Here Are Good Ways to Replace Obamacare, Not Simply Repeal It

Real Healthcare Reform by from Washington Examiner, June 20, 2014

It is not possible to displace Obamacare without advancing a credible alternative. Simply repealing the law implies a reversion to the pre-Obamacare status quo, which had its own set of problems. To repair American health care, critics of the president’s plan must offer reforms that address the defects of the old system while jettisoning Obamacare’s fatal combination of soaring costs and shrinking access to doctors and leading hospitals. Doing so would win broad public support. In polling done for the 2017 Project, a group advancing a conservative reform agenda, the public favored replacing Obamacare (44 percent) with an alternative, as opposed to keeping and fixing it (32 percent).

Significant progress has been made in developing a practical and workable alternative to Obamacare. In January, Sens. Richard Burr, R-N.C., Tom Coburn, R-Okla., and Orrin Hatch, R-Utah, introduced a plan called the Patient Choice, Affordability, Responsibility, and Empowerment Act, or Patient CARE Act. Shortly after, the 2017 Project released a plan to replace Obamacare that shares several important features with the senators’ plan. From these two plans, the key features of a credible alternative to Obamacare have emerged.

A commitment to market-driven health care

Only two broad choices exist for disciplining cost growth in health care: government-imposed cost-control mechanisms or a well-functioning marketplace. Obamacare supporters claim to promote a market-based reform, but described more fairly, the law introduces extensive new federal control over the system. The Patient CARE Act and the 2017 Project proposal favor a real marketplace, where the government provides oversight but consumers control the allocation of resources through the choices they make.

Retention of employer-based coverage

According to U.S. Census Bureau data, about 160 million Americans under age 65 get health insurance through employers. Employer coverage is widespread because employer-paid insurance premiums are not counted as taxable income to workers. Many workers enrolled in employer plans favor some kind of health care reform because they see problems in the wider system, but they do not want their job-based coverage disrupted. One main reason that Obamacare is unpopular is because many workers perceive (correctly) that the law is adding costs to their employer-sponsored insurance. Both the Patient CARE Act and the 2017 Project plan leave in place the job-based insurance system that most workers find attractive.

This is not to suggest that the employer system is without flaws. Today’s open-ended tax break for employer plans encourages expensive insurance, which drives up the cost of care. The reform plans sponsored by the Republican senators and the 2017 project address this problem by setting a high upper limit on tax-preferred employer-paid premiums. In the 2017 Project, the cap is set at $20,000 for family coverage. Any plan with premiums below the cap would see no change whatsoever. Workers enrolled in the relatively small percentage of more expensive plans would still be allowed to keep that coverage without change, but the premiums above the threshold would no longer be tax-free.

Beginning in 2018, Obamacare also sets an upper limit on the cost of insurance (called the Cadillac tax), but does so by imposing a 40 percent excise tax on all premiums above the threshold. This approach is less fair because it imposes the same tax on all workers, regardless of income. Under the Patient CARE Act and the 2017 Project reform plan, higher-income workers would pay more for premiums above the cap because their incomes put them into higher tax brackets.

Tax credits for persons without access to employer coverage

Although most Americans have access to job-based insurance, many Americans do not, for a variety of reasons (for instance, they work in smaller firms that do not offer insurance). It is not fair to give a generous tax break for workplace insurance to employees and their families, and nothing at all to persons who must buy insurance on their own.

Both the Patient CARE Act and the 2017 Project plan would provide tax credits to households without access to employer coverage. The credits would be roughly equivalent to the value of the tax break for employer coverage and would be refundable, meaning taxpayers get paid the full credit, even if the credit exceeds their tax liabilities.

This approach to leveling the tax playing field for health insurance is preferable to proposals that allow taxpayers to deduct the cost of insurance. A deduction’s value is higher for higher-income taxpayers because they would pay higher tax rates on income excluded from taxes. A credit provides the same value to all taxpayers, regardless of income, and therefore provides real benefits to households with little or no tax liability. Many households without health insurance also have low incomes and would benefit much more from the credit. Consequently, assessments of reform plans built around tax credits for insurance do more to reduce the ranks of the uninsured than do plans that provide an expanded tax deduction for health insurance premiums.

Continuous coverage protection

Obamacare tries to solve the problem of expensive pre-existing conditions by first outlawing the use of health status in setting premiums, and then by forcing all Americans to purchase government-approved insurance plans (or else pay a new tax). Although the public likes the new insurance rules, the individual mandate is among the law’s least popular provisions. Without it, however, the law won’t work because consumers would wait to sign up for insurance until they were sick—in fact, they may do this anyway because the tax for remaining uninsured is far below coverage premiums for most households.

Instead of forcing people into government-mandated insurance plans, the Patient CARE Act and the 2017 Project provide a strong incentive for consumers to stay insured. Anyone who stays continuously enrolled in insurance would be protected from higher premiums based on health status when they switch insurance plans. This allows consumers to go from employer plans to individually purchased coverage without fear of higher premiums based on a pre-existing condition. Moreover, the tax credits for those outside the employer system would ensure that all Americans stay insured and benefit from this new protection.

Better health care for the poor

Obamacare achieves much of its insurance enrollment growth by dramatically increasing the size of Medicaid. However, the networks of physicians and hospitals willing to see Medicaid patients is very constrained, which means Medicaid’s enrollees often do not have access to the same quality care as middle-class families.

The Patient CARE Act and the 2017 Project plan give the tax credits available to persons outside the employer system to the Medicaid population too (excluding the elderly and disabled who need Medicaid for long-term care services as well as medical care). States would use a reformed Medicaid program to supplement the credits for their low-income populations. This approach allows Medicaid participants (and others just above current Medicaid eligibility) to enroll in mainstream insurance plans—the same plans that middle-class families would access with their tax credits. Enrollment in the same insurance plans is the starting point for giving the poor better services than under a traditional Medicaid expansion.

The unpopularity of Obamacare is providing opponents of the law with a not-to-be-missed opportunity. The public is ready to hear about credible, practical alternatives to handing ever more power over to the federal government. No serious reform plan is entirely without political risk, of course, but these plans have the potential to resonate with voters because they address the problems at a fraction of the cost of Obamacare. Early assessments of these plans show that they have the potential to cover just as many people with insurance as Obamacare, without the mandates, high taxes and federal regulatory control.

It is not necessary for the Republican House to pass such a bill this year (the Senate wouldn’t take it up anyway). What is necessary is for influential Republicans to begin lining up behind plans such as these, and for the emerging field of Republican presidential candidates to embrace reform with similar features. If that happens, voters will see that the GOP does indeed have a credible plan to replace Obamacare—a plan that could actually get enacted if Washington power shifts in a more conservative direction.