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Instead of Obamacare

Real Healthcare Reform by from The Weekly Standard, February 23, 2015

Each of the three major types of Obamacare alternatives has a different likelihood of political success, and conservatives should carefully examine which one provides them with the best chance to achieve full repeal.

Obamacare is an affront to American principles. It amounts to an unprecedented consolidation of money and control in the hands of the federal bureaucracy. It forces private citizens to buy a product or service of the government’s choosing for the first time in history, and it bans millions of Americans who would otherwise choose to buy or keep other products or services from doing so. It costs trillions when we already owe trillions. A nation “conceived in liberty” is now operating under a health care law predicated on coercion.

Yet despite these high stakes, conservatives have given surprisingly little serious thought to how to repeal Obamacare. Some have put down unrealistic or unhelpful markers​—​no new spending or taxes above the pre-Obamacare baseline​—​as if the problem were merely that Obamacare costs a lot and taxes a lot. Some pretend that if they do nothing, President Obama’s signature legislation will somehow fade away. Others have made peace with Obamacare and assume that most of it is here to stay.

But we can roll back the greatest domestic threat to limited government and liberty that most of us have ever faced. It’s obvious, and has been at least since the defeat of Hillarycare in the mid-1990s, that staving off the left’s attempts to socialize American medicine will require conservative solutions and reforms. The near-absence of such offerings in the 15 years from 1994 to 2009 provided fertile ground for Obamacare and enabled it to take root. Now that Obamacare is the law of the land, it’s all the more obvious that the only way to repeal it is to advance a winning alternative.

Such an alternative should pass two tests: (1) Will it pave the way to full repeal? And (2) will it fix what the government had already broken through the tax code (with the disparate tax treatment of individual and employer-based insurance) even before Obamacare was passed? The second of these is important; the first is indispensable.

Any viable conservative or Republican alternative to Obamacare would cut costs. But it must also deal with the thorny issue​—​used to great rhetorical advantage by Obama​—​of uninsured people with expensive preexisting conditions. Obamacare solves the problem by in effect outlawing the core principle (dating back to the Renaissance) of insurance itself​—​the idea that you buy coverage before you are sick or injured (or before your car crashes or your house burns or your spouse dies) as protection against that unforeseen event. Almost every Obamacare alternative under discussion would end this heavy-handed redefinition of insurance and replace it with a combination of commonsense insurance regulations and state-run, federally funded high-risk pools. While the specifics vary, the regulations would generally guarantee continuous coverage, while the high-risk pools would offer subsidized insurance to those whose preexisting conditions would make insurance unaffordable at market prices.

Given the general consensus on how a replacement of Obamacare should deal with preexisting conditions, what differentiates the Obamacare alternatives most sharply is their treatment of the tax code. Since World War II, the federal government has had its thumb on the scale, strongly favoring employer-based insurance over individual-market insurance. Thus, millions of Americans who buy their own insurance do so without a tax break, while their neighbors with employer-based insurance enjoy a large tax break. As a result, the individual market has largely dried up. And for all of its 2,700 pages of federal largess, Obamacare didn’t fix this unfairness in the tax code. Rather than cutting anyone’s taxes, it gives a small subsection of the population large subsidies while presenting most Americans with the tab.

Senators Richard Burr and Orrin Hatch and House Energy and Commerce chairman Fred Upton have advanced the most visible Republican alternative on Capitol Hill. It would offer income-tested, age-based, refundable tax credits in the individual market to roughly the same people who get Obamacare subsidies. People could use the tax credits to help buy insurance of their choice, rather than the insurance Obamacare compels them to buy. At the same time, the proposal would cap the tax break in the employer-based market at $30,000 for a family plan and $12,000 for an individual plan. People eligible for tax credits but who “fail to make an affirmative choice”​—​that is, who don’t buy insurance—​could be automatically enrolled in a plan. The alternative would repeal most but not all of Obamacare, keeping such things as its Medicare raid and its requirement that insurers cover 25-year-olds on their parents’ policies, while repealing Obamacare’s exchanges, exchange subsidies, taxes, and almost all of its mandates.

The Republican Study Committee and Louisiana governor Bobby Jindal have both advanced alternatives that would scrap the employer-based tax break altogether and offer a new standard deduction for all health insurance. The RSC proposal, supported by more than 100 House Republicans, would offer a tax deduction of $20,000 for families and $7,500 for individuals who buy health insurance, while Jindal’s proposal is less fleshed out. Under either alternative, people could use the deduction against both income and payroll taxes. Moreover, anyone who bought insurance that cost less than the value of the deduction could still take the full deduction, thereby encouraging people to shop for value. Both would repeal Obamacare in its entirety.

The 2017 Project (of which I am the executive director) has advanced an alternative that the nonpartisan Center for Health and Economy (H&E) says would cut spending by $1.13 trillion below Obamacare over 10 years, while increasing private insurance rolls by 6 million. (H&E hasn’t scored the current versions of the other proposals.) Ed Gillespie championed this proposal and almost rode it to an upset victory in Virginia. It would offer flat tax credits, with three simple age bands, to everyone in the individual market​—​$1,200 for those under 35 years of age; $2,100 for those between 35 and 49; $3,000 for those 50 and over​—​and $900 per child. People who bought insurance for less than the value of their tax credit could put the difference into a Health Savings Account, and a further onetime tax credit of $1,000 per person would be offered to anyone with an HSA. On the employer side, it would cap the tax break at $20,000 for a family plan and $8,000 for an individual plan. It would not include “auto-enrollment” and would repeal Obama-care in full. Moreover, because its tax credits would go to people of all incomes, giving most of them a tax cut, this alternative would likely provide a net tax cut even from the pre-Obamacare baseline​—​in addition to the $1 trillion tax cut that would come from repealing Obama-care.

