How Can Obamacare Be Truly Fixed?

President Obama may have added his signature to the health care legislation last week, but Republican leaders have decided they won’t go gently into that good night. At least 13 state attorneys general are pursuing legal action, while others are laying the groundwork for legislative overrides if the GOP makes major gains in the November elections.

Still, it will take more than minor fixes to reverse the damage Obamacare will do to America’s health care system. Returning to last year’s status quo won’t be enough, and it’s unlikely that genuine reform can be implemented before Republicans control both houses of Congress and the White House. Never- theless, Republicans should commit to a major overhaul that will cure the system’s endemic flaws and spend the run-up to Election Day convincing the American public that it’s the right thing to do. That, of course, requires understanding the root causes of our current health care crisis.
Much has been written about Obamacare’s "takeover" of American health care. But the sad truth is that with Medicare, Medicaid, the State Children’s Health Insurance Program (SCHIP) and other programs, the federal and state governments already were in direct control of close to half of all the health care dollars spent each year. And let us not forget that private health insurance has been regulated heavily by state and federal laws governing who must be covered and how. In a very meaningful sense, government took over health care long ago.

Despite this government control, what kept American health care alive was the residue of market processes that enabled some semblance of choice, price signals, adaptability and – perhaps most important – physician responsiveness to patients’ needs. Obamacare’s great tragedy is not simply that it will exert more control over the provision of health insurance and medical services but that by doing so, it takes us further into a future in which the relationship between physician and patient will be severed irreparably.

Most of the problems in America’s health care system – high and rising prices, lack of consistent and reliable access for millions, rampant cost shifting and an inability to distinguish between effective and ineffective services or between high and low quality, to name just a few – stem not from some supposed market failure but primarily from existing government interventions in the market for health care and health insurance.
The runaway entitlement spending of Medicare and Medicaid is bad enough. Worse still are the many government regulations on private-sector health programs that distort incentives and hide most of the costs within the system – what my former colleague Tom Miller, now at the American Enterprise Institute, once described as trying to have socialism’s benefits without socialism’s (overt) costs.

Entitlement programs and a tax system that forces Americans into employer-provided health insurance shield consumers from the true cost of their care. To promote affordable coverage, governments implemented benefit mandates, guaranteed coverage, and community rating laws that force healthy individuals to subsidize those with higher health care costs. But each of these have led, predictably, to spiraling health inflation and still more uninsured Americans.

Instead of fixing these problems, Obamacare simply doubles down on the same old losing bet. The purchase mandate was necessary, for example, because the cross-subsidies are more blatant and more severe. The young and healthy know they’re being forced to subsidize those with chronic problems, and the only way to keep them in the system is to make it illegal to opt out. And, with everyone on the inside, that gives government much more leeway to control who gets which services and how much we’ll pay for them.

The plan raises billions of dollars in new taxes and cuts hundreds of billions more out of Medi-care. It then spends those "savings" to subsidize private-sector health coverage and a Medicaid expansion. But the need to restrain costs will make the third party in the doctor-patient-payer relationship increasingly more important than the second.
Someone needs to determine what’s worth paying for. However, with government picking up the tab, health care decision-making will no longer lie with the patient and his or her doctor, but in a committee of bureaucrats in Washington. You can be sure more of our health care dollars will be shifted away from those services we as consumers value and toward those that government bureaucrats value.
This kind of decision-making might be able to bring down health care costs, but it does so at the expense of adequate patient care. In the long run, requiring every new pharmaceutical, medical device and surgical procedure to be cheap enough and effective on a broad enough number of patients to get the support of bureaucratic bean counters could wreak havoc on long-term medical innovation.

But simply repealing Obamacare will only put a bandage on the wound that is our dysfunctional health care system. Nearly all these distortions were present already in our health care system, just to a less severe degree. So, real reform will require dismantling the layers of overlapping regulatory fixes imposed from Washington over the past few decades.

In addition to streamlining entitlement programs, we’ll need to eliminate the tax disincentives that push individuals into employment-based insurance, scrap federal and state rules that dictate health plan design, and put more purchasing power in the hands of individuals. Republican leaders, such as Reps. Paul Ryan of Wisconsin, Tom Price of Georgia and others, as well as free-market advocates outside of government, have pointed us in the right direction. It is now time to set a course toward a healthier America with a genuine, consumer-driven reform of our health care system.