“The Patient Pro­tec­tion and Afford­able Care Act grew out of a long his­to­ry of failed health insur­ance reform.” Chief Jus­tice John Roberts, in uphold­ing Oba­macare subsidies.

Oba­macare is the newest chap­ter in that long his­to­ry of failed health insur­ance reform.  Con­ser­v­a­tives who hope one day to replace it would do well to learn from its errors and conceits.

The prospects for replac­ing Oba­macare, which have nev­er been good, grew more remote with Roberts’ rul­ing in King v. Bur­well.  The Chief Jus­tice imag­ines that the law rep­re­sents an exquis­ite ecol­o­gy of “inter­lock­ing reforms” that the Court could not dis­turb with­out invit­ing “calami­tous results.”  The entire opin­ion rests, not on the text of the statute itself (which is plain enough), but on Roberts’ sopho­moric mus­ings about the nature of health insur­ance mar­kets, lead­ing him to con­clude that the law Con­gress wrote means the oppo­site of what it says.

But while Roberts’ “som­er­saults of statu­to­ry inter­pre­ta­tion,” as Jus­tice Scalia described them, will long induce deri­sion, he can be for­giv­en his hal­lu­ci­na­tion that Oba­macare is fine­ly cal­i­brat­ed reg­u­la­to­ry clock­work.  He was mere­ly lip-sync­ing the Administration’s legal briefs, which were them­selves a rep­e­ti­tion of the the­o­ries real­ly smart Wash­ing­ton pol­i­cy experts have prop­a­gat­ed for years in their Pow­er­Point presentations.

Health pol­i­cy ortho­doxy has long held that if the fed­er­al gov­ern­ment required insur­ers to charge pre­mi­ums unre­lat­ed to risk, sub­si­dized those pre­mi­ums, and taxed the unin­sured for refus­ing to pay them, con­sumers by the tens of mil­lions would line up for cov­er­age.  They haven’t.

Oba­macare has proven to be large­ly a glo­ri­fied Med­ic­aid expan­sion, with low-income peo­ple sign­ing up for cov­er­age because it is either free or steeply dis­count­ed.  Most of the eight mil­lion net reduc­tion in the num­ber of unin­sured peo­ple is attrib­ut­able to growth in the Med­ic­aid rolls.  Enroll­ment in plans sold through the exchanges is dom­i­nat­ed by those with incomes below 200 per­cent of the fed­er­al pover­ty lev­el and by those who expect to incur med­ical claims far in excess of the pre­mi­ums they pay.

Most unin­sured peo­ple in bet­ter health and with incomes above 200 per­cent of FPL have cho­sen to remain unin­sured. The IRS esti­mates that it required 6.6 mil­lion of these refuseniks to pay Obamacare’s tax on the unin­sured when they filed their tax­es last spring.  The IRS exac­tions were cou­pled with a CMS offer the unin­sured couldn’t refuse: sign up for cov­er­age dur­ing an extra-legal “spe­cial enroll­ment peri­od” (which end­ed April 30) or pay a tax next year that will be twice this year’s rate.  Only 250,000 peo­ple took CMS up on the offer.  Most of the rest pre­fer a puni­tive tax to gov­ern­ment-pre­scribed insur­ance cov­er­age, pro­vid­ing fur­ther evi­dence that health insur­ance mar­kets don’t work the way health econ­o­mists or Supreme Court jus­tices imagined.

Con­ser­v­a­tives who hope to replace Oba­macare with some­thing bet­ter should take note.  The Right, no less than the Left, is sus­cep­ti­ble to Washington’s seduc­tions.  Some con­ser­v­a­tives believe all that’s need­ed to put things right is a regime of tax cred­its and fed­er­al reg­u­la­tion more in tune with con­ser­v­a­tive sensibilities.

But it is rea­son­able to ques­tion whether a well-mean­ing con­ser­v­a­tive fed­er­al solu­tion will fare bet­ter than a well-mean­ing pro­gres­sive one.  It is more like­ly to repair some of Obamacare’s dam­ages and inflict new ones.   Per­haps it is time to rethink first principles.

Assur­ing that peo­ple with pre-exist­ing med­ical con­di­tions and those with low incomes have access to afford­able cov­er­age while pre­serv­ing con­sumer choice for mid­dle income fam­i­lies is a tall order, one that Oba­macare has failed to fill and one unlike­ly to yield to any one-size-fits-all solu­tion.  It is worth con­sid­er­ing a vari­ety of approach­es, ones that are less Wash­ing­ton-cen­tric and less reliant on the con­jec­tures of experts, approach­es ground­ed in the real world, not teth­ered to theory.

The states are unique­ly well-suit­ed – both prac­ti­cal­ly and con­sti­tu­tion­al­ly – to test such solu­tions.  A state-based replace­ment for Oba­macare would return author­i­ty to reg­u­late insur­ance to the states, pro­vide them greater flex­i­bil­i­ty in allo­cat­ing resources and hold them account­able for results.

Reg­u­la­tion.  Oba­macare impos­es a suf­fo­cat­ing fed­er­al reg­u­la­to­ry regime on fam­i­lies, insur­ers and states.  The first step would be to return reg­u­la­tion of the indi­vid­ual and small group mar­kets to the states.

