Getting a Better Return on Our Health Dollars
The Ripon Forum
Volume 51, No. 1, February 2017
by TEVI TROY
The U.S. spends more on health care than any other developed country – 50 percent more per capita than the next highest OECD country. The average American pays over $9,000 for health care each year – more than twice the average of other developed nations – and yet the life expectancy of the average American ranks 42ndin the world.
For all of our health spending, the average American can expect a shorter lifespan than the average Frenchman, Swiss, or Swede. Over 17.5 percent of our GDP goes to health care, up from only about 5 percent of GDP devoted to health in 1960. We are clearly spending a great deal on health care and not getting the results we should, particularly given the enormous size of our investment.
In addition to the lack of sufficient return on our health care spending, there is also the fact that we are spending at an unsustainable rate. Consider the following: In 2025, Medicaid costs are expected to surpass $1 trillion per year, and the worker to retiree ratio will dip below 3:1. In 2029, all of the baby boomers will have reached the standard retirement age of 65. And in 2030, the Medicare Hospital Insurance trust fund is scheduled to be depleted. Clearly, fixing our health care spending situation is not just an issue of getting better results, but also essential for our economic security.
With the recent election of a Republican president, along with a GOP House and Senate, Republicans have a chance to change this trajectory. Doing so will not only help generate much-needed better health outcomes, but could also stave off a looming fiscal crisis based on our enormous and unsustainable health care spending. Addressing this problem will take a multi-pronged strategic approach.
First, we need to address the problem of waste in our health care system. Medicare waste is estimated to be around $60 billion per year. The Obama administration claimed to go after “waste, fraud, and abuse” as part of the Affordable Care Act, but in reality clamped down on Medicare Advantage, a popular program that gives choice to seniors. What we really need is a more aggressive anti-fraud effort by the new Trump Administration that uses tools like biometric screening of recipients and secret shoppers to root out rampant fraud.
Second, the replacement of Obamacare with a more consumer-friendly system will go a long way towards reducing costs and bringing down overall health care spending. The Obamacare approach was to increase costs for all, make insurance mandatory, and provide costly subsidies for a select few. A better way is to try to reduce costs across the system, and thereby incentivize individuals to purchase coverage on their own. Elements of such a plan include: expanding access to consumer-directed health arrangements like health savings accounts; allowing the purchase of tax-preferred health insurance through mechanisms other than just through one’s employer; tort reform to cut back on excessive lawsuits and defensive medicine; enabling the purchase of insurance across state lines; and, replacing Obamacare’s exchange subsidies with a refundable tax credit or some other tax benefit to help lower-income Americans afford health insurance. A Congressional Budget Office analysis of a plan along these lines found that it would have the effect of reducing the average cost of health care premiums.
Third, we should maintain the employer-based system and be wary of the recent trend of moving away from employer-sponsored care and toward more government-provided insurance. Employers cover 177 million people. In doing so, they take pressure off the government-based parts of the system. Employers have proven themselves to be very good at getting people covered, in contrast to government-sponsored programs, which struggle in that regard. Furthermore, the cost per covered life is greater for people in government-sponsored coverage than those in employer-sponsored care. Obviously, government programs tend to cover higher cost populations. But to the extent that we can limit the movement of individuals away from employer-sponsored care and towards government-sponsored care, it will save taxpayers money. Keeping employers in the health care game is vital to this effort, which means that public policy should both maintain the current tax preferred treatment for employer-sponsored care, as well as the ERISA preemption that allows employers to provide multi-state plans without running afoul of a crazy quilt of different state regulations.
The fourth plank is more long-term, but no less important. We need to think about significant reforms to our costly Medicare system to make it more efficient and more sustainable. President Trump has said he does not want to change Medicare, so it’s unlikely to be an early administration priority. But we cannot push off the problem forever. Speaker Paul Ryan has put forward a serious proposal for Medicare reform based on the premium support concept. This plan, which has bipartisan origins, does not appear to be on the front burner right now. But it could start a needed conversation on Medicare reform later on, perhaps after the midterm election.
None of these steps will be easy. If they were, someone would have done them already. But if we as a society want to start getting more out of our health care dollars, this four-part plan is the place to start. Otherwise, we will continue to get poor returns on our health care investment, and face a serious chance of a long-term health care-driven fiscal calamity.Tevi Troy is the CEO of the American Health Policy Institute and a former Deputy Secretary of Health and Human Services. His latest book is “Shall We Wake the President? Two Centuries of Disaster Management from the Oval Office."
Trump wants health ‘insurance for everybody.’ Here’s how the GOP can make it happen.
By Lanhee J. Chen and Tevi D. Troy, The Washington Post
Lanhee J. Chen is a research fellow at the Hoover Institution and director of domestic policy studies in the public policy program at Stanford University. Tevi D. Troy is chief executive of the American Health Policy Institute and was deputy secretary of health and human services from 2007 to 2009.
Donald Trump’s statement that his preferred replacement for the Affordable Care Act (ACA) would provide health “insurance for everybody” surprised those who have followed the contentious debate over the health-care law since its passage in 2010. Rep. Tom Price (R-Ga.), Trump’s nominee for health and human services secretary, signaled agreement with the president when he said during his confirmation hearing that a Republican replacement for the ACA should cover more people.
In recent years, though, Republicans have emphasized that gains in insurance coverage should not be the sole barometer by which health-care reform is measured. Rather, they have said, the affordability of that coverage is the key to a better health-care system with fewer uninsured Americans. The ACA’s cardinal sin is its focus on access first, while doing little to address cost.
As a general matter, the conservative focus on lowering health-care costs first is exactly right. Yet Trump was also right to argue that the ACA’s replacement ought to have universal coverage as a goal. Democrats should not be allowed to claim this health-care moral high ground uncontested.
For too long, Republicans have shied away from calling for “universal coverage” because they’ve equated it with the Democratic push for a government-run, single-payer health-care system. But that simply isn’t the case. Market-based reforms can both lower costs and lead to health insurance coverage for more Americans. Indeed, any health-care reform that can’t compete with the ACA on coverage is sure to face significant political headwinds. It also would make it far less likely that Democrats can be persuaded to support replacement legislation. Perhaps most important, this is a fight that conservatives can — and should — win.
