Economist Aaron Hedlund argues in a National Review Online column that crafting an “effective, politically viable” plan to repeal and replace the Affordable Care Act should not be as difficult as politicians have suggested in recent weeks.

The collapse of the American Health Care Act in the House did nothing to change one fundamental reality: Republicans simply don’t have the luxury of failing when it comes to repealing and replacing Obamacare. No other campaign promise has galvanized conservative voters more over the past seven years; failure to keep it will irreparably sever trust and demoralize the grassroots as the 2018 midterms approach.

Given the united Democratic opposition, inside-the-bubble D.C. thinking has made the tug-of-war between Republican moderates and the Freedom Caucus into an impossible zero-sum game. But a viable path for free-market health-care reform still exists — if Republicans in Congress can coalesce around some key ideas, such as pursuing smart insurance deregulation that puts families back in charge, creating a targeted and robust free-market safety net, and unleashing productivity and innovation by unshackling the health-care-delivery system. …

… Unfortunately, the market created by Obamacare does not function properly because the law enacts community-rating restrictions to subsidize the higher-risk Group B at Group A’s expense. In practical terms, Obamacare forces Group A to overpay for insurance so that Group B underpays, subjecting both groups to an individual mandate as a way of preventing Group A from walking away. Essentially, the law taxes the young and healthy to subsidize the old and sick under the pretext of “consumer protection.” This de facto insurance-premium tax is worse than even a typical tax because it destabilizes insurance markets by causing a cascade of rising premiums and fleeing customers, which then forces market consolidation as many insurers follow suit and depart.

The best way to fix this problem, restoring affordability and stability to the health-care sector, is to unleash market competition by stripping away Obamacare’s insurance mandates. But while deregulating insurance markets is likely to win the support of the Freedom Caucus, moderates may worry — not without reason — that removing these “protections” will make insurance unaffordable for people with preexisting conditions, even as it dramatically lowers premiums for the vast majority of Americans. Which means that deregulation of the market can’t be the only feature of any repeal-and-replace proposal.