A Pro-Main Street Alternative to Obamacare

Real Healthcare Reform by from The Weekly Standard, September 3, 2015

The Weekly Standard has long observed that Obamacare, which President Obama pitched as a great deal for Americans of all stripes, is really only for the near-poor and near-elderly—at the expense of the middle class and the young. While only a small minority has benefitted from the 2,400-page overhaul, a large majority has been hit with higher costs and diminished freedom.

Obamacare is slated to cost more than $1.7 trillion over the next decade (for its insurance-coverage provisions alone) in large part because it funnels massive sums of money to the chosen few. Take a 64-year-old couple living in Miami and making $23,500 a year. As Jed Graham writes in an Investor’s Business Daily op-ed—which contrasts Obamacare with Scott Walker’s conservative alternative—that couple can get insurance through Obamacare that is worth about $24,000 while paying for only $936 of it themselves.  The remaining $23,000 or so is financed at their fellow Americans’ expense. In other words, Obamacare essentially doubles the couple’s income (while funneling half of it to an insurance company).

As Graham details, the published price of such “silver” Obamacare insurance is about $15,000, with almost all of that covered by a taxpayer-funded premium subsidy. However, Obamacare also provides an additional taxpayer-funded subsidy that dramatically lowers the couple’s potential out-of-pocket costs, reducing their deductible from a potential $10,000 to $1,000. As Graham writes, this “effectively turns the silver plan to platinum, raising its implied price-tag to about $20,725.” If that weren’t enough, Obamacare also bans insurers from charging young people less than one-third what they charge older people (in defiance of actuarial science), which raises costs for the young and lowers them for the old. As Graham writes, “Removing age-rating restrictions would raise the cost of equivalent coverage for a 64-year-old couple by roughly 17%, to $24,175.”  So the couple is getting $24,000 “platinum” insurance for $936.

Meanwhile a 40-year-old single woman, also living in Miami, who makes $35,000 a year, gets $0 under Obamacare. She’s too young and too middle class. If she were in her twenties or thirties and made $35,000, or more, she’d still get nothing.  A man with the same income would also get nothing. If any of these people were to decide not to pay Obamacare’s inflated prices next year and simply forgo insurance, they’d get fined $875 for violating Obamacare’s unprecedented individual mandate. In short, Obamacare makes the near-poor richer and the middle class poorer.

But not all of those who are poorer become richer. If the couple making $23,500—and getting roughly $24,000 in insurance almost entirely at others’ expense—loses $8,000 in income, their Obamacare subsidy would actually drop rather than rise.  In fact, it would drop off a cliff, to $0. Moreover, the couple wouldn’t even be eligible for Medicaid. Their ineligibility for Medicaid is attributable to Florida’s (wise) decision not to extend Medicaid under Obamacare, but their ineligibility for an insurance subsidy is due to Obamacare’s irrational design.

In vivid contrast to such byzantine redistribution, Scott Walker has proposed a simple, understandable conservative alternative that would lower costs and restore freedom.  Under Walker’s plan—which is based on the alternative advanced by the 2017 Project (which I run)—the couple in question would get a $6,000 tax credit to buy health insurance of their choice, the 40-year-old woman would get a $2,100 tax credit to buy insurance of her choice, and those under 35 would each get a $1,200 tax credit to buy insurance of their choice. The structure of Walker’s tax credits, which would go directly to individuals and not to insurance companies, would encourage people to shop for value.  Any portion of the tax credit they didn’t use would go into a health savings account (HSA) they would own.

At IBD, Graham opines that it will be “a tough sell” for Walker to convince people to replace the near-elderly, near-poor couple’s $23,000 subsidy with a $6,000 tax credit. In truth, however, it will be a far tougher sell for liberals, who want to stave off Obamacare’s repeal, to explain the following:

Why should a couple making $23,500 enjoy $24,000 “platinum” insurance at taxpayer expense?

Why should middle-class Americans forgo long-overdue tax credits like Walker is proposing (long-overdue in that people getting insurance through their employer have gotten tax breaks for the past 70 years) so that Obamacare can effectively double the income of the chosen few?

Why should Americans agree to keep always-unpopular legislation that raises their health costs and undermines their liberty when there is a viable conservative alternative on the table that would lower their health costs and restore their liberty?

What Graham’s example does convey, however, is what a tough (and presumably impossible) sell it would be to repeal Obamacare while proposing to replace it with nothing—or with something that does nothing for the near-poor. Before the Democrats passed Obamacare into law—against the clear will of the American people — the couple making $23,500 would not have gotten any tax break for buying insurance of their own (assuming their employer didn’t offer insurance). In contrast, $6,000 is a large chuck of change, effectively boosting their income by more than 25 percent.

According to the federal government’s own numbers, the median health insurance plan for a 55-year-old couple in Florida on the eve of Obamacare’s implementation cost $8,364. Half of all plans costs less than that—some far less. With their $6,000 tax credit, plus a $1,000-per-person tax credit for opening an HSA (also part of Walker’s proposal) and a modest amount of their own money, the couple would have an excellent opportunity to shop for value from among a wide range of plans, free of Obamacare’s cost-hiking coverage mandates.

The beauty of Walker’s approach is that it’s simple and doesn’t play favorites, would reverse Obamacare’s consolidation of power in Washington, and would save colossal sums of money versus Obamacare while actually helping more people. Such Main Street-oriented reform is the ticket to full repeal—and could be the ticket to the White House for Walker if he starts to make his proposal the centerpiece of his campaign.

© 2015 Weekly Standard LLC. Reprinted with permission.