The starting point for this seemingly audacious claim is the fact that the ACA has been a significant failure even for those who value universal coverage above all else. While the law has unquestionably decreased the number of uninsured people in the United States, the Census Bureau reported last year that 29 million remained without health coverage in 2015. (About a quarter of these were undocumented immigrants or residents of states that opted against the Medicaid expansion.) In 2015, the Internal Revenue Service found that 19.2 million taxpayers either paid the individual-mandate penalty or received hardship exemptions from that mandate — meaning that tens of millions of people went without health insurance, primarily because it’s too expensive.
Republicans have traditionally been more comfortable talking about the importance of ensuring that every American has access to quality, affordable health insurance. Indeed, “universal access” has been a relatively noncontroversial way for conservatives to avoid making promises about how market-based health-care reform would affect the number of Americans who remain uninsured after the passage.
The apparent gap between what Trump appears to be proposing (universal coverage) and what Republicans have supported (universal access) isn’t nearly as wide as many analysts think. This gap is both narrow and bridgeable: There are policies that can ensure universal access to health insurance while also putting our nation on the path toward universal coverage.
Any market-based replacement for the ACA should include four key elements to move us toward universal coverage.
First, it should expand access to consumer-directed coverage arrangements such as health savings accounts coupled with high-deductible insurance plans. These products not only help reduce costs but also give consumers greater control over their own care. Such increased control incentivizes individuals to do what consumers do best: make value-based decisions that collectively drive down costs and improve quality.
Second, assistance should go to those who need it but be tailored to their individual situations. Low-income Americans should have access to a more innovative and modern Medicaid program, while the working poor should have access to a tax subsidy to help them afford private plans.
Third, those with preexisting conditions should have access to mechanisms, such as properly funded high-risk pools, to help them both acquire and afford coverage.
Finally, the federal government should allow for alternative pathways to private, tax-preferred coverage, by allowing health plans to be sold across state lines, as well as by giving unions, churches and other civic organizations the opportunity to offer coverage to members.
Taken together, these policies provide a powerful set of tools to both drive down health-care costs and expand coverage to every American. Trump and the Republican Congress have a remarkable opportunity not only to do away with the ACA and all of its shortcomings but also to put in place reforms that will truly improve our health-care system. Republicans in Congress should not hesitate to embrace Trump’s call for universal coverage. Indeed, they should work with the new administration to pass legislation to make this goal a reality.
The ACA’s Impact on Employer-Provided Health Benefits
November 16, 2016
President Obama will be leaving office with the Affordable Care Act (ACA), his signature policy initiative, in deep peril. An incoming Republican president and Congress, concerned with the cost of ACA exchange plans jumping by an average 25 percent next year and employee health care costs rising, have pledged to repeal the law. For his part, the President sought to shift the blame for rising out-of-pocket cost from the ACA’s flaws to employers and insurers. During a recent speech defending the law, he said the ACA has had no impact on the affordability of employer-provided health care benefits “except to make it a better value.” As the President put it, “if your premium is going up, it’s not because of Obamacare. It’s because of your employer or your insurer — even though sometimes they try to blame Obamacare for why the rates go up. It’s not because of any policy of the Affordable Care Act that the rates are going up.”
President Obama’s concern over increasing health care costs is admirable, but his effort to blame employers and insurers for rising costs is disingenuous. There is clear evidence the ACA has both directly and indirectly increased the cost of employer health care benefits. In 2014, an American Health Policy Institute study found that over the next decade, the cost of the ACA to large U.S. employers (10,000 or more employees) will be $4,800 to $5,900 per employee, and over the same time period, the total cost of the ACA to all large U.S. employers will be $151 billion to $186 billion. In 2012, an Urban Institute study estimated the ACA would increase large employer (1,000 or more employees) health care costs by 4.3 percent, and mid-sized employers (101 to 1,000 employees) costs by 9.5 percent. More recently, a survey of employers by the International Foundation of Employee Benefit Plans (IFEBP) found the ACA increased actual employer health care costs by an average of 5.8 percent.
Furthermore, the regulatory burden the ACA imposes on businesses and individuals should not be underestimated. Since the ACA was enacted, 106 regulations implementing the law have been published. These regulations will cost the private-sector more than $51 billion and require 173 million hours of paperwork in order to comply. Moreover, hundreds of guidance documents regarding the ACA have been published by various federal agencies since 2010. According to a recent American Action Forum study, the cost of each ACA regulation published so far has averaged $426 million and required 1.6 million hours of paperwork.
These overarching cost estimates come from a number of ACA provisions that have a direct impact on employers and on the cost of their health plans. These provisions include benefit mandates such as coverage for adult-children up to age 26 as dependents; offering affordable coverage to part-time and seasonal employees; and the requirement for employers to cover 100 percent of a growing list of preventive services. Although these benefit mandates may be popular, they are not free, and are part of the reason employee health care costs are rising. Other direct ACA costs include the Patient Centered Outcomes Research Institute fee, the Transitional Reinsurance fee, and general ACA implementation and administrative costs associated with IRS reporting requirements.
Indirect ACA costs that affect employers include new supply-chain taxes that are passed on to employers, such as the medical device tax, the annual fee on the manufacturers and importers of brand-name drugs, and the health insurer tax for fully-insured plans. The risk-adjustment assessment applies to small employers who are fully-insured.
According to the Centers for Medicare & Medicaid Services, employer-sponsored health benefits will cost $975.6 billion in 2016, or $5,697 per covered life. Direct and indirect ACA provisions likely increased the cost of employer-sponsored health benefits by 5.8 percent in 2016. This means the ACA likely cost employers $56.6 billion in 2016, or $330 per covered life.
The ACA was a far-reaching law with extensive impact and implications. When employers make decisions about their health care plans, they are of course taking the ACA into account. President Obama has understandable political reasons for saying that these decisions are “not determined by the Affordable Care Act,” but the facts clearly show otherwise.
Tevi Troy is CEO, and Mark Wilson Chief Economist, at the American Health Policy Institute.
