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On Health Care, Romney Goes Retro

Editor's Note: After looking at the economic platform of Mitt Romney’s presidential campaign, this installment of our series on his policy plans examines the details of his health care agenda.

The gist: Repeal the Affordable Care Act; end Medicare and Medicaid as we know it, by turning the former into a voucher program and the latter into a block grant scheme; unravel private insurance, by changing the tax treatment of benefits and undermining state regulation.

The good. Not much. Once in a while he talks up worthwhile reforms designed to improve the quality of care. He also endorses malpractice reform, which is a worthy idea, although his approach would do in a way that reduced damage awards without improving compensation for actual medical errors.

The bad: Changing the tax treatment of health insurance makes sense if you do it alongside other reforms. But if you do it without those reforms, it undermines employer-sponsored coverage without providing adequate alternatives.

The ugly: Tens of millions of people would likely end up without health insurance, relative to what will happen if current law stays in place; in fact, the number could reach 58 million, according to one credible estimate drawn from the (admittedly vague) things he's said so far.

They said it: “Never before in history has a candidate run for President with the idea that too many people have insurance coverage.”David Cutler, economist at Harvard and 2008 campaign adviser to President Obama.

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Mitt Romney’s big campaign moment on health care came a little over a year ago, when he gave a speech at the University of Michigan in Ann Arbor. Reporters from around the country came, eager to hear Romney’s official explanation for why, as governor of Massachusetts, he’d signed that state’s reforms into law—and why, having done so, he opposed President Obama’s effort to create a similar scheme for the nation as a whole.

Romney did not disappoint, offering a list of distinctions—some sensical, some nonsensical—between Romneycare and Obamacare. The next day’s headlines reported them faithfully. But substantively, at least, the real thrust of Romney’s speech was the part the reporters didn’t emphasize: His vision for what an ideal health care system would look like.

Of course, Romney’s plan on that day was not terribly specific. And he hasn’t added many specifics since, although a series of upcoming policy speeches could change that. This aversion to detail has been Romney’s signature approach to policy and you can understand why. Providing details about his policy proposals would mean owning up to difficult, but inevitable trade-offs—for example, the trade-off government spending and health insurance coverage. Reduce the first, as Romney proposes, and you’ll inevitably end up reducing the second.

But, as with the economic plan, it’s possible to perceive Romney’s general approach to health care: He wants to scale back health insurance, so that it provides less protection from medical bills and is harder to get from sources that have historically provided comprehensive coverage. In theory, this transformation will unleash market forces that restrain the cost of medical care. In practice, it will cause serious hardship, by exposing tens of millions of Americans to crushing medical bills or forcing some of them to go without necessary, even life-saving care.

That sounds awfully harsh, I know. But it's a fair interpretation once you examine the four main ideas Romney has embraced so far:

Repeal the Affordable Care Act: Projections suggest more than 30 million additional people would get insurance from the Affordable Care Act, some through Medicaid and some through subsidized private insurance. If Romney repeals the law, these people would be uninsured. Millions of others stand to get better insurance because of the law. That's particularly true of those with pre-existing conditions who buy coverage on their own. The coverage available to them now is typically very expensive, not very protective, or some combination of the two. The Affordable Care Act will allow these people to buy the same policies as healthy people, at the same prices. Take away the law and they’re back to the same, vulnerable position they occupy today.

The law’s other benefits would vanish, too. Letting young adults enroll in their parents’ policies? Gone. Free preventative care? Gone. Enhanced state authority to regulate insurance rates? Gone. Yes, it’s possible Romney could embrace some of these smaller reforms—and, if I had to bet, he probably will at some point. The young adult provision, for example, seems to be awfully popular. But these concessions are likely to achieve only a small fraction of what the Affordable Care Act would.

Change the tax and regulatory treatment of private insurance: This is probably the least understood part of Romney’s plan. Romney has endorsed a familiar set of conservative ideas that would affect private insurance, directly and indirectly. Some of these ideas, like malpractice reform, make sense in certain contexts. But Romney’s versions of them are unhelpful at best and dangerous at worst.

