Too often, the Republican Party health-care agenda seems to consist of incanting "repeal and replace" and then to stop thinking--if the thinking ever begins at all. Certainly the current Presidential field is saying little beyond promising to repeal ObamaCare, but in the nick of time Paul Ryan has provided some intellectual guidance in an important speech yesterday at Stanford's Hoover Institution.
The Wisconsin Republican didn't stint on the damage that will be done by national health care, but he did locate ObamaCare in the context of America's long-running market and government dysfunctions that President Obama inherited, even if he made them worse. Mr. Ryan then put some flesh on the "replace" bones, because he said "we cannot simply revert to the status quo."
The core challenge, as Mr. Ryan laid out, is that "the health-care sector lacks most of the basic building blocks of a functioning market." The two major government health programs, Medicare and Medicaid, will pay for nearly anything regardless of value but then attempt to restrain costs through price controls. ObamaCare will do the same.
Meanwhile, what's left of the private insurance market is shaped by the tax preference for job-based coverage. This artifact of World War II-era wage controls creates a subsidy for open-ended tax-free benefits instead of taxable higher wages, and the third-party health-payment system that resulted has over the years suppressed the price signals that discipline other markets.
The irony, as Mr. Ryan put it, is that "the system that shields us from the cost of services has actually left us paying more." The "premium support" Medicare reform he proposed and the House passed this year would bring down the entitlement's high and rising costs through choice and competition, much like 401(k)s have arisen to replace increasingly unaffordable and impractical defined-benefit pensions.
Mr. Ryan's larger contribution in the Hoover speech was to highlight the problems in today's employer-sponsored insurance market, which can't be solved through, say, tort reform alone--or even by repealing ObamaCare alone.
This reality was underscored by yesterday's Kaiser Family Foundation survey that found employer-sponsored premiums have jumped 9% for families and 8% for individuals since 2010, when the growth rate was about 3% over 2009. Much of this surge is due to ObamaCare's new coverage mandates, and in anticipation of insurers becoming public utilities with government imposing price controls on rates. But it also shows that health care exists in a different economic universe than other businesses, even amid the current stagnation, due in large part to the tax subsidies for third-party payers that don't exist for individuals who buy insurance.
Mr. Ryan's plan goes to the heart of this dysfunction by proposing a refundable tax credit for any insurance policy, allowing workers to shop outside of the company store without penalties if they prefer. As tax policy we'd prefer an individual tax deduction rather than a tax credit. But a tax credit might be easier to sell politically, and the key point is to change the incentives so the market for individual insurance policies will rebound and provide more options and competition.
Washington's wisemen/cynics think that even talking about the tax treatment of health insurance, let alone changing it, is a political loser. And it's true that Mr. Obama pounded John McCain on the issue in 2008, only to get pounded himself during the health reform debate by the unions that favor public subsidies for their gold-plated benefits.
But among the virtues of Mr. Ryan's speech is a political optimism that treats voters with more respect: People will listen if the political class tries to make an educational, serious argument. "Fear and demagoguery are the last refuges of an intellectually bankrupt party," he said.
This is good advice for any intractable policy issue, but it is especially useful for GOP House and Senate caucuses that are notoriously fractious and risk-averse on health care. Mr. Obama had the political opening he did on health care in 2009 in part because the Tom DeLay Republicans did nothing when they ran Congress and the White House in 2005-2006.
They even bowed to oligopolistic state insurers like Blue Cross-Blue Shield by refusing to let insurance be sold across state lines or to let associations like the Chamber of Commerce offer insurance to their members. In 2003, they also blinked on more far-reaching reform of Medicare when they added the prescription-drug benefit.
Especially if Republican dreams come true and they control all of Congress and the White House in 2013, the GOP will have to do more than merely repeal ObamaCare. Mr. Ryan is giving Republicans a policy guide that is more than a political slogan, if they have the wit to follow.