The GOP’s ObamaCare Strategy Pays Off
Tevi Troy and Lanhee Chen, The Wall Street Journal
When the new Congress and President-elect Trump take office in January, Republicans will have a real chance to repeal President Obama’s Affordable Care Act. If they succeed, it will be the result of their carefully executed strategy to repeal the law and repeated congressional votes to do so. This approach was the subject of much derision from Democrats, but sticking to it has now put the Republicans in a position where they can reach their goal.
Strengthen Employer Coverage to Tackle Major ACA Challenges
By Mark Wilson, RealClearHealth
October 26, 2016
More than 177 million Americans receive health care benefits through employers and the favorable tax treatment of these benefits in the U.S. tax code helps protect employees and their dependents from the current uncertainties of the Affordable Care Act exchanges. Despite employer-sponsored care’s important role, modifying the tax treatment of employer-provided health benefits has long been a goal of some policymakers and health economists on both sides of the political aisle.
For more than 60 years, employer-provided health benefits have been excluded, without limit, from income and payroll taxes. And over time, this benefit has emerged as a basic building block of our health care system. Given the role of employer-sponsored health insurance in providing stability in coverage to so many Americans, making a substantial change to the tax treatment of employer-provided health care could cause a significant disruption.
The large dollar amount associated with the tax exclusion makes it a particularly rich revenue target for those seeking to expand coverage to the uninsured under the ACA and for those seeking to repeal and replace the law with something different. However, limiting the tax exclusion brings with it a number of disadvantages: It would serve as a middle-class tax hike; drive up health insurance costs for millions of American employees; and eliminate the strong incentives currently in place that constantly pressure large purchasers of health to demand more efficient, affordable, and effective care from the marketplace.
One of the principal arguments for limiting the tax exclusion is that it artificially depresses wages. The evidence, however, regarding whether the tax preferred treatments of health care holds down wages is, at best, inconclusive. Moreover, even though take-home pay may increase, some portion, and perhaps all, of a pay increase could be consumed by higher out-of-pocket health care costs, particularly among those with chronic health conditions.
For example, if an employer increases the deductible in its health plan by $1,000 and reduces an employee’s premium by $500 to avoid the tax cap, the employee’s pre-tax pay will increase by $500, but their take-home pay will only increase by $340 after taxes, while their out-of-pocket costs are now up to $1,000 higher for the same health care services. For those employees with chronic health conditions, their higher out-of-pocket medical costs could easily consume all of their higher take-home pay and more. Higher deductibles and co-payments may make consumers more cost-conscious, but such cost discipline is likely to only have a modest effect on reducing wasteful health care spending.
Proponents for limiting the tax exclusion also argue the exclusion is an unfair way to promote the purchase of health insurance because it is regressive as it disproportionately favors the wealthy. However, when testifying before Congress in 2009, economist Jonathan Gruber, one of the architects of the ACA, noted that capping or eliminating the tax exclusion on employer health care benefits would be a “middle-class tax increase.” Although such a proposal would apply across all incomes, “it would still be a sizeable increase in taxation for middle income families, with 10 percent of the revenues coming from families below $50,000 in income, and 28 percent from families with $50,000 to $100,000 of income.”
A number of studies estimating what impact capping the tax exclusion on employer-provided health benefits would have on employees show exactly what Gruber described it would be in 2009. For example, a 2015 Urban Institute study estimated that capping the tax-exclusion at $10,746 for single coverage and $28,930 for family coverage in 2020 would increase taxes on 16 percent of middle-class (middle-quintile) employees by an average $710.
Proponents for limiting the tax exclusion also claim only the most generous plans would be affected and that most Americans’ plans would not be taxed. However, depending on how a limit on the tax exclusion is indexed for inflation, more and more employees over time could be taxed on their health benefits because the cost of employer-sponsored health benefits typically increases much faster than other prices. For example, while medical care prices have increased 4.8 percent over the past 12 months, they are rising four times faster than all other prices (1.2 percent). If the threshold limit for the tax limitation increases over time by the Consumer Price Index and not medical inflation, the tax limitation threshold will increase more slowly than the cost of the average employer health care plan. Eventually, the cost of today’s “average plan” will be subject to the tax.
Policymakers from both political parties have long sought budgetary “savings” by reducing the value of the tax preference for employer-sponsored care. Too often, these efforts fail to take into account the entirety of the substantial benefits derived from encouraging employer-sponsored care. Getting rid of or reducing the tax preference would not only serve as a middle-class tax hike, it would also harm efforts to maintain strong risk pools and to cover the maximum number of people. As we have learned from experience with the ACA, encouraging people to get covered is a costly and challenging endeavor, and risk pools are difficult to maintain as well. Employers, however, are both good at getting people covered and maintaining manageable risk pools. Public policy should be aimed at encouraging these important goals.
Mark Wilson is the Chief Economist at the American Health Policy Institute.
How GOP Intellectuals’ Feud With the Base Is Remaking U.S. Politics
Tevi Troy, Politico
One of the most spectacular fissures of this already dramatic political season has been the messy, public divorce of the Republican intelligentsia from the party’s suddenly energized populist voter base. As Donald Trump grips crowds and racks up delegates with a blunt nationalist message of jobs, protectionism and “winning,” true-believing conservatives—from dean of the conservative commentariat George Will, to Pete Wehner, who has worked for every GOP administration since Ronald Reagan, to Weekly Standard editor Bill Kristol—have peeled off in anti-Trump directions. When National Review, the flagship magazine of modern conservative thinking, devoted an entire issue to rejecting the GOP front-runner, it felt like a separation being finalized. Trump, of course, was unfazed, saying, “You have people that are in National Review—they’re eggheads. They’re just eggheads.”
It’s easy to lay the blame at Donald Trump’s feet (after all, it’s hard to imagine another Republican candidate of the last four decades rejecting National Review so cavalierly), but this year’s split between intellectuals and the rank-and-file GOP goes beyond the front-runner. In fact, neither of Trump’s remaining rivals, Ted Cruz nor John Kasich, is particularly cozy with the conservative intelligentsia. (Think tankers tended to coalesce behind Scott Walker, Jeb Bush and Marco Rubio, who are long since out of the race.) What’s really going on is that the ideas that the conservative intellectual community has been peddling for decades have failed to appeal to an angry blue-collar voter base. What worked in Reagan’s era just doesn’t work anymore, and Trump is simply exploiting the divide.
