Replacing Obamacare Needs to Be Done Incrementally

Replacing Obamacare Needs to Be Done Incrementally
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Surgeon-author Atul Gawande recently penned an article underscoring the importance of “incremental care” in solving medical problems. The slow and steady, often trial-and-error, approach of family physicians or local clinics that are familiar with the patient, he wrote, often produces better results than the intensive interventions of specialists. 

There’s a parallel in how we should think about constructing a health system in America – or replacing one. Former President Obama’s impulse to conduct an intensive intervention to major fix parts of the U.S. health system was understandable, but unwise. Seeking to replace the Affordable Care Act (ACA) with another intensive intervention would also be very unwise.

To appreciate why, consider the scale of such undertakings. In 2015, total U.S. health spending reached $3.2 trillion. That is larger than the economy of Britain or France. Indeed, if the U.S. health system were a separate country, according to World Bank data it would be the fifth-largest economy in the world. So the ACA attempted to re-engineer the equivalent of the economy of France in one bill, produced by the American legislative sausage-making machine. Hey, what could possibly go wrong?!?

It’s not only the scale involved. Health care is also highly complex and ever changing; a law altering one part triggers unanticipated changes elsewhere. Meanwhile, constant developments in medicine and the behavior patterns of people and organizations means there’s a moving target: even the best design becomes quickly out-of-date. And no matter how careful we are, whatever we put into law will necessarily contain mistakes – these mistakes will need fixing.

This means legislation in a complex sector like health care must always be crafted to permit continuous adaptation, and never a truly finished product. Health care legislation must incorporate a process of evolution, not seek to achieve a lasting form of “intelligent design.” Tearing up one huge and rigid statute and replacing it with another is doomed to fail.

What does this suggest as a legislative strategy for replacing the ACA?

First, action in Congress should be as bipartisan as possible, making it more likely that future congresses and administrations will be willing to make adjustments. A fatal political flaw in the ACA was that it was pushed through on narrow party-line votes; this solidified partisan opposition and effectively ruled out later legislative corrections. If Republicans repeat that mistaken political strategy, it will be much harder in the future to fix the inevitable errors in their handiwork. So the wisest course now would be to explore a package of steps that could collect broad support, including such things as adjustments in subsidies for buying insurance.

Second, Congress must recognize that the information and knowledge needed to guide the evolution of our health system is decentralized and constantly changing.  Nobel economist Friedrich Hayek explained that the more complex an economy or system is, the less it can be managed from the top down. Instead, continuous improvement in such a system depends on the decisions of often millions of individuals, who respond to their local knowledge and preferences and to the signals they experience from prices and rules. So a complex health system works better over time if it is driven by local innovation and decision-making in the delivery and organization of health care, with enrollees able to choose their preferred alternative.

This suggests we should expand such features of our health system as Medicare Advantage plans. In this form of Medicare, local health plans receive a fixed budget for each enrollee and can organize services and provider payments in an effort to satisfy enrollees. In contrast to the rest of Medicare, the government does not try to set prices nationally for thousands of treatments and procedures. Dealing with complexity through decentralization would also suggest retaining and expanding the ACA’s exchange system, in which eligible families can choose between alternative plans – although the requirements of plans need to be made more flexible.

And third, states need to be given as much flexibility as possible to achieve the national goals of a health system.  Decentralization and innovation in government is also crucial. There needs to be constant experimentation in the governmental framework of rules and financial assistance within which the health system functions. Fortunately, American federalism is well designed to do this. And in health care we have already been using federalism to permit state-designed variations that test different paths to the same goal.

So-called “Medicaid 1115” waivers, for example, have long permitted states to explore a wide variety of strategies to organize Medicaid services for lower-income households. The ACA itself also includes a provision, Section 1332, which allows states to receive federal waivers to make major changes in how the rest of the law applies to them. States can ask to do such things as replace exchanges, end mandates, and reallocate federal subsidies – provided they maintain or increase coverage and do not reduce financial protections for households. The waivers could take effect starting this year. Unfortunately, the Obama Administration discouraged states from utilizing this provision by dragging its feet on issuing guidance and narrowly interpreting the law. That will likely change in the Trump Administration. As some observers note, making aggressive use of Section 1332 could also help politically, by allowing congressional Republicans to avoid getting deep into the briar patch of insurance regulation and instead allow states to figure out better ways of restructuring health insurance.

Given the experience and the promise of 1115 and 1332 waivers, the Trump Administration should encourage states to apply. And a new health reform bill should create the broadest opportunities for states to explore innovate ways of reaching the reform’s goals – provided states abide by adequate national coverage and financial safeguards for households.

Republicans have an opportunity to build a “terrific” health system. But they will succeed only if they keep in mind their founding principles of decentralization and incrementalism. If instead, they succumb to the desire to build an edifice to be admired for decades, they will surely fail.


Butler is a senior fellow in Economic Studies at Brookings.


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