Ramesh Ponnuru and Yuval Levin have a thoughtful New York Times op-ed about the desperate need for conservatives to come up with a substantial alternative on health insurance reform. There proposal, which has a lot of intuitive appeal, is to rescind the costly tax break for employer-provided health insurance and use the funds thereby raised to provide Americans with subsidies to purchase health insurance on the individual market.
There’s a lot to like about this idea, but there’s also a major problem: Adverse selection.
If you simply do what Ponnuru and Levin propose, every insurance company will be competing to make a product that’s attractive to young men with no chronic health problems and unappealing to everyone else. To turn this idea into an idea that actually works for people with medical needs you need to do three things. One, you need to prevent firms from turning customers away because of their health status or demographic characteristics. Two, you need some kind of regulatory definition of the minimum benefits that need to be offered in order to qualify as “health insurance” that’s eligible for the tax credit. And three, you need some kind of penalty for failing to enroll yourself in a plan to ensure the existence of a viable risk pool. What you need, in other words, is the Affordable Care Act and its regulate/subsidize/mandate tripod structure.
Which is exactly how it should be. The Affordable Care Act is the sensible centrist alternative to the progressive idea of Universal Medicare and the free market idea of Nobody Gets Health Insurance Because of Adverse Selection. That’s not to say that center-right thinkers need to love the Affordable Care Act in all its details. My assumption is that Ponnuru and Levin would prefer a less generous minimum benefits package than the ACA envisions as well as a less redistributive tax policy to pay for it. And in a sensible world, this is what the ACA debate would have looked like. Conservatives would have asked for concrete concessions on the tax and generosity side, Democrats eager for bipartisan cover would have made some concessions, and a bipartisan bill would have passed. Then in decades to come, we’d continue debating the precise contours of the subsidy levels and the regulatory minimums. But instead the right wages a scorched earth campaign against a centrist proposal and now we have smart National Review writers reinventing the wheel on the Times op-ed page.