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An Obamacare replacement Republicans and Democrats can agree on. Really.

It is not a question of whether or not Republicans and Democrats will come to a compromise over replacing Obamacare.

Since it will take 60 Senate votes, and the Republicans only have 52 seats, there is no way we can get to a solution to the Obamacare conundrum without a bipartisan compromise.

So, what might that look like?

We can't underestimate the fundamental ideological differences between Democrats and Republicans on the entitlements–of which Obamacare is just one.

First, think of an old-fashioned pension plan as a defined benefit plan. The employer promised a set benefit based upon years of service and wages for the rest of the retiree's life. If the stock market crashed, the employer guarantee would continue. In a defined benefit plan, the sponsor takes the risk of being able to pay the benefits.

Newer 401k pension plans are defined contribution plans. The employer makes an annual contribution. The employee makes more contributions. The employee makes the investment decisions. Whatever ends up accumulating in the account becomes the employee's retirement fund. The risk of having enough for retirement is now with the employee not the employer.

Democrats favor a defined benefit approach––the government guarantees a benefit and then provides whatever funding is necessary to keep that entitlement promise. The Obamacare exchange subsidies, Medicare, and Medicaid are defined benefit promises. Democrats see government regulation, not primarily competition, as the ultimate leverage in controlling costs on behalf of consumers.

"Past all of the partisan smoke and hyperbole, there is room for compromise with a hybrid system that pulls some of the best from both camps."

Republicans favor a defined contribution approach––the government only guarantees a fixed or defined contribution (in the form of an advanceable tax credit) and the consumer, not the government, is at risk for the adequacy of that promised contribution. Republicans argue that empowering the consumer with the contribution in a robust market will give health plans and providers the incentive to offer affordable health care and therefore control costs.

The debate between Republicans and Democrats over Obamacare reform, and Medicare and Medicaid, is stuck on this fundamental difference in ideology.

Republicans warn of unsustainable health care entitlement costs and the imperative to overhaul the entire system based upon market principles and Democrats warn that the Republicans are about to gut the entitlements: Obamacare subsidies, the Medicaid expansion, and that they want to ruin Medicare.

Past all of the partisan smoke and hyperbole, there is room for compromise with a hybrid system that pulls some of the best from both camps.

This is how compromise typically happens but it has been so long in this country since we have seen it we have just forgotten what it looks like. The Republican and Democratic parties exist in the first place because of these same fundamental ideological differences. None of this is new.

I will suggest that a template for how compromise could occur can be found in the 2012 Wyden-Ryan Medicare Reform Proposal.

In a 2012 blog post I said this:

What is elegant about the Wyden-Ryan compromise is that they [Senator Ron Wyden (D-OR) and Representative Paul Ryan (R-WI)] have proposed a hybrid plan—it contains significant elements of both a Republican defined contribution and a Democratic defined benefit approach.

Republicans get an affordable cap on what the federal government would spend on Medicare—that growth would be no more than GDP+1 percent—and they would get a program built on a free market platform where consumers would have the incentive to maximize their premium support by shopping for the plan that best meets their needs.

Democrats would get a plan that still contained the traditional government-run Medicare plan as one of the options and they would have a plan where all seniors were guaranteed a federal premium support level good enough to buy at least the two lowest cost Medicare plans available in their community—albeit maybe not the traditional Medicare option.

If there was ever a place for Republicans and Democrats to compromise on Medicare reform this is it. It is an elegant compromise—a hybrid—of both defined benefit and defined contribution principles.

The Wyden-Ryan plan went nowhere in 2012 not because it didn't provide a route to the fundamental ideological solution between Democrats and Republicans but because neither side was at all serious about solutions. But, I will suggest, the 2012 Wyden-Ryan plan now provides us with a template for the kind of hybrid Obamacare replacement plan that could be agreed to.

I would suggest an ultimate compromise could include the following elements:

  • For Republicans the ability for insurance companies to offer much more flexible plans so that the carriers can fashion plans that consumers want to buy. For Democrats, the requirement that health plans continue to offer the standard Silver Plan as at least one option and that insurers provide detailed comparisons between the standard Silver Plan and any other option the consumer chooses so that consumers know what they are buying. Key to making plans more affordable is to make offerings attractive enough to increase the current exchange risk pool from the 40 percent of those eligible that are currently signing up to something closer to the 75 percent of those eligible that insurers typically set as a goal. Accomplishing that could cut premiums by 30 percent to 40 percent alone.
  • For Republicans, enabling low-income consumers to be able to buy a low-cost plan plus a funded HSA for the value of their tax credits. For Democrats, the guarantee that low-income consumers could have a comprehensive insurance plan they could afford by being able to buy into Medicaid with the value of their tax credits, if the consumer decides the market plans available are not satisfactory.
  • For Republicans the end of the individual mandate and penalty and in its place a continuous coverage provision that guarantees coverage for preexisting conditions so long as a person stays insured. For Democrats, a guarantee that a consumer who did not stay continuously covered would always be able to buy a mainstream individual market health plan for they and their family and immediately receive coverage and the benefit of insurer network discounts going forward, but with the stipulation that any preexisting condition would not be covered for one year in order to protect the insurance pool's affordability.
  • For Republicans, capping the tax preference for high cost health plans. For Democrats, the elimination of the "Cadillac" tax on high cost benefit plans but pegging the tax preference cap at no less than the cost of the standard Silver Plan offered in the individual market.
  • For Democrats, let states continue to operate their Obamacare insurance exchanges if they so choose. For Republicans, let states discontinue the insurance exchanges relying upon the traditional market and a total return to state, not federal, regulation to manage the insurance markets.
  • For Democrats let states continue to operate their expanded Medicaid programs as they do now. For Republicans, grant states far more autonomy in the way they operate their Medicaid programs as well as give the 19 states that have not expanded Medicaid a chance to expand under the new flexibility and original funding schedule that paid for 100 percent of expansion costs in the first three years.
  • For Republicans, establish federal Medicaid funding caps ultimately tied to inflation. For Democrats, phase in the caps over five years. Let the two approaches to Medicaid compete for ten years and then sunset Medicaid funding enabling the Congress to compare the two approaches and the states' laboratory results for coverage and cost control before moving on.

Then there is the whole question of Medicare reform. If not now, when?

Since 2012's Wyden-Ryan Medicare reform proposal, both Ron Wyden and Paul Ryan have done pretty well. Wyden is now the ranking Democrat on the powerful Senate Finance Committee and Ryan is now House Speaker. Maybe it's time for a trip to the attic to dust this one off.

Commentary by Robert Laszewski, the president of Health Policy and Strategy Associates, LLC, who has twenty years of experience in the insurance industry, serving as a chief operating officer for nine of those years, before beginning his Washington, D.C. policy and market consulting business.


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