After reiterating his promise to repeal and replace the Affordable Care Act, President-elect Donald Trump has indicated that he may keep two of the law's most popular provisions... preventing insurance companies from denying coverage because of preexisting conditions -- offers a perfect illustration of why Trump and most of the other Republicans critics of Obamacare don't understand the health insurance market.

... to guarantee that people with pre-existing conditions can get affordable health insurance, you need to have rules requiring guaranteed issue and community rating.  To keep insurance companies in business because of guaranteed issue and community rating, you need to have an individual mandate.  And because poor people can't afford health insurance, you need subsidies. Combine all three, and what you have, in a nutshell, is ... Obamacare.

The article is right, it won't be straightforward to replace Obamacare; you can't just surgically remove a few bits here and keep choice bits here -- it's like playing "Jenga". What needs to be done is to make fundamental changes so that market and regulatory forces lower the cost/incentive structure. Yes, it's probably a good thing for society to keep the guaranteed coverage, but the way to keep it and not fiscally blow up the whole system is to separate the free market component of health care from the subsidized component. The way to do this is: for anyone who the market won't cover at an affordable rate, put them into Medicare. At the same time, Medicare must not only be allowed to, but have as a major operating objective to bargain with care and pharmaceutical providers on prices (and quality). With the fiscally unsustainable cases out, the free market insurance system can work properly. Costs would begin to fall both because of the free market portion working, well, freely, and because of the public portion bargaining on cost.

Once that is done, add to it the effect of deregulating state markets into a national unified whole, and removing the ban on charging lower cash costs outside of Medicare. Then, prices would really plummet.

Who would be the ultimate losers in this? Well, the bulk of the medical "sick care" industry. But, the survivors would be more efficient and more effective at delivering true health care -- not sick care.

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