The Economist Europe – July 22-28, 2017

The EconomistJuly 22nd 2017 Leaders 11

1

O

NLY a madman would
build America’s health-
care system from scratch. Its mix
of private insurance, govern-
ment-provided care and endless
regulations is complicated, ex-
pensive and fails many vulner-
able Americans. The Affordable
Care Act, Barack Obama’s health-care law, is part of the mess.
Yet those who passed it knew it was a grubby compromise. In
America’s divided government, they reasoned, politicians
must build on what already exists.
Following the travails this week of theirlatest attempts to
“repeal and replace” Obamacare, Republicans must come to a
similar realisation (see page 25). They are too divided to sweep
away the status quo. Rand Paul, one of four senators who
threatened to bring down the Senate bill, compared its contin-
uation of parts of Obamacare to “German national socialism”.
He wants to get government out of health markets. Susan Col-
lins, another rebel, thinks the bill cuts Medicaid, government-
provided health insurance for the poor, too deeply. These fac-
tions are unlikely to agree, however longthe Republican lead-
ership tries to find a compromise. One conservative gambit—to
repeal Obamacare and worry about replacing it later—is a reck-
less gamble that would inflict crippling uncertainty on the
health industry and those who rely on it.

Get over the name
Republicans have long spoken as if Obamacare is a burning
house; those inside mustbe rescued, even if itmeans taking an
axe to the walls. But it is a fallacious argument designed to pro-
vide political cover to a Senate bill that is more about reducing
redistribution than rescuing Obamacare’scustomers from di-
saster (see page 26). The law’s problems are real, but fixable—

more like a leaky roof and botched plumbing than a fire. The

holes can still be patched up, in three steps.

First, more states should emulate Alaska, Minnesota and

Oregon, and start reinsurance programmes to pay the highest

medical costs incurred on Obamacare’s insurance exchanges.

Because the law forbids discrimination against those with pre-

existing health conditions, the exchanges contain many sickly

patients. As a result, premiums and deductibles have soared

for the 9m buyers who earn too much to receive government

subsidies. They foot much of the bill for Obamacare’s generos-

ity. Meanwhile, 155m other Americans enjoy a tax break on the

plans they get from their employers, which are often cheaper

anyway. Reinsurance programmes would bring premiums

down and begin to redress the imbalance. If it can get its act to-

gether, Congress could stump up some cash to help.

Second, states should open government contracts for pro-

grammes like Medicaid only to insurers that take part in the ex-

changes. Those insurers are likely to apply because Medicaid is

much larger than the market for individuals. Such rules, al-

ready in place in New York and Nevada, will help stem the

flow of firms abandoning the exchanges, which has left a third

of counties with only one insurer.

Finally, the Trump administration must fulfil the federal

government’s responsibilities under Obamacare. That means

enforcing its rules, such as a fine for those who choose not to

buy health insurance. It also means paying the subsidies that

underpin the system, something the president has been un-

willing to do, thus deepening the problems on the exchanges.

And it means seeking congressional approval for them to allay

concerns that such payments are unconstitutional.

Without a plausible replacement, killing off Obamacare, by

repeal or by neglect, would be grossly irresponsible. Madden-

ing as the system is, Republicans now have a responsibility to

make it work. 7

American health care

Revive, don’t repeal

Federal health-care law

US, preference, % polled July 2017

0 20406080100

All adults

Democrats

Republicans

Obamacare Republican plan

Other/don’t know

With health-care reform stalled, Republicans must now make the Affordable Care Act work

T

HE 40-year process of re-
forming China’s economy
has seen occasional retreats. But
the general trajectory has
seemed plain enough: towards a
greater role for market forces.
Since the early 1980s, private
business has grown far faster
and been much more profitable than the state sector. Back then
state companies were responsible for roughlyfour-fifths of
output; now they account for less than a fifth.
President Xi Jinping’s commitment in 2013 to give market
forces “a decisive role” in allocating resources seemed to pre-

sage more of the same. Yet the retreat of state-owned enter-

prises (SOEs) has stalled, and in some respects gone into re-

verse. China still has more than 150,000 SOEs. Their share of

industrial assets hovers stubbornly near 40%. They account for

about half of bank credit, and when the economy slows the

state presses them to spend more. Since 2015 investment by

SOEs has outpaced that by private firms (see page 55).

Mr Xi remains well aware of the need for reform; on July

15th he repeated warnings about indebtedness atSOEs. But

only some of the initiatives rolled out on his watch are aimed

at slimming the state sector. Two of them point in another dir-

ection entirely. One is the merging of competingSOEs. The arm

of the government responsible for looking after these firms has

Economic reform in China

Unnatural selection

Chinese corporate debt

Liabilities as % of equity

100

150

200

2003 05 10 15

Non-state-controlled

State-controlled

Government-owned businesses are becoming more, not less important. That is bad for China and the world