A Winning Alternative to Obamacare

Real Healthcare Reform by from The Weekly Standard, February 10, 2014

A winning alternative to Obamacare needs to solve the three core concerns that Americans had with our health-care system even before Obamacare was passed—but as important as what an alternative would do is what it wouldn’t do.

Obamacare is failing. Faced with this unpleasant reality, President Obama offered up during his State of the Union address his only remaining defense of his eponymous program: There is no alternative. “[M]y Republican friends . . . if you have specific plans…tell America what you’d do differently….We all owe it to the American people to say what we’re for, not just what we’re against.”

We accept the challenge. The 2017 Project, with which we’re associated, has developed an alternative to Obama’s 2,700 pages of federal largess. The proposal builds upon prior efforts by conservative policymakers and thinkers, including recent proposals from the House Republican Study Committee (RSC) and a trio of senior GOP senators (Tom Coburn, Richard Burr, and Orrin Hatch). It would solve the three core problems that called out for real reform even before the Democrats passed Obamacare: getting more people insured; dealing with the problem of preexisting conditions; and lowering costs. In providing politically attractive and substantively sound solutions to these three core concerns, it would justify bringing an end to Obamacare, and thus would pave the way for full repeal.

Just as important as what our proposal would do is what it wouldn’t do.  It wouldn’t force anyone to buy insurance. It wouldn’t auto-enroll anyone in any plan. It wouldn’t reduce the tax break for employer-based insurance (aside from closing the tax loophole at the high end). It wouldn’t cost anywhere near the $2 trillion over a decade that Obamacare would cost. It wouldn’t undermine religious liberty. It would allow Americans to keep their current plan if they like it.

In order to increase the number of people with insurance versus the pre-Obamacare status quo without compelling anyone to buy anything, the 2017 Project proposal would address what has long been a basic unfairness in the tax code.  Why should millions of Americans who get insurance through their employer get a tax break, while millions who buy it on their own through the individual market do not?  We would end this unfairness by offering a refundable tax credit, one that would apply to everyone who buys insurance through the individual market (just as the employer-based tax break applies to everyone in the employer market).  Since insurance costs increase with age, the value of the tax credit does too: $1,200 for those under 35 years of age, $2,100 for those between 35 and 50, and $3,000 for those who are 50 or over. There would also be a $900 credit per child. Those who didn’t use the full value of their tax credit could deposit what’s left in a health savings account (HSA).  Figures from the Government Accountability Office suggest that—in the absence of Obamacare’s myriad mandates—such credits, combined with the reform of letting people buy insurance across state lines, would make a low-premium (“catastrophic”) policy affordable for everyone.

Obamacare’s taxpayer-funded subsidies are substantial for the near-poor and some of the near-elderly, but they do virtually nothing for most of the young or the middle class. Obamacare’s neglect of these two rather significant groups opens up a huge political vulnerability. A 2017 Project study of Obamacare’s subsidies in the 50 largest American counties shows that a typical 26-year-old man who makes $35,000 would get no Obamacare subsidy whatsoever for the cheapest-priced “bronze” plan. Nor would a 36-year-old woman who is making that same $35,000.  Under our alternative, by contrast, they would get tax credits of $1,200 and $2,100 respectively, which they wouldn’t have to use for a government-run “exchange” plan but could use for any plan they’d like.

While most Americans don’t support Obamacare’s income redistribution, they also don’t want to see those with lower incomes tossed off their newly acquired insurance.  In terms of effects on the near-poor and the middle class, the two most recent GOP alternatives tend to err in opposite directions.  The RSC proposal relies on a tax deduction, not a credit. So it provides a significant assist to the upper half of income-earners, while millions of lower-income people would get comparatively little help in paying for their insurance.  The Coburn-Burr-Hatch proposal, on the other hand, income-tests its tax credit, therefore doing little or nothing for much of the middle class.  Our alternative effectively splits this difference, offering tax credits rather than deductions, but not means-testing them—thus helping both the newly insured near-poor and the neglected-by-Obamacare middle class.

To solve the problem of expensive preexisting conditions, our alternative would allocate $7.5 billion a year in defined-contribution federal funding for state-run “high risk” pools.  Through such pools, anyone could buy affordable, partially subsidized insurance, and no one could be turned away because of a preexisting condition.  We also propose (1) that no one could be dropped from, or re-priced by, their existing insurance—including insurance purchased under Obamacare—because of a preexisting condition; (2) that those who turn 18 (or leave their parents’ insurance) have a one-time, one-year buy-in-period during which they couldn’t be denied coverage, or charged more, for a preexisting condition—and that parents be granted a similar one-year buy-in-period for newborns; and (3) that people be able to move from employer-based plans to individual plans, or between individual plans of the same level, without being denied coverage, or being re-priced, for a preexisting condition.

There’s more to our proposal, and we invite readers to take a look at it. We’re certain it’s not perfect, and we hope others will find ways to improve upon it.  But we do think it sketches a compelling alternative to Obamacare, one that should allow Americans to have confidence in what would follow repeal. For this proposal can make the following winning claim:  under this conservative alternative, health costs would drop, liberty would be secured, and any American who wants to buy health insurance would be able to do so. And we can be freed from the nightmare of Obamacare.

Copyright 2014 Weekly Standard LLC. Reprinted with permission.