"Redemption" threatens the ACA marketplace (and Medicaid and Medicare)

In the post-election nightmare we're now living in, existing Republican blueprints to "repeal and replace" the ACA are newly relevant. Perhaps the most comprehensive plan was published by the American Enterprise Institute in December 2015 and prepared by an all-star cast of conservative healthcare wonks including James Capretta, Yuval Levin, Ramesh Ponnuru  and Avik Roy.

Reading this plan today, I was struck with deja vu stemming from my slow read, nearly complete,  of Eric Foner's Reconstruction: America's Unfinished Revolution, an epic chronicle of the failure of post-Civil War Republicans' efforts to endow the South's freedmen (and pre-war free blacks) with a modicum of political representation and civil rights. Over time, as Republican willingness to enforce those rights militarily waned, the resurgent white oligarchy used terror and violence to disenfranchise African Americans and regain total political control. The toolbox for maintaining that control over decades sounds very contemporary:

Fiscal retrenchment went hand in hand with a retreat from the idea of an activist state meeting broad social responsibilities. “Spend nothing unless absolutely necessary,” Gov. George F. Drew advised the Florida legislature in 1877, and lawmakers took his advice to heart, abolishing the penitentiary, thus saving $ 25,000, and abandoning a nearly completed Agricultural College, leaving the state without any institution of higher learning, public or private. Alabama’s Redeemers closed public hospitals at Montgomery and Talladega and Louisiana’s were “so economical that … state services to the people almost disappeared.” Similar reductions affected provisions for the insane and blind as well as appropriations for Southern paupers, despite the lingering effects of the economic  depression. South Carolina Democrats tightened collections from blacks owing mortgages to the state land commission, producing a “pell-mell rout of Negro settlers.” Public education— described as a “luxury” by one Redeemer governor— was especially hard hit, as some states all but dismantled the education systems established during Reconstruction. Texas began charging fees in its schools, while Mississippi and Alabama abolished statewide school taxes, placing the entire burden of funding on local communities. Louisiana spent so little on education that it became the only state in the Union in which the percentage of native whites unable to read or write actually rose between 1880 and 1900. School enrollment in Arkansas did not regain Reconstruction levels until the 1890s. Blacks suffered the most from educational retrenchment, for the gap between expenditures for black and white pupils steadily widened (Kindle locations 11077-11089).

That limited government ideology animates the AEI authors' hostility not only to the ACA's remaking of the individual market for health insurance, but to Medicaid and Medicare as we know them.  The main problem with U.S. healthcare delivery, according to AEI, is that government disempowers individuals by taking an outsized role in payment.  The authors are animated by nostalgia for a time when patients paid for proportionately more of their care:

The diminished role of the patient-consumer is evident in national statistics. As shown in figure 1, in 1960, consumer out-of-pocket spending for medical care accounted for nearly 48 percent of all spending on health in United States. By 2000, the percentage of national health expenditures paid for directly out of consumers’ pockets was down to under 15 percent, and in 2010 it was just 11.6 percent. And the actuaries at the Center for Medicare and Medicaid Services (CMS) project out-of-pocket spending will fall to 10.2 percent of overall expenditures in 2020.

That is, in a country in which an estimated quarter* of the insured population has severe difficulties paying their out-of-pocket medical costs, the AEI authors believe that  Americans' suffering in our healthcare system stems from our paying too small a share of our own costs.

Of course the authors would argue that if consumers' share of costs rose their total costs would go down, via the magic of consumer-driven competition,  That's because the heavy hand of government stifles innovation that would reduce prices. Medicare in particular not only pays directly for the healthcare of some 56 million people but shapes the cost structure for much of the private sector. And that's the problem:

The dominant position of Medicare’s payment and regulatory rules is a major impediment and burden to innovation and customer-focused service delivery in the health sector. Physicians or other entrepreneurs seeking to provide a new and better method of taking care of patients, perhaps using information technology, are immediately faced with the question of whether or not Medicare will pay for what they are planning to offer. Bringing new, simpler approaches to the marketplace is therefore less a question of selling the idea to the patient-consumer but of convincing the Medicare bureaucracy that what is being proposed is worthy of reimbursement or payment.

This faith that government control drives the U.S.'s unsustainably high healthcare costs flies in the face of the evidence provided by the rest of the industrialized world.  The U.S. spends almost twice as high a percentage of GDP on healthcare as the OECD norm, and it's virtually the only OECD country in which government doesn't impose some degree of uniformity on prices paid to providers. It's plainly the fragmentation of payers, not government price structures and not consumers' dearth of "skin in the game" -- that drives out-of-control pricing for medical care in the U.S..

The ideology of patient empowerment is akin to libertarian ideology of labor empowerment -- that government should not interfere with the "freedom" of employees to negotiate pay on equal terms with their employers. . Both ignore marketplace realities and entrench the asymmetric power of the contract offerer. The demand that the state abdicate its power to structure a marketplace that works for most participants is a peculiarly American affliction.

* Update, 11/16/16: The Commonwealth Fund just released a comparative 11-country survey finding:

Adults in the U.S. are more likely than those in the 10 other countries to go without needed health care because of costs. One-third (33%) of U.S. adults went without recommended care, did not see a doctor when sick, or failed to fill a prescription because of costs. This percentage is down from the 2013 survey (37%). As few as 7 percent of respondents in the U.K. and Germany and 8 percent in the Netherlands and Sweden experienced these affordability problems.

That one third of U.S. adults who went without recommended care because of cost includes the uninsured, unlike the 23% underinsured cited above.