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Why Republicans can't fix health insurance

The more market-oriented your approach, the more it’s going to cost.

The Congressional Budget Office analysis of the Republican health care and tax cut bill that passed the House of Representatives last month is full of striking facts. But here’s a particularly telling one: The regulatory changes made at the behest of the far-right Freedom Caucus do succeed in yanking insurance coverage from 1 million fewer people than would have lost coverage under the original version of the American Health Care Act.

In exchange, government spending increases by $218 billion over a 10-year period — $218,000 per additional insured person. That’s a lot of money.

To really understand how much money it is, consider the AHCA’s provisions related to Medicaid. Here, 14 million people are expected to lose coverage, which ends up saving the government $884 billion. That comes out to about $60,000 per person — a far lower figure. In other words, if Republicans were willing to spend an extra $150 billion to reduce coverage loss by making their Medicaid cuts less savage, they could have earned themselves a far better CBO score on both coverage and deficit reduction.

But to do that they’d have to admit something that Republicans seem incapable of admitting: When it comes to health insurance, market-oriented solutions are the most expensive option.

Big government provides health insurance on the cheap

This is a reality centrist Democrats found themselves facing awkwardly when they sat down to write the Affordable Care Act in 2009.

Moderates liked the idea of subsidizing the purchase of private insurance more than they liked the idea of expanding a government insurance program. But they also liked the idea of spending less money rather than more. And it turned out that on a per patient basis, expanding Medicaid was cheaper than extending subsidies to buy private insurance. Democrats had to choose between their ideological aversion to government insurance and their ideological aversion to higher spending, and ultimately wound up deciding that a hefty dose of Medicaid expansion was a better idea than pushing the spending total up.

But this is exactly the point that Republicans — who are much more averse to federal social spending than even the most centrist Democrat — consistently refuse to acknowledge.

Almost across the board, government solutions are cheaper:

Health care is complicated, but the source of the big government price advantage is not. When the government acts as a giant health care buyer, it either formally through regulation or informally through purchasing power imposes price controls on the sellers of health care services.

The ordinary push and pull of consumer action in a marketplace isn’t able to do nearly as well because patients neither can nor want to approach health decisions like ordinary commercial transactions. It’s true that a free market approach works well enough for purely discretionary health services like Lasik or breast enhancement surgery, but these are exceptions that prove the rule — medical procedures that don’t address core health needs function fine as consumer commodities. Essential health care doesn't.

The Republican trilemma

None of which is to say that there’s no rational basis for opposing a purely state-run approach to health care. The more market mechanisms you put in place, the more choices consumers will have. More variety gives room for more innovation and more emphasis on customer service.

And, indeed, the higher costs of a private approach aren’t necessarily a bad thing. Higher costs for some mean higher profits for others, which ultimate incentivizes more R&D spending and other investments.

But there is a fundamental three-way tradeoff here between the amount of money that you spend, the number of people that you cover, and the extent to which you rely on market mechanisms. What conservative ideologues want to do is choose minimal government spending and maximum reliance on free markets, letting coverage wither in the wind. That’s why Michael Cannon of the libertarian Cato Institute launched his “Anti-Universal Coverage Club” 10 years ago to try to rally the faithful behind the cause of letting tens of millions of Americans go uninsured.

Practical Republican politicians don’t want to go there, however, because it’s morally hideous. Nobody who has to face the voters wants to own up to favoring a free market system in which huge swathes of the population can’t get care when they are sick. On the contrary, when GOP politicians need to make the case against Obamacare, what they normally do is complain that premiums are too high and coverage isn’t generous enough. But there are only two ways to address those issues: lean less on government solutions, or spend more money backed up by higher taxes.

Neither option is acceptable to Republicans, so they’re left with the AHCA solution — massive rollbacks in coverage that they try to paper over with a lot of handwaving.