If this divide deepens, it would mark the end of a romance between conservative intellectuals and the voters who propel their candidates into office that goes back several decades—one that has helped the GOP to win seven out of 10 the presidential elections, from Richard Nixon’s first term to George W. Bush’s 2nd. Conservative intellectuals helped build the GOP’s basic modern platform—low taxes, small government, fewer regulations, toughness on crime, and traditional values—and, more deeply, helped the party craft its image as the “party of ideas,” the one whose policy goals have largely defined the American conversation since Reagan’s presidency.
Yet, as Trump’s easy success reveals, the relationship is actual newer, and more uneasy, than most of the Right likes to think. As recently as the 1950s and 1960s, the “party of ideas” was unquestionably the Democrats—it was liberals, and liberal ideas, that defined the American policy conversation. Even the notion of a conservative intellectual was so unusual that Columbia Professor Lionel Trilling famously dismissed conservatism in 1950 as “irritable mental gestures which seem to resemble ideas.”
It was only in the 1970s that the long-standing liberal dominance in the political world started to change. The conversion came about as a result of a series of savvy decisions by presidents, starting with Richard Nixon and accelerating under Ronald Reagan. The result has been deeply influential on American politics for two generations now. And if it were to end, and do so abruptly, such a split could well reconfigure American politics for decades to come.
The relationship between liberal intellectuals and Democrats dates back to the early part of the 20th century. The progressive Democrat Woodrow Wilson, elected in 1912, was our only PhD president. The New Republic was founded in 1914 in part to bring progressive ideas into American politics. And in the 1930s and 1940s, Franklin Roosevelt brought a group of liberal Columbia University professors known as the “brains trust” into his administration. The so-called “liberal consensus” of the 1950s might have been a bit of a misnomer—there were even in those days some conservative flag bearers—but the term did correctly suggest that liberal anti-communism was the dominant intellectual force in American political life. John F. Kennedy made sure to exploit this prevailing liberal sentiment, recruiting prominent liberal academics such as Arthur Schlesinger and John Kenneth Galbraith into his administration.
Such a phenomenon would have been extremely unlikely on the GOP side of this aisle. When FDR enlisted the brains trusters, Republican Congressman Dewey Short denounced them as “theoretical, intellectual, professorial nincompoops who could not be elected dog-catcher.” In the 1950s, while intellectuals swooned over Democratic presidential nominee Adlai Stevenson, Richard Nixon and other Republicans called him an “egghead.” And when William F. Buckley created the conservative National Review in 1955, his mission statement clearly targeted the progressive intelligentsia dominating government at the time. It called for “standing athwart history, yelling Stop, at a time when no one is inclined to do so.”
Given this history, perhaps it makes sense that it was an establishment Republican and an academically minded Democrat who first facilitated the marriage between GOP presidents and conservative intellectuals. In 1969, Richard Nixon hired Daniel Patrick Moynihan to work on domestic policy, but also to bring in new ideas and report on developments in the intellectual world at large. Moynihan was a heterodox Democrat who stayed in close touch with thinkers in the emerging world of conservative intellectuals, such as Irving Kristol—a neoconservative in the process of migrating from the left—and pro-growth Cold War strategist cum Hudson Institute founder Herman Kahn.
Moynihan warned the president that the GOP needed to develop a robust group of Republican intellectuals rather than rely on Democrats, ex-Democrats or even Democrats with some conservative inclinations, such as Moynihan, to fill the ranks of the conservative intelligentsia. In 1970, Moynihan wrote in a memo to Nixon that there was a limit to the outreach he could do on Nixon’s behalf, emphasizing that this work “needs to be done by real Republicans.” Nixon’s successor, President Gerald Ford, followed Moynihan’s advice, hiring St. John’s College’s Robert Goldwin—a student of the conservative University of Chicago political philosopher Leo Strauss—to tend to conservative intellectuals and to solicit ideas on such things as how to frame the White House approach to the upcoming bicentennial of America’s founding.
Nixon and Ford started the process, but it was Ronald Reagan who fully integrated modern conservative thinking with real-world Republican politics. As a long-standing reader of National Review and other conservative magazines, Reagan was engaged in the world of conservative ideas and he was convinced that conservative intellectuals could not only frame the debate in books and in magazines, but could also serve as effective staffers carrying out policies. It was also a good time for him to be on the lookout for talent, as the growing number of conservative thinkers, many of whom were unwelcome or just uncomfortable at America’s increasingly left-leaning universities, were quickly populating conservative think tanks.
Reagan discovered American Enterprise Institute scholar Jeane Kirkpatrick, his U.S. ambassador to the United Nations, by reading her legendary 1979 Commentary piece “Dictatorship and Double Standards.” Kirkpatrick’s neo-conservative foreign policy of openly recognizing friends, forging alliances based on a respect for self-determination and speaking out against enemies of freedom appealed to blue-collar Reagan Democratic voters. (Kirpatrick herself was a Democrat; she later became a Republican.) Another Commentary author and Democratic intellectual who became an important Reagan cabinet member was William J. Bennett, who migrated to the right because of his views on cultural issues.
These were just two of hundreds of conservative intellectuals Martin Anderson, a veteran of the Nixon White House, courted on behalf of the Reagan campaign in 1980, many of whom later served in the Reagan administration. Anderson had learned from his days with Nixon “that policy advisers from the intellectual world could be a tremendous asset to a campaign.” And an asset they were, indeed: As Reagan critic Richard Reeves put it, conservative intellectuals “pulled together and honed a coherent set of ideas, a view of the world that was persuasively articulated by Reagan.” Democratic operative and intellectual Bill Galston lamented in 1984 that “there were ideas in the Reagan campaign last time. That’s how he won. On the strength of his ideas.”
The worldview articulated by Reagan and his intellectuals was essentially this: Government was more of a problem than a solution; the Soviet Union was a danger that needed to be confronted; traditional values should be upheld; taxes and regulations should be reduced. The worldview adhered to the philosophy of “fusionism”—a creation of Frank Meyer, who argued in the National Review, that different strands of conservative thinking, from the traditionalist to the libertarian, could come together in the service of a single goal: defeating communism. The singular vision appealed both to conservative intellectuals and to blue collar workers that Reagan was courting for votes—and united them. It was a formidable coalition.
