In a previous post, I argued that the worst enemy of rational health policy is partisanship. For the past three decades the two major parties have followed the same script. They devise a major health reform with no input from the other party.

What we end up with is a reform that channels billions of dollars to special interests while creating almost no improvement in overall population health.

Readers may wonder if an alternative approach is possible. We have evidence that it is. The original idea for a Health Savings Account was bipartisan. Both in the House and the Senate, there were Republican and Democratic sponsors of early legislation. At the same time, the idea was opposed by almost every major special interest.

Today, multiple special interests are shaping our health care system. Fortunately, there are opportunities to defy the special interests and enact sensible reforms if we follow three simple rules. In Part I, I discussed:

Rule 1: Let the private marketplace meet all the health care needs it can meet, leaving to government any important needs that are left unmet.

Here is the follow-up:

Rule II: Apply Rule I to the health insurance marketplace.

This would seem like a no-brainer. And it is pretty much the way Obamacare (the Affordable Care Act ) functioned during the first three years of its existence. From 2010 to 2013, there was no new federal regulation of private health insurance. Although the market was besieged by years of unwise and very harmful state regulations, insurers were free to offer any plan buyers wanted to buy as far as federal law was concerned.

What about pre-existing conditions – which was THE problem Obamacare supporters said they were trying to solve? The Affordable Care Act (ACA) established a federal risk pool called the Pre-Existing Condition Insurance Plan (PCIP). The federal government managed the pools directly in 27 states, while 23 states and the District of Columbia managed their own.

The health insurance offered by these plans essentially mirrored standard Blue Cross plans being marketed at the time. They were available to anyone in the entire country who had been denied coverage because of a pre-existing condition. Enrollees got the same coverage and paid the same premium as heathy people.

At the end of the three-year period, the risk pools had attracted only 130,000 enrollees. They had serious medical problems, costing an average of $32,000 per patient. But most observers were shocked at how low the number was. 

At the same time, 35 state governments also were taking this approach. There were about 208,000 state risk pool enrollees, and they also generally had access to insurance that mirrored Blue Cross insurance for the healthy.

Risk pools don’t solve every problem. But it is stunning to realize that the main justification for Obamacare was a problem that was directly affecting only 130,000 people. 

Obamacare Mistakes. As we entered 2013, entry into the federal risk pools was frozen, state governments were encouraged to end their risk pools and everyone who was uninsurable was encouraged to obtain insurance in the marketplace exchanges.

There are five features of the Obamacare solution to this problem that are especially unfortunate:

• The fact that almost 340,000people cannot afford the care they need and are uninsurable is a social problem that society as a whole has a good reason to care about. Yet, Obamacare imposes the entire burden of the solution on only ten percent of the population – the people who buy their own insurance.
• In addition, Obamacare tries to force people to buy a package of benefits that most people are not willing to pay for with their own money. (See below.)
• Obamacare also makes it easy to game the system. Without an enforceable individual mandate, the healthy have strong incentives to remain uninsured and enroll only after they get sick.
• Obamacare inadvertently encourages private and public institutions to end their post-retirement plans and send early retirees to the exchange – making the insurance pools even more costly.
• Obamacare’s two-tier system of subsidies insulates almost all buyers from any reason to care about costs and allows insurers to turn higher costs into more profits. (More on this in Part III.)

A potential death spiral. The Congressional Budget Office estimates that if the second tier (Covid-era) subsidies  are not extended, 2.2 million people will drop out of the Obamacare exchanges. The Urban Institute estimates the number will be more than twice that size, or 4.8 million.

If Donald Trump’s idea is adopted and the enhanced subsidies are given  to people who are free to buy their own insurance, it seems likely that the unsubsidized part of the market will fall into a death spiral. Avoiding that outcome was the likely reason that the covid-era subsidies were enacted in the first place.

If all the subsides were ended and the money given to enrollees who are then free to buy insurance in a competitive market, it is likely that the entire Obamacare exchange system will disappear in a death spiral.

That’s the result of trying to force 24 million people to buy a product they don’t want in order to solve the problems of less than 400,000 people.

How much coverage do people want?  We know a lot about people’s preferences from the early days of Obamacare. Writing in the Wall Street Journal, Andy Puzder (then CEO of CKE Restaurants) says that when fast food workers were offered Obamacare coverage (with its high deductibles and high out-of-pocket exposure) in return for paying a premium equal to 9.5 percent of their income, 94 percent of them turned it down – knowing that they would face a small tax penalty, which was in force at the time. (A penalty that was later repealed.)

Once employees turn down Obamacare coverage, employers are free to offer “mini med” coverage, which pays for, say, the first $50,000 of medical expenses. In my own study of the fast food industry, I found that almost all employees were choosing mini med plans over Obamacare coverage.

In a very famous exchange with Sen. Bill Cassidy, comedian Jimmy Kimmel revealed that his infant son had serious medical problems that observers believe  could easily have cost $1 million or more. Obamacare apologists argue that if your health insurance doesn’t have unlimited (top-end) coverage, it is “junk insurance.”

Here is the problem. Obamacare coverage has a potential out-of-pocket expense of $9,200 for an individual and twice that amount for a family – and that is every year. Today, it also costs up to 8.5 percent of the buyer’s income. The designers of Obamacare probably have that much in their bank accounts at any one time. But if they were hit with a $1 million medical bill, they might have to sell their foreign sports car or their second home.

Fast food workers don’t have $1 million in assets to protect, however. And they know if they have a premature baby with heart disease, hospitals are not going to throw the baby out on the sidewalk. So, to these folks it’s Obamacare that looks like junk insurance, whereas an inexpensive mini med plan has a 90%+ probability of meeting all their health care needs.

The solution: let a vibrant, competitive market for limited benefit insurance (such as coverage for $50,000 or even $100,0000) exist alongside side of an Obamacare exchange. In those rare instances where young, low-income families have a catastrophic medical event, let them switch immediately to an exchange plan that pays all the bills.

What types of coverage will a free market provide? There are three ways that people can insure for medical care. They can self-insure (say, by means of a Health Savings Account); they can acquire private health insurance; and they can rely on government-subsidized insurance.

There is no reason not to take full advantage of free market competition for the first two options, leaving Obamacare in place as a backstop. 

In a post at Forbes, I showed that a family could buy high-deductible short-term insurance and an indemnity policy  to cover the deductible – saving $15,600 versus buying an unsubsidized (Obamacare) exchange plan covering the same medical needs. Not only is the total cost of insurance 60 percent lower, but the family also avoids the very large out-of-pocket exposure under the exchange plan.

These are sensible options that both the Obama and Biden administrations tried to squelch