The most important of these is a proposal to change the tax treatment of private health insurance. Ever since the 1940s, the federal government has treated employer-provided insurance as distinct from wages, exempting it from income taxes. This makes employer-sponsored insurance more valuable and, for much of American history, it made employer insurance a stable source of health coverage for the majority of working-age people. But it's become less reliable in the last two decades or so, as medicine has become more expensive and companies have tried to squeeze their labor costs. In addition, economists agree almost universally that the tax break distorts the health insurance market, by making benefits more valuable than wages. The existing tax break also penalizes people without access to employer insurance, since there’s no equivalent tax break for people who buy coverage on their own.

Romney proposes to get rid of those distortions, which is a perfectly fine idea in theory. In fact, the Affordable Care Act includes an effort to do just that, albeit gradually, by limiting the current exemption to a fixed amount and then letting that limit rise slower than the price of insurance (so that it gradually declines in value). But precisely because reducing the tax break would reduce the incentives for employer-sponsored insurance, it’s important to discourage employers from dropping coverage and/or to create alternative ways for people to find affordable, comprehensive benefits.

The Affordable Care Act does this, by penalizing employers that don’t offer insurance to employees and by making insurance available to all people, at uniform rates, regardless of pre-existing condition. Romney wouldn’t take those additional steps or anything like them. Romney promises that the tax (and regulatory) changes he envisions will cause more consumers to shop for insurance, producing more vibrant competition and bringing down the price of medical care. That may be true, to a point—even liberals like me agree that market forces in health care can be constructive. But the market Romney envisions simply won't work for a lot of people, because insurers will be able to exclude all but the safest medical risks.

David Cutler, the Harvard economist and former Obama campaign adviser, explained the situation at the new blog for the Journal of the American Medical Association:

Letting people roam free to make purchasing decisions on their own is fine if markets work well. But health insurance markets don’t, as any economist (or consumer!) knows. In the individual market Romney envisions, people will not be guaranteed coverage; insurance premiums can increase without limit when a person gets sick; and basic benefits for mental health care, maternity care, and countless other services will be eliminated.

That last part, about the elimination of benefits, is a reference to Romney's wish to allow cross-state insurance sales. Most experts believe this would render most existing state regulations on benefits worthless, since insurers would gravitate to the states with the least requirements, just like credit card companies have. If prices came down, it'd only be because insurance was covering less.

One way to assess the impact of a Romney-like plan is to examine the impact of John McCain’s 2008 plan, which called for nearly the same set of changes. Here’s what one paper in the journal Health Affairs predicted would happen: "Moving toward a relatively unregulated nongroup market will tend to raise costs, reduce the generosity of benefits, and leave people with fewer consumer protections." An analysis by Linda Blumberg of the Urban Institute, came to essentially the same conclusion and suggested the result might even be fewer people with insurance.

The one, crucial unknown here is whether Romney would provide a refundable tax credit for health insurance, which means even poorer people could benefit from it, rather than a tax deduction. If so, it's possible more people would get insurance; at least one estimate of McCain's plan, which had a refundable credit, suggested it'd even approach, although not meet, the coverage expansion of what eventually became the Affordable Care Act. But that estimate was something of an outlier. More important, as Ramesh Ponnuru reported in his Bloomberg View column this week, the Romney campaign is leanng against doing so—most likely, I expect, because refundable tax credits cost a lot more money than tax deductions.

Republicans like Romney say they wish to “repeal and replace” the Affordable Care Act. But, as my friend Ed Kilgore observed recently at the Washington Monthly, these sorts of changes suggest their agenda is a lot more ambitious: It’s “repeal and reverse.”

Turn Medicare into a voucher scheme: Romney has been characteristically vague about this element, too, but he’s made plain his intention to adopt a scheme like the one House Budget Chairman Paul Ryan has proposed. Today Medicare guarantees a set of benefits to all seniors, by providing a government-run insurance plan with the option to enroll in a private alternative. Romney would instead opt to create a “premium support” plan, which basically means giving seniors vouchers and having them use it to get insurance. (Romney would preserve traditional, government-run Medicare as an option, but many experts question whether it would survive for long.