Throughout his presidency, Reagan continued to fortify his ties to the conservative intelligentsia. In 1981, the Heritage Foundation released a document called “Mandate for Leadership,” a compilation of more than 2,000 specific policy proposals, 60 percent of which were adopted during Reagan’s eight years. The Hoover Institution prepared a policy-priorities book, The United States in the 1980s, which Soviet Premier Mikhail Gorbachev decried to Reagan aides as “the real blueprint for Reagan administration policy.” And in 1988, Reagan said that “today the most important American scholarship comes out of our think tanks, and no think tank has been more influential than the American Enterprise Institute.” (In fact, Republicans were so successful at cultivating think tank support that the Democrats started copying the think tank model, creating the liberal Progressive Policy Institute and the Center for American Progress.)
After Reagan, the intellectual/candidate relationship became an essential part of the GOP campaign process. For presidential hopefuls, having intellectuals in their camp was understood to be a signal to primary voters of the candidates’ conservative bona fides and their commitment to long-term, purposeful action. The intellectual primary became one of the crucial pre-voting contests for the GOP, along with the money primary for fundraising, and the staff primary for talent. Which is why, since the 1980s—and up until this year—GOP candidates have made the rounds at conservative think tanks and magazines in advance of a presidential run.
It was the intelligentsia that helped George W. Bush escape the lingering perception that he might be a disappointment to conservatives because of his more moderate father, George H.W. Bush. In 2000, the then-governor of Texas met with conservatives from the Hoover Institution to discuss key policy ideas for his presidential campaign. The group was impressed. Anderson, the ex-Reagan aide who helped set up the meeting, recalled thinking at one point in the meeting, “Hey, this guy’s really good,” and later helped gather conservative thinkers to flesh out policies for Bush.
As president, Bush kept up the outreach to the intellectual community. Bush White House aide Pete Wehner sent around semi-regular emails to his lengthy list of key conservative influencers. The emails, known as “Wehner-grams,” provided updates of White House thinking. The relationship went in both directions, as conservative think tanks provided ideas and support to a number of Bush administration policies, including “the surge” in Iraq, crafted in part by the American Enterprise Institute—and the marriage served him well in his 2004 reelection.
Subsequent GOP candidates John McCain and Mitt Romney had bumpier relationships with conservative intellectuals at first—both received some criticism from for being insufficiently attentive to the right. But, these candidates did succeed in winning over the bulk of the conservative world once they were leading their nomination fights. There was never the slightest possibility of a #NeverMcCain or #NeverRomney movement.
In 2016, the old model does not seem to be working. This cycle has revealed a chasm between the expectations of the GOP electorate and the conservative intellectual world. Much of this parting of the ways of course has to do with Trump, who does not appear to engage in outreach to conservative intellectuals and has few if any prominent conservative intellectuals on his team. In addition to dismissing National Review and not engaging with the think tanks, Trump has also made clear he wants to go it alone when it comes to idea generation, saying, “I’m speaking with myself, number one, because I have a very good brain.”
To be fair, though, the emerging separation with GOP intellectuals is not solely a Trump-focused phenomenon. Neither Ted Cruz nor John Kasich are exactly darlings of the intelligentsia, either—or they weren’t in the early stages of the campaign. Conservative intellectuals in this cycle were split by the largest crop of conservative candidates ever, but tended to coalesce at various times around Scott Walker, Jeb Bush and Marco Rubio, all of whom have exited the race. Having think tankers on their side did little to help those candidates connect with voters. Indeed, it could be argued that Jeb Bush’s frequent references to books he was reading may have made it more difficult for him to appeal to voters on the ground.
Mainstream conservative think tank positions on free trade, U.S.-led internationalism, lower personal income tax rates, Social Security reform and immigration regularization simply do not appear to speak to today’s high-anxiety voters. It is possible that the interests of Reagan-era intellectuals were more aligned with the GOP base than they are today. Lower taxes, small government, free-trade, and more immigration appealed to blue-collar voters in Reagan’s day; they don’t so much today. And so far, the elite has been reluctant to adapt.
So what does this mean for the future of the party—or, indeed, the future of both parties?
It’s possible that we are seeing a temporary estrangement but not a complete divorce. Trump’s success so far would have to be a blip—a temporary surge by a talented communicator whose lack of a core ideology leaves no lasting impression. For this to be the case, Trump would have to lose the nomination and whoever else get the nod—be it Cruz, Kasich or someone else—would have to have some kind of rapprochement with GOP intellectuals. In this case, we would see a return to the old paradigm with little change to the existing set of intellectual ideas.
But the rapprochement scenario is unlikely, especially since the GOP intellectuals are disconnected not only from Trump, but also from a significant portion of the GOP voter base. Some think tankers have spoken “reform conservatism”—a new mix of issues designed to appeal to today’s struggling lower middle-class voters—but this effort itself is controversial among conservatives, and looks to be going nowhere. The reform camp has failed to achieve the fusionist consensus that Buckley and Meyer forged decades ago, which brought together the three main strands of conservative thought—economic, social and foreign policy—under one anti-communist umbrella.
Today’s conservative intellectuals appear to be splintering, over Trump, over Cruz, over questions like immigration and America’s proper role in the world. If they scatter, the loss of conservative intellectuals as a somewhat unified force could mean the end of the era of the GOP as the party of ideas. The battle of ideas is already an uphill battle for Republicans, especially given Democratic advantages in the faculty lounges and in the mainstream media—and without a reliable phalanx of intellectuals to help defend it in the larger marketplace of ideas, the Republican Party would eventually lose the respect of conservative-minded voters as well, potentially dooming it to suffer long-term electoral damage or outright disintegration. This could mean that the Democrats would take the initiative in shaping the country’s policy directly for years or decades to come.
