A Healthcare Blueprint For A President Mitt Romney

Mitt Romney caused a stir during his recent speech before the NAACP, telling the crowd, “I will eliminate expensive non-essential programs like Obamacare.”

The largely pro-Obama crowd was not thrilled with Romney’s attack on the president’s signature legislative achievement. But it’s hard to imagine how anyone could be excited about the prospect of shelling out $2.6 trillion between 2014 and 2023 to pay for the healthcare law.

Perhaps all that booing came about because Romney has yet to offer a compelling vision for fixing our broken healthcare system as an alternative to Obamacare.

Well, here’s one.

First, Romney and company must create a functional consumer market for health insurance by changing the way that it’s taxed.

Currently, individuals do not have the same ability to purchase insurance tax-free that businesses do. Not only is that unfair — it also drives up the cost of insurance and of care.

Because folks don’t directly shoulder the costs of the care they consume, they demand more of it. That increased level of demand leads to higher prices — and higher levels of waste. A 2002 study estimated that the American system of getting their health insurance through third parties results in $106 billion in wasted spending every year.

Those elevated spending levels price some folks — particularly those who don’t get insurance through work and therefore can’t enjoy the same tax benefit — out of the market.

Romney could propose to rein in skyrocketing insurance costs and expand coverage to the 16 percent of Americans who are currently uninsured by offering a $15,000 tax credit for the purchase of insurance.

Individuals could select plans that meet their needs and budgets — not those of their employers. Further, workers could pursue employment opportunities based solely on whether they wanted the job — not on unrelated matters like health insurance.

And employers could return the money they used to pay for health benefits to their workers as cash wages. So many Americans would effectively receive a pay increase.

In addition to reforming the tax treatment of health insurance, Romney should call for expanding the availability of high-deductible plans paired with health savings accounts (HSAs). High-deductible plans are much more affordable than the mandate-heavy policies preferred by Obamacare — while still protecting folks against true medical catastrophes.

HSAs, meanwhile, allow people to save money tax-free to pay for routine medical expenses. Accountholders can keep unspent money in their accounts in perpetuity — so they have a strong incentive to spend judiciously.

The American Academy of Actuaries found that high-deductible plans deliver significant cost-savings over traditional plans — as much as 20 percent the first year, and 3 to 5 percent on average in the years that follow. Even as costs fell, patients with these policies sought out preventive care more than folks in more conventional health plans.

Of course, America’s healthcare problems aren’t limited to the private sector. Public health programs are in serious need of reform, too. Medicare is facing a $38-trillion shortfall, and annual Medicaid costs are projected to more than double from $427 billion in 2010 to $896 billion in 2019.

Consumer-driven reforms could also fix these government healthcare programs. Vouchers or premium support payments for Medicare recipients would charge individuals with picking insurance policies that suit their needs — just as tax credits would operate in the private market. And in conjunction with means testing, these vouchers would encourage seniors to spend wisely on their care.

Romney could similarly impose fiscal discipline on Medicaid by shifting the program’s finances from a system of federal matching dollars to one of block grants.

At present, the states administer their own Medicaid programs, but the federal government matches state spending on the program, so states don’t have to bear the full fiscal consequences of increasing enrollment. In fact, federal matching funds exceed state spending overall.

But if the federal government gave each state a finite amount of money as a block grant, states would be forced to administer their programs more cost-effectively. The nonpartisan Congressional Budget Office has estimated that block grants in Medicaid would lower federal Medicaid spending by 35 percent, resulting in $189 billion in annual savings.

If we want an affordable health care system that really works, it’s now or never. Mitt Romney needs to promise more than repealing Obamacare – he needs to offer his own blueprint for its replacement. Policies like these should be at the heart of it.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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