The premium support idea has been kicking around a long time and there are versions of it that even liberals can support. The Affordable Care Act’s scheme for covering non-elderly Americans might fairly be described as one. But applying vouchers to the Medicare population, with its higher medical needs, would be inherently risky—something govenrmetn should do only with careful regulation and with guarantees of adequate funding. Romney and his Republican allies have indicated virtually no interest in doing this. On the contrary, they’ve indicated they want to squeeze Medicare for even more savings than the Affordable Care Care would (which hasn’t stopped Romney, or any other Republican, for criticizing the Affordable Care Act’s cuts as stealing from seniors). 

These are the main reasons why Henry Aaron, the Brookings economist who helped develop andp promote the idea of premium support for Medicare, has warned against recent Republican versions of it.

Transform Medicaid into a block grant: The changes Romney envisions for Medicaid are, if anything, more profound. Today, Medicaid is an entitlement program. And that has as much significance for government as it does for individual beneficiaries.

As a condition for participating in the program, states must make Medicaid coverage available to everybody who meets the program’s eligibility guidelines—and provide a comprehensive set of benefits. States have authority to offer coverage to more people or to offer greater benefits to those who get it, if they choose. But they may not do less than the law requires. In exchange, the federal government agrees to cover a large share of the costs, even if swelling enrollment—the kind, for example, we typically see during economic downturns—makes the program a lot more expensive.

Romney would take away Medicaid’s entitlement status and turn Medicaid into a so-called block grant. Under such an arrangement, the federal government would basically cut the states a check, based on a fixed formula, and let them spend Medicaid money however they see fit. Block granting Medicaid has been a Republican cause at least since the early 1980s, when the Reagan Administration nearly pushed such a proposal through Congress, and it’s a prominent (if under-appreciated) feature of Ryan’s House budget. The theory is that states could provide better, broader coverage through innovation, if only they had more freedom.

But Medicaid already pays very little for services. While there are surely innovations that could make the program better, do you trust Rick Scott to make sure changes improve life for poor, vulnerable people in Florida? What about Rick Perry in Texas? It doesn’t take a lot of imagination to see how that could go horribly wrong.

And the structural changes to the program are only part of the problem. Republican block grant proposals typically envision massive spending cuts to the program. Romney hasn’t been as specific about this, naturally. But if he were true to his vow to cap federal spending at 20 percent of gross domestic product while setting aside 4 percent for defense spending, it’s virtually certain he’d end up cutting Medicaid by as much if not more than Ryan would.

It’s not possible to say exactly what this would mean in practice. But it’s possible to get a sense of scale. A report from the Kaiser Family Foundation, citing estimates from researchers at the Urban Institute, said that Ryan’s proposal would mean between 14 million and 27 million people would lose Medicaid coverage. That’s above and beyond those who would lose Medicaid coverage because the Affordable Care Act, which expands Medicaid to more people, wouldn’t take effect under the Ryan-Romney plan.

Throw in the more than 30 million who wouldn't get insurance once the Affordable Care Act came off the books, plus those who'd lose coverage because of Romney's changes to private insurance, and you end up with between 45 and 58 million fewer people with health insurance, as Cutler first observed. (The damage would be less severe if Romney went with a refundable tax credit, but it'd still be more people uninsured than under current law and probably more people uninsured than today.) And, again, that doesn't include the many other people with insurance who will end up with weaker coverage. 

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Those are a lot of policy details, I know. But here’s a (relatively) simple way to think about it. Since modern health insurance first came to the United States in the 1930s, coverage has expanded, albeit fitfully, through a combination of private and public sector efforts. These efforts culminated in the Affordable Care Act, which, whatever it flaws, put in place a system that could eventually make affordable, decent coverage available to all Americans. Romney would run this process in reverse.

He and his supporters call that progress. Would you?

Update: Reading this post a few hours it went live, I thought I didn't put enough emphasis on the fact that the 58 million figure was an upper bound on the number of people who could lose health insurance. It's a very credible figure from a very credible source—who, in turn, drew on nonpartisan, expert analyses of ideas Romney has embraced. But given Romney's lack of specificity, and the propensity of people to seize on precise numbers, I've reworded my initial reference to make these facts clear. I also clarified exactly how Romney's proposed changes would transform how people get their health insurance.

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