Another scenario, one that may be emerging already, is that GOP intellectuals split, and go in different directions. We have already seen some of the most adamant #NeverTrump folks suggest that they would vote for Hillary—it’s possible that Democrats take advantage of this defection and recruit some of the top foreign policy intellectuals who signed a letter pledging never to back Trump into their party for the long-term. Such an effort could mirror the way Republicans drafted Democratic neocons like Kirkpatrick and Bennett in the 1970s and 1980s. Some “liberal-tarians”—libertarians who care about social issues more than economic ones and thereby sympathize with the Democrats—have already moved in the Democrats’ direction. Under Trump, even more could follow. Other libertarians might stick with the smaller, purer libertarian party, recognizing that while it will not win elections, it represents a purer exprehssion of their beliefs. We might also see the development of an independent conservative party that is also more concerned with policy consistency than with electoral viability.
If there is a full-blown exodus of conservative intellectuals from the GOP, the policy experts who remain will risk being seen as more party-based than ideology-based. To remain relevant, they will have to reshape the GOP’s issue mix toward more working-class issues, an effort that has proven elusive until now. And, it’s also possible, if libertarians and conservatives defect to independent parties, the Republican party regulars could move towards the center in search of new voters, potentially drawing some moderate democrats who are disaffected by Bernie Sanders’ pulling of the party to the left. Such a development could completely reshape both the Republican and the Democratic Party.
Whichever scenario happens, conservative intellectuals need to start considering where their political allegiances lie, and the GOP base needs to do the same. The alliance that served both sides so well for so long does not appear to be working—and the party’s influence is at stake.
Taking Trump Seriously On Health Care
Tevi Troy, Commentary
Donald Trump has been extraordinarily vague on health care. To begin with, his standard line has been that he was going to repeal Obamacare and replace it with “something great.” On other occasions, he chose a more modest approach and instead promised to replace President Obama’s Affordable Care Act with “something very good.” As his campaign has progressed, he’s added a few details, such as allowing individuals to purchase health insurance across state lines and expanding the use of health savings accounts. Both are well within the mainstream of the best conservative reforms for health care. Ted Cruz lists both on his campaign website, and most conservative alternatives to the ACA include them.
But these alone are insufficient, to put it mildly. Marco Rubio mockingly pointed this out during the late February Houston debate by saying: “So, you’re only thing is to get rid of the lines around the states. What else is part of your health-care plan?” In his response, Trump seemed to confuse insurance plans, which would be affected by his proposal, with an overall health-care plan, in which purchasing across state lines should be part of a larger whole. He concluded his argument with Rubio by saying: “You get rid of the lines, it brings in competition. So, instead of having one insurance company taking care of New York, or Texas, you’ll have many. They’ll compete, and it’ll be a beautiful thing.”
The exchange revealed that Trump’s plan was, shall we say, lacking in detail. So perhaps it was no coincidence that less than a week passed before Trump released a more detailed health-care plan. It has some surface appeal. There are seven planks, including the Trump standbys: repealing Obamacare, allowing purchases across state lines, and using health savings accounts. To these, Trump added making health-insurance premiums tax deductible for individuals, promoting price transparency, reforming Medicaid into a block grant, and allowing for the re-importation of pharmaceuticals from other countries to sell at lower prices than those found in the United States.
With the exception of the last plank, all of them sound as if they could have come from the standard conservative health-care-reform playbook. As for drug re-importation, it is not surprising that Trump would go against standard conservative doctrine and opt instead for a populist element. The seven-point plan also seemed to soothe conservative heartburn by pointedly not including other Trump campaign positions such as maintaining Obamacare’s individual mandate and somehow saving the federal government $300 billion through direct negotiation of pharmaceutical prices (total spending in the United States on prescription drugs: $297 billion).
If all analysts had to go on was the listed policies in the paragraph above, one would assume that a candidate with such a plan was no deficit hawk, to be sure, but still a conservative in good standing, albeit with a populist edge. But there were additional details that vitiated such an assumption. On his core plank of allowing for the purchase of health care across state lines, he added the caveat that “the plan purchased [must comply] with state requirements.” In doing so, he subverted the whole purpose of the idea, which is to allow people in high-cost, high-mandate states such as New York to purchase cheaper plans in states such as Utah that do not impose as many costly coverage requirements on insurance plans sold in those states. With regard to his idea to “allow individuals to use Health Savings Accounts (HSAs),” that simply restates existing law.
Some of the other proposals are similarly flawed. Price transparency is a great thing, but it sounds as if Trump may be leaning on the heavy hand of government to mandate that worthy aim. And extending the tax deductibility of health care to individuals could bring about the equalization of tax treatment of health-care benefits between employer-sponsored care (which has long been tax deductible) and individually purchased care (which is not). Trump’s plan would make the tax break for individuals purchasing health care open-ended, costing the Treasury a great deal of money by effectively subsidizing individual health plans of any size.
The idea of allowing the re-importation of pharmaceuticals reveals a misunderstanding of the existing market for pharmaceutical products. The states that have tried it have had little success with it, it raises real safety concerns, and it would affect the development of new pharmaceutical products by damaging the profit motive for manufacturers. As I wrote in Commentary when the Obama administration was considering such a policy: “A study by the Task Force on Drug Importation convened by the Department of Health and Human Services found that the loss of profits caused by re-importation could lead to between four and 18 fewer drugs per decade. There is no way to know which promising enhancements would be lost.”1
The one Trump plank that conservatives could unreservedly support is the idea to block-grant Medicaid and lighten the federal government’s hand on state-based health-assistance plans. But getting such a proposal past Democrats in Congress is a non-starter, as long as there remains a 60-vote requirement in the Senate to overcome filibusters.
Overall, Trump’s health-care plan would need a lot of fixing before it could make health care great again.
Where Are the 2016 Candidates on Health Care?
Tevi Troy, The Observer
In three of the last four election cycles, health care has been a major issue. In 2008, Senator Barack Obama advocated for health care changes on his way to the presidency. Then, Republicans scored historic congressional gains by successfully pushing back against the president's Affordable Care Act in the 2010. And in 2014, Republicans took the Senate in part because of public disaffection with the rollout and implementation of the ACA. (In 2012, health care receded into the background behind such pressing issues as Big Bird, binders full of women and whether President Obama had called Benghazi a terror attack). It is unclear whether health care will be a defining issue in the November election, but it will likely rise to the fore once again.
