Why Republicans Deserve to Lose the Health Care Reform Debate

By and / 1.14.2010

As Congress makes sausage out of health care reform, Republicans have complained bitterly that they have been excluded from the process. As health economists whose work generally reflects a market-based perspective, it might be surprising to hear us say that exclusion is just what the Republicans deserve. There are three reasons why.

Private health insurance works best for Americans who get it in groups through their employers. But virtually all such Americans know they are only one layoff away from losing their health insurance. If they have a pre-existing medical condition, they will have to pay astronomical premiums for an individual insurance policy, if they are lucky enough to get coverage at all. Those who are turned down can face financial ruin from the cost of illness. Any rational person would want to insure against the risk of losing his or her health insurance, but that is virtually impossible to do in the current health insurance marketplace.

This is a clear case of market failure and it has persisted for decades, yet Republicans simply don’t recognize this as a problem that needs to be solved. The individual insurance market is the source of most of the horror stories that plague and sully the health insurance industry, yet Republicans, who say they want to preserve private insurance, have proposed nothing that would address the problem.

The obvious solution is to impose some type of structure (i.e. “insurance exchanges”) on the individual insurance market, including a guarantee that affordable coverage would be available to anyone who shops in the individual market. State governments would be the natural entities to manage this market, but government involvement, even in the face of clear market failure, is anathema to Republicans. In addition, the Democrats’ mandate requiring individuals to purchase insurance is too much for many libertarian-oriented conservatives to bear, especially if costly subsidies are tied to the mandate. But at least they’re attempting to solve a complex problem, something Republicans can’t seem to do.

The second Republican failure is their criticism of the Democrats’ proposed cuts to Medicare. Part A of Medicare (which pays for hospital care) is scheduled to run out of money in 2017, or sooner if the recession continues to depress federal tax revenues. Young Americans have not mismanaged the Medicare program and don’t deserve to pay the bill for that policy failure. Drastic cuts in the cost of Medicare (coupled with higher premiums and a dramatic increase in price competition at all levels) will be necessary to solve this problem, and the sooner the better. The cuts proposed by congressional Democrats – mainly in payments to hospitals, other providers, and private Medicare Advantage plans – are a tepid attempt to deal with this problem. Like many Democratic proposals, they go hand in hand with a misplaced distaste for private health insurance plans. But vilifying the Democrats on that score, without offering alternatives to shore up the program, is fiscally irresponsible.

The third Republican failure is their knee-jerk criticism of “comparative effectiveness” research. This research aims to discover which medical treatments work better than others. It’s perfectly acceptable to worry that comparative effectiveness research in the wrong hands (like the government’s) could lead to rationing. But blanket condemnation of comparative effectiveness research leaves the impression that the current level of ignorance regarding the effectiveness of medical treatments is an inconsequential feature of the health care system. This is an embarrassment to the party that claims to be a prudent steward of the public’s money.

Republicans need to start listening to their constituents and propose innovative, conservative remedies to the numerous problems that plague the U.S. health care system. People who truly are market-oriented should be able to see market failure when it exists and propose corrections, even when those corrections include a role for government. Since the insurance industry has failed to fix itself, Republicans should have proposed a new set of products that protect people from losing insurance coverage. They should have proposed remedies including regulatory constraints that would lead to more stable and affordable health insurance coverage without the need for government subsidies. Finally, Republicans should have promoted their own proposals to fix Medicare, instead of demagoguing the issue. The Republicans’ silence on these fronts has been deafening – and explains why they deserve to lose the health care debate.

Bryan Dowd and Roger Feldman are professors at the University of Minnesota. They split their votes between Barack Obama and John McCain in the 2008 presidential election.