Opinion

Reihan Salam

Should Congress create a national health-care exchange?

Reihan Salam
Mar 22, 2013 16:33 UTC

One of the core ideas behind the Affordable Care Act (ACA), President Obama’s ambitious and very controversial effort to expand access to medical insurance, is that state governments will work with the federal government to make high-quality care more accessible and affordable by creating subsidized state-based insurance exchanges. For those who aren’t covered by employer-sponsored insurance or Medicare or Medicaid, the exchanges are meant to offer a range of affordable insurance plans, with subsidies varying by household income.

The architects of the ACA believed the exchanges would be one of the more politically attractive aspects of the law, as they were designed to give states considerable latitude and to harness the power of market competition. But 34 states, representing two-thirds of the U.S. population, have thus far refused to establish their own exchanges, and the federal government is scrambling to create its own exchanges in the states that have refused to play ball.

Defenders of the ACA have noted the irony that conservatives, who tend to champion state autonomy, have led the opposition to the creation of state-based insurance exchanges. Yet as Douglas Holtz-Eakin of the American Action Forum, a leading critic of the ACA, has observed, the state-based insurance exchanges are best understood as “a second Medicaid program,” which will likely suffer from the same misaligned incentives as its more familiar cousin. While the federal government will cover the entire cost of the subsidies designed to make the insurance plans offered on the exchange affordable, state governments will be free to impose regulations and mandates on insurance plans that could raise their cost. State lawmakers might want to reward medical providers by deeming that various expensive and non-essential medical treatments must be covered by insurance, but state governments will be under no obligation to bear the cost of having done so.

Even without the exchanges, state governments are notorious for imposing costly regulations that have crippled health-insurance markets, as John Cogan, Glenn Hubbard and Daniel Kessler note in Healthy, Wealthy, and Wise. Many states, for example, impose “any-willing-provider” laws that require health insurers to reimburse any medical provider willing to abide by their terms and conditions. This requirement makes it much harder for insurance plans to form efficient provider networks that can compete against others by offering less-expensive, higher-quality care.

Given the strong tendency of state lawmakers to impose onerous regulations, it is fair to ask how the United States can have a functioning private insurance market at all. The reason is that self-insured employer-sponsored health insurance plans are largely exempt from state regulations under the Employee Retirement Income Security Act of 1974 (ERISA). This is a boon to large employers that operate across state lines, and it keeps employer-sponsored insurance relatively affordable, certainly when compared to the state-regulated individual and small-group health-insurance market.

No matter who wins, there’s still a healthcare cost crisis

Reihan Salam
Oct 1, 2012 17:10 UTC

One of the strangest aspects of the 2012 presidential campaign is that President Obama has barely bothered to make the case for the Affordable Care Act (ACA) and Mitt Romney has only rarely summoned the will to make the case against it. This is despite the fact that ACA is arguably the most consequential domestic policy legislation since 1965, when President Johnson presided over the creation of Medicare and Medicaid.

The usual explanation for why we haven’t had a serious debate over ACA is that Democrats recognize that the law is not wildly popular and that Romney is boxed in by his continued support for the universal coverage law he backed as governor of Massachusetts. All of this may well be true. But the foundations of America’s patchwork health system are unraveling before our eyes, and conservatives need to make the case for a more cost-effective reform sooner rather than later.

It is commonly understood that the United States spends an incredibly large amount of money on personal healthcare – the number was $2.19 trillion in 2010 – and that health spending is increasing rapidly as a share of GDP. A high level of health spending isn’t necessarily a bad thing. It makes perfect sense that an affluent country will spend a great deal of money to keep its citizens healthy, and medical care is a complex service that demands a lot of skilled labor.

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