Among the Democrats, Sen. Bernie Sanders has been the most expansive when it comes to health care. He has called for a single-payer system in which federal and state governments pay for health care services. By further expanding government involvement, he has claimed that this will reduce health care costs. Of course, there is little evidence to support this assertion—especially with the rising health care premiums in the aftermath of the ACA's implementation. Mr. Sanders proposes to pay for his plan with a 6.7 percent payroll tax on employers, with a 2.2 percent tax on "wealthy" taxpayers.
Mr. Sanders' vision may be unrealistic, but what makes him attractive to supporters is his ideological consistency. This purity of message has created problems for his rival, Hillary Clinton, who, in the 1990s, advocated for government-run HMOs but retreated after it brought powerful public opposition. In this cycle, Ms. Clinton has attempted to recalibrate her message a number of times. At first, Ms. Clinton signaled some willingness to change the ACA to "reduce costs"—implicitly acknowledging that the ACA did not "bend the cost curve down," as Mr. Obama promised. Then she attacked Mr. Sanders for being insufficiently committed to the ACA. More recently, Ms. Clinton has called for resurrecting the "public option," the addition of a government-sponsored form of coverage in addition to the subsidized forms of private insurance in the ACA exchanges.
On the GOP side, most of the attention during the presidential campaign has been on Donald Trump. Mr. Trump has opted for a lack of specificity on health care that has reached new levels of vagueness. Initially, his line on health care was that he was going to get rid of health care and replace it with "something great." Occasionally, he would take a more modest approach and instead promise to replace the ACA with "something very good." In recent weeks, however, as the great-vs.-very good line has become untenable for a major candidate, he has begun to provide slightly more detail. He says he is still in favor of getting rid of the ACA, but he wants to keep the ACA's rules mandating that people can purchase insurance even with "preexisting conditions." He also wants to allow people to purchase insurance across state lines. As he put it in the February debate in Houston: "You get rid of the lines, it brings in competition. So, instead of having one insurance company taking care of New York, or Texas, you'll have many. They'll compete, and it'll be a beautiful thing."
In addition to purchasing across state lines, Mr. Trump has made reference to the use of tax-preferred health savings accounts. Combined, economic models have found that these will help put consumers in control and thereby hold down costs. Unfortunately, the same models have also found that by themselves these ideas do not do enough in the way of finding a way to get health coverage for people who currently lack access to health care. Mr. Trump addresses this concern by saying, repeatedly, "We're going to take care of people that are dying on the street." It is unclear what exactly he means by this, but the closest he has come to an explanation was telling CNN that "We're going to take care of them through maybe concepts of Medicare." More clarity is hard to find as no one seems to know where Mr. Trump gets his health care policy guidance—with reporters coming up empty when they tried to find out.
As for Mr. Trump's two main rivals, Ted Cruz and Marco Rubio, both have been outspoken opponents of the ACA in the United States Senate. Mr. Cruz famously precipitated a lonely and ultimately unsuccessful government shutdown fight over the issue of funding the ACA—a battle that earned him the enmity of many Senate Republican colleagues, but the support of many grass roots conservatives. As for Mr. Rubio, he opposed the so-called risk-corridor payments to insurance companies under the ACA, and the 2014 spending bill included a provision preventing such payments.
When it comes to a positive health care vision, Mr. Cruz, like Mr. Trump, touts health savings accounts and enabling the purchase of insurance across state lines. He has also talked about delinking health care from employers in order to allow people to keep their insurance from job to job.
Mr. Rubio wants to reform Medicare and also use tax credits to help individuals without employer-sponsored coverage purchase health insurance. Both Senators have expressed the kinds of ideas you could find in consensus conservative position papers and would probably not differ that much on the big picture questions related to health care policy.
Whoever wins the election will need to provide far more details to the American public regarding their proposed health care plans. But what we need even more is an explanation of why they support the positions they do, what has driven the cost and complexity of health care, and whether markets or more government are the answer. In 1960, we spent about 5 percent of our GDP on health care; by 2020, we will be spending about 20 percent of GDP on health care. The Medicare hospital trust fund is depleted in 2030, and states are straining under the burdens of Medicaid. It may be politically advantageous to avoid getting bogged down in the details during a political campaign, but come 2017 we will need detailed and effective plans to deal with the harsh realities of health care.
Disclosure: Donald Trump is the father-in-law of Jared Kushner, the publisher of Observer Media.
Observer columnist Tevi Troy is a former Deputy Secretary of the U.S. Department of Health and Human Services.
A Better Way For Employer-Sponsored Healthcare
Tevi Troy, Forbes
Twenty of America's largest corporations recently joined together in an effort to improve the way healthcare benefits will be purchased for employees in an effort to create better healthcare outcomes. Collectively, the 20 companies are responsible for healthcare benefits for four million people and spend more than $14 billion annually on healthcare for employees, their dependents and retirees. Working together, the companies aim to break with existing marketplace practices that are costly, wasteful and inefficient, all of which have resulted in employees paying higher premiums, copayments and deductibles every year.
In coming together, the companies hope to achieve greater marketplace efficiencies so as to secure better outcomes for their employees; more knowledge about outcomes and prices by looking at the data from four million covered lives; more educated employees who will have more information with which to make smarter healthcare decisions; and a reduction of bad habits and inefficient behaviors that drive up healthcare costs without producing better healthcare results.
The challenges facing employer-sponsored care
This new approach is necessary because employer-sponsored care is facing significant challenges, including the prospect of long-term unsustainability. Costs for providing healthcare are rising, despite passage of the Affordable Care Act (ACA) in an attempt to address the issue. The regulatory climate and market factors continue to increase cost pressures on employers and employees. Since 170 million Americans get coverage via employer sponsored care, these challenges are putting that care in jeopardy, necessitating a new move for a better approach going forward.
Employers have long been aware of their cost challenges, and have looked at a variety of methods for dealing with them. These strategies have included expanded wellness plans and the expansion of high deductible "consumer driven" plans. Both strategies have their limits. The data on the cost effectiveness of wellness plans remains mixed, while there is a limit to how much workers will be willing to pay out of pocket in high deductible plans.
