundreds of billions of taxpayer dollars to subsidize insurance coverage for several million people? That's the easy part. The hard part is addressing the fact that American health care is so expensive.
The high price of U.S. health care is the fundamental reason tens of millions of Americans are uninsured. It's the principal suppressor of middle-class wage growth. It's a constant threat to businesses' operating margins, and it's the primary driver of the federal debt.
In May the American Health Policy Institute surveyed the chief human resource officers of 360 large employers, representing 10 million workers. When asked what troubled them the most about the Affordable Care Act, 85% said "increasing access to the health care system without making significant improvements in the efficiency and affordability of that system." Only 6% believed that "the ACA will help my company more effectively control health care costs"; 82% disagreed.
According to the Congressional Budget Office's 2014 Long-Term Budget Outlook, the United States remains on an "unsustainable" trajectory, driven entirely by growth in the big federal health care entitlements: Medicare, Medicaid and Obamacare.
Democrats haven't solved this problem, but neither has the GOP. House Republicans have voted six times to repeal Obamacare in its entirety. But they haven't once brought a bill to the floor that would replace Obamacare with a more attractive set of reforms.
The CBO projects that by the next presidential election 36 million Americans will be on Obamacare-sponsored insurance: 12 million under the law's Medicaid expansion and 24 million on the new insurance exchanges. Whether they admit it or not, no Republican can win the White House in 2016 campaigning on taking away health coverage for 36 million people.
What should Republicans do? Focus on the real problem. The principal reason for America's high health care costs is the fact that so few of us pay for it directly. Switzerland and Singapore, the most market-oriented health systems in the world, give consumers control of their own health care dollars and expect their citizens to shop for care and coverage. The results are remarkable: Swiss public health care spending is 45% of U.S. levels, per capita, and Singapore's only 20%. We wouldn't have a budget deficit if we had that kind of performance.
This month the Manhattan Institute published my new 68-page proposal, "Transcending Obamacare: A Patient-Centered Plan for Near Universal Coverage and Permanent Fiscal Solvency." The plan gradually moves the U.S. toward a consumer-driven system in which more Americans are using health savings accounts and shopping for their own coverage.
The overall framework is fairly simple: First, deregulate the Obamacare exchanges so people can truly shop for coverage they want and need. Second, migrate Medicaid enrollees and future retirees onto the reformed exchanges. Third, tackle the problem of consolidated hospital systems that exploit their market power to charge prices far above what a free market would bear.
Based on our CBO-style modeling, the plan reduces the cost of single insurance policies by an average of 17%. Over 30 years it reduces the deficit by $8 trillion, while reducing tax revenues by $2.5 trillion. And because it makes health insurance less costly, we estimate that 12 million more Americans will freely choose to buy it.
Importantly, while the plan is perfectly compatible with Republicans' "repeal and replace" slogan, it doesn't actually require the repeal of Obamacare to work. By putting patients back in charge of their own health dollars, it would unleash a torrent of medical innovation. And instead of arguing over taxes and spending, we can get back to saving people's lives.
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AVIK ROY is Forbes' Opinion Editor and a Senior Fellow at the Manhattan Institute for Policy Research.