Again, the crucial questions are whether these alternatives would (1) lead to repeal and (2) fix the longstanding tax unfairness.

Beyond dealing with preexisting conditions, to survive politically, any winning alternative must be invulnerable to two lines of attack: that it dumps millions of newly insured people off their Obamacare-compliant policies, leaving them uninsured, and that it disrupts the employer-based insurance of roughly 160 million Americans.

An Obamacare alternative need not necessarily beat Obamacare on projected coverage numbers, especially since the Congressional Budget Office now says Obamacare has put more people on Medicaid than it has added to private insurance rolls, and will continue to do so. But an alternative does need to beat the pre-Obamacare number of Americans covered, by a wide margin, and it needs to accommodate those who got covered under Obamacare, including those diverted into Medicaid. In short, a winning alternative must address costs and coverage.

The Burr-Hatch-Upton alternative successfully deals with those who became newly insured under Obamacare. They would get tax credits to help them buy insurance of their choice. And Burr-Hatch-Upton wouldn’t alter the tax treatment of the typical person’s employer-based plan. Thus, its defenses are solid against both lines of attack. It would therefore meet the first criterion: It has what it takes to lead to repeal. But it doesn’t pass the second test. Because its tax credits are income-based, it wouldn’t eliminate the unequal tax treatment of most people who buy insurance through the individual market.

The RSC and Jindal proposals both pass this second test (fixing the inequity in the tax code), but would flunk the deal-breaking first test: They wouldn’t lead to repeal. They are extremely vulnerable to both major lines of attack that Obama and his allies would like to launch. They have no real answer for the poor and near-poor who have gained coverage under Obama-care, and they would disrupt the tax treatment of every employer-based plan.

The attitude of Americans with employer-based insurance will largely decide Obamacare’s fate. During the 2008 presidential campaign, John McCain advanced a proposal that would have disrupted employer-based insurance about as badly as the RSC and Jindal proposals would. Obama responded with the most frequently run political ad of the past decade. Repeating the McCain campaign’s mistakes won’t get us to repeal.

As for dealing with the near-poor, take this example. Under Obamacare, a family of five in Milwaukee, with 57-year-old parents making a total of $30,000 a year, gets a staggering $20,567 a year in Obama-care subsidies, plus further subsidies for out-of-pocket costs. Under Burr-Hatch-Upton, that family would get an $11,110 tax credit with which to shop for insurance. But under the RSC and Jindal alternatives, because the family pays no federal taxes​—​that is, their income tax refund exceeds their payroll taxes​—​they would go from a subsidy of $20,567 to a tax deduction of zero. Imagine the heyday Obamacare defenders would have with that.

Jindal claims that his alternative is “truly conservative” and that most other alternatives are really Obamacare Lite. But his alternative would give us Obamacare Forever, and there is nothing conservative about that.

The 2017 Project alternative, like the RSC and Jindal proposals, would end the inequity in the tax code. Because its tax credits would go to everyone in the individual market, a 35-year-old single woman making $35,000 a year in Fairfax County, Virginia, who gets no Obamacare subsidies and a mere $3 tax credit under Burr-Hatch-Upton, would get a $2,100 tax credit to buy insurance of her choice. If she doesn’t itemize her deductions (and likely even if she does), this tax credit would come entirely in the form of a tax cut. Advocates of repeal have generally overlooked the huge political upside of offering an overdue tax cut to millions of Main Street Americans who get nothing under Obamacare.

Unlike the RSC and Jindal alternatives, however, the 2017 Project alternative also deals effectively with the poor and near-poor, who are Obamacare’s primary focus. The Milwaukee family that gets $20,567 in Obamacare subsidies​—​and nothing under the RSC and Jindal proposals​—​would get an $8,700 tax credit ($3,000 for each adult and $900 for each of their three children) under the 2017 Project proposal to buy insurance of their choice on the open market. That would be enough to make insurance affordable even if they didn’t supplement the credit with their own money, according to the federal government’s own figures on the cost of insurance in each state for various ages and family sizes, released by the Government Accountability Office on the eve of Obamacare’s implementation.

Nor would the 2017 Project alternative blow up the employer-based market. Under it, the tax break for the typical person’s employer-based insurance wouldn’t change at all. And even a family with, say, a $25,000 employer-based plan would still get the full tax break on the first $20,000.

Thus, the 2017 Project alternative passes the first and crucial test​—​it would lead to repeal. It also passes the second test: By finally ending the unfairness in the tax code, it would revitalize an individual market that the government broke. In short, by offering a non-income-tested tax credit to every American in the individual market, the 2017 Project alternative​—​or one similar to it​—​would be a political winner.

The American people clearly want repeal, but only in the context of a superior conservative alternative​—​one that would meaningfully deal with both costs and coverage and would do so without needlessly jeopardizing employer-based insurance. A McLaughlin & Associates poll from last fall found that, if offered “a conservative alternative that aims to lower health costs and help people get insurance,” Americans favor repeal by 60 to 32 percent.

The repeal of Obamacare would be the greatest domestic policy win in the history of the conservative movement. It can happen. There is no substitute for victory. But victory is possible only if the alternative that is advanced to replace Obamacare is the right one.

© 2015 Weekly Standard LLC. Reprinted with permission.