On the employer side, they appear to be running out of tactics for addressing healthcare costs, meaning that they must look away from the strategies already being employed to address their cost challenges.
The government isn't likely to help
Unfortunately, the government is unlikely to be able to help on this front. Beneficiaries of government health plans already cost more per covered life than those in employer-sponsored plans, in part because government tends to cover more challenging populations. In addition, government is strapped financially, taking on new burdens of more Medicaid patients and exchange subsidies as a result of the ACA, and new retiring baby boomers at the rate of 10,000 per day are creating a crunch for the Medicare program. Medicaid is already the largest aggregate item on state budgets, and the Medicare hospital trust fund is estimated to go bankrupt around the year 2030.
As a result of this combination of cost pressures and the lack of effective tools to deal with them, U.S. employers are looking for creative means to improve the health of their employees and the families of those employees, generating sustainable long term savings. For a long time, the prevailing wisdom has been that employers would continue to provide employer sponsored care indefinitely. In recent years, that thought has begun to change.
Already, analysts like former Obama aide Dr. Ezekiel Emanuel and S&P Capital Research are predicting a rapid decline in companies offering employer sponsored care over the next decade. Emanuel guesses that only about 20% of companies will be offering employer sponsored care by 2025. Unless some dynamic curtails the seemingly endless cost spiral, he may be correct.
Breaking the cost spiral
The new Alliance proves that employers are now ready to make changes to break that cost spiral. These 20 companies have committed time, resources and their data into transforming employers sponsored care. Furthermore, there is significant evidence that these 20 companies are not alone in their desire and willingness to make real changes. According to a study by the Employee Benefit Research Institute (EBRI), only 40% of employees want to continue along the same healthcare path they are on today. However, 40% also want to be able to choose their health plan and are willing to provide additional resources, above what their employer pays, if necessary. Another 20% want a lump sum payment from employers to allow them to pick their health coverage on their own. What this means is that 60% of employees are looking for some new kind of way to get affordable health coverage. And U.S. employers, as the Alliance shows, are actively seeking new options as well.
Another survey, of large employer Chief Human Resource Officers (CHROs), found that while more than 90% of employers currently run employer-managed plans, almost 60% of them want, and expect, to shift away from this model by 2020, moving towards an employer-facilitated model.
For all of these reasons, the Health Transformation Alliance is poised to bring about positive change in the way employers go about getting healthcare. The cost challenge has driven employers to recognize the need to act. The experiments of the past have shown that employers need to go further in their quest to find a better way. And the creation of the HTA shows that there is now a new model for employers to look at in the search for quality, affordable, employer-sponsored care for the 170 million Americans in their care.
The 'Cadillac Tax' Makes Everyone Sick
Tevi Troy, The Wall Street Journal
In apparent recognition of the distinct unpopularity of the Affordable Care Act's Cadillac tax—an excise tax on high-value, employer-provided health benefits—more than 100 economists have signed a letter defending it. As the Washington Post headline about the letter read: "101 Economists Just Signed a Love Letter to the Obamacare Provision Everyone Else Hates."
As of 2018, the excise will impose a 40% levy on employer-sponsored health plans whose value exceeds $12,500 for an individual and $27,500 for a family. The definition of value includes all benefits, such as wellness plans or employer contributions to flexible spending accounts, and the tax is intended to get employers to reduce the benefits these high-cost plans confer (and perhaps even to encourage employers to stop providing health care to employees so they migrate toward the ACA exchanges). Some 175 million Americans are enrolled in employer-sponsored health plans, and the tax will affect increasing numbers of plan holders. This is why the tax is so widely disliked, even before anyone is directly affected by it.
The Cadillac tax is so disliked that politicians and interest groups on both sides of the aisle want to get rid of it. There are few health-care issues that unite Hillary Clinton and Bernie Sanders with congressional Republicans, or unite unions with business, but opposition to the excise tax is one. Mrs. Clinton and Mr. Sanders have declared their opposition to the tax, while multiple congressional bills would eliminate it.
The reason the tax has so many opponents is its impact on American workers. It is going to force employers, who understandably do not want to pay the steep 40% levy, to reduce the benefits they offer in order to bring the costs of their plans below the ACA's value threshold.
Worse, because the thresholds at which the tax kicks in for individuals and families are indexed to overall inflation and not to faster-rising health-care costs, the tax will have a creeping impact on employees. Like the dreaded Alternative Minimum Tax, which was designed to hit fewer than 155 wealthy Americans in 1969 but now impacts 4.2 million households with incomes of $83,400 or more, the Cadillac tax will pull more and more Americans into its net.
According to a new study by the American Health Policy Institute, the excise tax is already forcing American employers to revisit the health care they provide to employees. Almost 90% of large employers surveyed by AHPI reported taking steps to prevent their company from having a plan that triggers the excise tax in 2018.
Nineteen percent of those surveyed—top human-resource officers at companies with more than 1,000 employees—said they were already curtailing or eliminating employee contributions to flexible-spending accounts to avoid triggering the tax. Nearly 13% were already curtailing or eliminating employee contributions to health savings accounts. Both FSAs and HSAs are popular ways for employees to cope with the increasing number of high-deductible health plans, as they allow workers to save for growing out-of-pocket health costs.
When employers respond to the tax by shrinking the value of employee health plans, that amounts to a reduction in the overall compensation package employees are getting. Supporters of the tax theorize that workers will get wage increases to offset the fact that their benefit package has been reduced. In reality, 71% of large employers surveyed by the American Health Policy Institute said they probably wouldn't increase wages to offset their reduction in health benefits. Among the 16% of employers who said they would increase wages, their workers are not necessarily better off: Unlike the lost benefits, wage increases will be subject to income tax.
Providing some kind of limit to the amount of the tax advantage employers get for providing health care to employees could make some sense if it were designed the right way—for instance, by making some portion of employer-provided health benefits taxable above a certain income ceiling, without penalizing lower-wage employees. But the consistent unpopularity of the proposed excise tax and the bipartisan efforts to eliminate it reveal that American people of all incomes understand better than the 101 economists the costs of the Cadillac tax and the damage it would do.