Examination of Republican Healthcare Plan

Publius does an interesting examination of what the Republicans propose for healthcare reform if they were able to repeal the currently enacted law called the Affordable Care Act. He notes that the 2 principal aspects of the Republican healthcare plan are to (1) allow people to buy health insurance outside of their state, and (2) to enact tort reform.

Regarding the proposal to let people purchase insurance from outside their state:

On the first, Republicans argue that more competition needs to be introduced into the health care market. Right now, competition is “artificially” limited by a requirement that consumers may only purchase health insurance from an insurer located in their state. If consumers could purchase from any state in the US at will, the insurers in each state would suddenly be forced to contend with an increased number of competitors thereby driving insurance costs downward. Of course, such an idea isn’t unique to health care. It’s an idea already implemented in many other areas which makes the consequences of the idea fairly predictable.

Take credit cards, for example. In theory, Americans can obtain a credit card from any state in the nation. There is no restriction on consumer choice and all credit cards are free to compete against each other across state lines. In practice, the major credit card companies exist in only a handful of states, and they are always the states which provide limited or no consumer protections in key areas. Many states have adopted usury laws which limit the amount of interest a company can charge a consumer. A few states have no limitations on interest charges. Care to guess where the major credit card companies are located?

It’s called the “race to the bottom.” In order to attract the business of major companies (and their corresponding tax revenue), many states “compete” with each other to offer the least regulatory intrusion on such companies, often at the expense of consumers. The phenomenon is hardly unique to credit card companies. Delaware imposes the least requirements on corporate governance, and, unsurprisingly, most major corporations are headquartered in Delaware.

Allowing consumers to purchase health insurance across state lines would result in precisely the same race to the bottom. Major health insurance companies would relocate to states with almost no regulatory requirements and consumers would be left unprotected in one of the most important areas of their life.

There is, of course, a way to increase competition without the race to the bottom- standardize the regulations for health insurance on a nationwide basis and then allow consumers to purchase across state lines. The Democrats proposed precisely this with a national health insurance exchange. All non-employer insurance, with few exceptions, would have to be sold in the exchange, and companies could only sell in the exchange if they satisfied certain regulatory requirements. Democrats, unfortunately, scaled that proposal back to a “regional exchange” concept where states could establish an exchange with other states in their region on the same regulatory footing. While the regional exchange is clearly inferior to the national exchange concept, it is also clearly superior to the Republican “buy across state lines” concept.

On the second Republican objective of tort reform:

The second Republican idea, tort reform, also sounds better than it is. Medical malpractice costs are estimated to be less than 1% of the total health care costs in the US. That’s still a lot of money, but it hardly makes tort reform worthy of the attention it receives for cutting health care costs. Furthermore, tort reform has already been implemented in more than half of the states in some form. Implementing tort reform on a nationwide basis, then, would be largely redundant for half of the nation. In the states where nationwide tort reform is redundant, one would expect literally no impact on health care costs. In the states where tort reform has been implemented, it has largely been disappointing in results.

Reducing costs associated directly with tort costs is only part of the Republican argument, however. Republicans also argue that because of high liabilities associated with torts, doctors engage in “defensive medicine,” ordering expensive and unnecessary procedures to protect themselves from litigation risk. This argument suffers from several flaws. First, “tort reform” does not mean “zero litigation risk.” Even in states with low liability caps, doctors remain at risk of liability up to that cap. Risk averse doctors may order fewer “defensive” tests, but they won’t eliminate defensive testing as long as there is any risk of litigation, and there will always be risk of litigation. Second, even assuming no risk of litigation, there isn’t any evidence to suggest that defensive medicine practices would go away. To the contrary, defensive medicine is often profitable for doctors and evidence suggests that the profit motive would continue to drive defensive medicine practices.

This isn’t to argue that tort reform has had no positive impact. In states which have implemented tort reform, it has tended to lower malpractice premiums for doctors to a more manageable level. Those cost savings, however, have not been passed on to consumers in any meaningful amount.

(Sorry for copying so much of your stuff Publius. I hope you don't mind.)

Publius adds two interesting bits of information as well.

Regarding what would happen if the Affordable Care Act was repealed:

Well, first, the government would have a mess on its hands dealing with the unwinding of a complex health care bill which includes not only health care provisions, but radical changes to the student loan infrastructure, tax cuts for most (and tax increases for some), and more. The states attorneys general suing to overturn the health care law would find themselves shifting from popular ground to highly unpopular ground once it became known that the consequence of success would include collecting billions in back taxes which Americans suddenly owed because the tax break which existed under the health care bill had disappeared.

And, regarding the content of the current Affordable Care Act... it is as I've said:

Republicans have had many good ideas on health care reform over the decades. Mitt Romney implemented some in Massachusetts. Bob Dole and others proposed several workable solutions in the 1990s in opposition to “Hillarycare.” Of course, most of those ideas were incorporated into the Affordable Care Act which Republicans now reject.