Resources.  The next order of busi­ness would be to give states more flex­i­bil­i­ty in deploy­ing resources than fed­er­al law now allows.  Those resources are enor­mous.  CBO esti­mates that fed­er­al Med­ic­aid spend­ing will total $4.6 tril­lion over the next decade.  Fed­er­al spend­ing on Oba­macare sub­si­dies and the CHIP pro­gram add near­ly anoth­er $1 tril­lion in out­lays, bring­ing the ten-year total to $5.6 tril­lion.  States are required by law to con­tribute their own resources to the Med­ic­aid pro­gram.  While I could not find ten-year esti­mates of state Med­ic­aid spend­ing, I used data from CBO and CMS to approx­i­mate the ten-year fig­ure at $2.6 trillion.

All told, that’s near­ly $8.2 tril­lion in fed­er­al and state funds that will be spent over the next decade to sub­si­dize health cov­er­age pri­mar­i­ly for low-income peo­ple and, to a less­er extent, peo­ple with pre-exist­ing med­ical con­di­tions.  The Med­ic­aid and Oba­macare dol­lars come with volu­mi­nous and exact­ing reg­u­la­to­ry require­ments that strait-jack­et states, sti­fle inno­va­tion and infest the pro­gram with dis­tor­tions and inef­fi­cien­cies.  These restraints should be relaxed or removed entirely.

Results.  The third step would be to replace this Byzan­tine reg­u­la­to­ry arrange­ment with one that would hold states account­able for results, rather than demand­ing sub­servience to the fed­er­al bureau­cra­cy.  States would receive a sin­gle capped allot­ment com­pris­ing Med­ic­aid, CHIP and Oba­macare pre­mi­um and cost-shar­ing sub­si­dies.  To qual­i­fy for an allot­ment, a state would be required to present a plan to make afford­able cov­er­age avail­able to low-income res­i­dents and those with pre-exist­ing med­ical con­di­tions.  States could accom­plish this through risk pools, rein­sur­ance arrange­ments, under­writ­ing restric­tions, con­tin­u­ous cov­er­age pro­vi­sions or a thou­sand oth­er mech­a­nisms that Wash­ing­ton pol­i­cy savants haven’t thought of.  Sub­si­dies could be admin­is­tered in a vari­ety of ways, includ­ing the cre­ation of indi­vid­ual accounts.  States would also be required to license a broad range of insur­ance prod­ucts and to allow peo­ple to use sub­si­dies to help pur­chase any plan avail­able on the com­mer­cial market.

In addi­tion to free­ing states to try myr­i­ad approach­es, the pro­pos­al would reduce fed­er­al spend­ing.  The allot­ments would be capped and indi­vid­u­als could claim no enti­tle­ment to ben­e­fits, pro­duc­ing con­sid­er­able fed­er­al bud­getary savings.

The cre­ation of this allot­ment is not incon­sis­tent with pro­pos­als to address tax code inequities.  Under cur­rent law, peo­ple who get health insur­ance cov­er­age through their jobs get a tax break, while those who buy indi­vid­ual cov­er­age do not.  Leg­is­la­tion to address this inequity in a bud­get neu­tral way is entire­ly com­pat­i­ble with the allot­ment approach.

But capped allot­ments would not be com­pat­i­ble with efforts to shoe­horn insur­ance mar­ket reforms and mas­sive enti­tle­ment spend­ing into the Inter­nal Rev­enue Code.  Fed­er­al tax law is ill-suit­ed to the Rubik’s cube of health reform, which involves com­plex con­sid­er­a­tions of insur­ance risk as well as income.  Nor is the IRS the prop­er agency to enforce insur­ance reg­u­la­tions or dis­trib­ute sub­si­dies. Such activ­i­ties fall square­ly with­in the scope of pow­ers reserved to the states by the Tenth Amend­ment.

For many con­ser­v­a­tives, export­ing health pol­i­cy­mak­ing from Wash­ing­ton to the states would be an unsat­is­fy­ing out­come.  Many regard Gov­er­nors and state leg­is­la­tors as gov­ern­men­t’s minor leagues, mar­gin­al play­ers suit­ed to pot­hole repair but not to be trust­ed with more con­se­quen­tial mat­ters, which are best left to Wash­ing­ton’s heavy hit­ters. They are con­vinced that their reform ideas will suc­ceed uni­form­ly across the nation and are supe­ri­or to any­thing a state might devise.

I’ve been there.  I have long advo­cat­ed using the tax code to make health insur­ance more afford­able for the poor and to those with pre-exist­ing med­ical con­di­tions.  In 1993, I worked with the Her­itage Foun­da­tion in writ­ing a bill that made tax cred­its uni­ver­sal­ly avail­able and imposed fed­er­al reg­u­la­tions on insur­ance mar­kets.  The mea­sure was intro­duced by Sen­a­tor Don Nick­les (R‑OK), cospon­sored by two dozen Repub­li­cans and became the lead­ing Sen­ate GOP alter­na­tive to HillaryCare.

In the inter­ven­ing decades, numer­ous tax cred­it pro­pos­als have sur­faced. These pro­pos­als all have mer­it.  But they also risk repeat­ing some of Oba­macare’s errors and intro­duc­ing new ones.  Most impor­tant­ly, many of the pro­pos­als leave no room for the emer­gence of fresh and var­ied approach­es that states are best posi­tioned to develop.

Health insur­ance reform is a much more com­pli­cat­ed busi­ness than the Chief Jus­tice and many pol­i­cy ana­lysts imag­ine.  Which is why its next chap­ter should not be writ­ten in Washington.