Vance Is Right on Health Care

R epublican vice-presidential candidate J. D. Vance is under fire for saying that Americans should have more options for their health coverage and that one-size-fits-all approaches that force all Americans into the same insurance pool can be improved upon.

Proposals to improve the status quo should be welcomed, given the deep underlying problems with the Affordable Care Act (ACA). The policies that Donald Trump pursued as president both improved the ACA and provided people with options for better coverage — showing that it is possible to do both. The reforms recommended by Senator Vance would protect people with preexisting conditions and give people better health-coverage options, aims that are not mutually exclusive.

The ACA made the individual market less like health insurance (in which people don’t know whether they will get sick or have an injury in a given period, so they buy insurance, and the premiums of those who don’t get sick or have injuries cover the costs of those who do) and more like an extremely expensive high-risk pool that stays afloat only with massive government subsidies. This is an inefficient structure that harms patients with low-quality plans, healthy people (while disincentivizing healthy behavior) with high-cost plans, and American families who bear a great tax burden from financing this scheme. There are benefits, as some people would not have been able to get coverage without the provisions that require insurers to offer plans to every applicant and not charge the sick more than the healthy. However, the number of beneficiaries is small relative to the number of losers.

Big insurers and their enablers in the policy community and the media want an outcome in which people who use little, if any, medical care have no choice of lower-cost options and are forced into the single market with very high premiums. Of course, most of these people would never buy this coverage with their own money. Thus, we have the main story of the ACA — massive subsidies to get people into the market, buying an overpriced product for what they need in order to cross-subsidize those who expect to use a lot of medical care. And these subsidies go directly to health insurers, which have enjoyed soaring profits under the ACA. The ACA’s subsidies cost more than $100 billion a year and its Medicaid expansion costs more than that, yet American health has not improved. There are ways to redirect this money in a manner that permits greater health-care freedom and improves coverage for the sick.

We don’t need to drastically overcharge people who expect to use little medical care — but who want financial protection if they get sick or injured — to help people with conditions that would make it difficult or impossible for them to get insurance. You can just directly subsidize the latter set of individuals and avoid broader market distortions. Moreover, health coverage would likely improve because insurers would develop better plans tailored to the sick, such as people with heart disease or cancer. The ACA worsened care for them, with extremely narrow network plans being just about the only option for such people.

It also defies common sense to say that we can’t reform a program that has led to $42,400 annual premiums for a 60-year-old-couple and $49,400 for a family of five headed by a 50-year-old couple in Morgantown, W. Va. For those families living in Prescott, Ariz., the respective premiums would be $32,800 and $38,100. And these plans have enormous deductibles. (The share of that premium paid by the enrollee and taxpayer will be a function of the enrollee’s household income, but these are the premiums regardless of that distribution.)

In his first term, President Trump took actions to both improve the ACA and provide people with more affordable options outside the ACA. The success of his policies, such as the elimination of the individual-mandate tax penalty, should show that the fears that more consumer freedom would lead to adverse selection, i.e., an unraveling of the insurance market as only high-risk people buy coverage to a significant degree, and the ACA collapsing are way overblown.

When Trump took office, the individual market was actually in an adverse-selection death spiral in several states as too few young and healthy people were buying the coverage and because the Obama administration’s implementation was permitting people to wait until they were sick to enroll. Premiums were soaring, and insurers were exiting markets. There was a very real concern that some people would not have any options for coverage. President Trump immediately put in place a market-stabilization rule, which ended abuses and ensured that there would be at least one option for all enrollees. He also complied with a court ruling that the Obama administration was unlawfully making certain payments to health-insurance companies and permitted insurers to respond in a way that increased overall subsidization of the market. Trump’s administration also approved many state waivers to establish programs with federal dollars to pay the medical expenses of very high-cost enrollees to reduce overall premiums in a way that did not increase net federal expenditures.

Moreover, Trump expanded consumer protections on alternatives to ACA plans — permitting people to keep short-term plans for up to three years. These plans permitted families to obtain much more affordable coverage that covered far more doctors and hospitals than an ACA plan would. And counter to the fearmongering, the ACA markets improved much more (in terms of lower premiums, insurers offering coverage, and overall number of enrollees) in states that permitted short-term plans compared with states that restricted this coverage. Thus, in the real world, the cries of people reacting to Vance about the ACA market collapsing from giving people more options are not only overblown, but they are likely directionally wrong.

One of Trump’s most profound health-policy actions was to allow employers to provide contributions, which are not subject to federal taxation, that workers could use to buy ACA individual-market plans. These individual-coverage health-reimbursement arrangements grow the number of people in the individual market, with a source of funding (employer and employee contributions) that is something other than a large taxpayer gift to insurers. With these new enrollees interested in the individual market, insurers would be incentivized to offer higher-quality plans, not just narrow network health-management organizations (HMOs).

The Trump policies were aimed at improving underlying coverage and not over-subsidizing insurers. The Biden administration and Democrats in Congress pursued a different course — to massively increase subsidies to health-insurance companies and create a Wild West market in which brokers and lead generators could easily manipulate applications to qualify people for fully subsidized plans. As a result, enrollment and fraud have drastically increased, as an enormous number of these enrollees use little, if any, medical care. Many can’t find doctors willing to accept the coverage, and some don’t even know that they have been enrolled, tricked by ads making them think they were getting cash, not health insurance.

A sensible course forward would be to acknowledge that there are flaws with the ACA and work to build a structure that expands options, improves coverage for the sick, and makes more sensible use of our tax dollars. Such reform could and should be bipartisan. If he is elected in November, Trump has a positive track record to build on. There are much better alternatives to propping up a broken system with even more subsidies directly from the U.S. Treasury to health insurers.