Here’s how to create a better health policy than Obamacare

One in 2 Americans now opposes Obamacare. It’s not hard to see why.

Premiums will increase this year by an average of 7.5 percent for the law’s midlevel “silver” plans. More than half of Obamacare’s nonprofit insurance co-ops have failed, forcing 740,000 people to find new, often more expensive insurance. Almost 8 million people have been shoved into Medicaid — only to find that 1 in 2 doctors refuses to take new Medicaid patients.

Clearly, Obamacare needs to be replaced with a plan that provides Americans with affordable coverage and reliable access to doctors. Fortunately, many Republicans — including the bulk of the GOP field running for president — agree on the core ideas behind a replacement plan.

Here are some of those ideas.

A sound replacement plan starts by getting rid of Obamacare’s twin mandates that all employers with 50 or more full-timers provide insurance and that all individuals obtain coverage.

Instead, lawmakers should implement a workable alternative that would lower insurance costs, create a more competitive health care market, save taxpayers money and actually expand consumer access to affordable coverage.

The first step: Replace Obamacare’s complicated, income-based scheme for insurance subsidies with a refundable tax credit available to anyone who buys insurance on the individual market. The amount of the credit should vary by age.

This approach serves two important functions. First, it begins to undo the 70-year-old distortion in our tax code that allows those who get their insurance through work to buy it tax-free, but requires those purchasing a policy on their own to do so with after-tax dollars. This distortion has crippled the individual market, tied insurance to employment and hampered competition in the industry. Instead, an ideal replacement plan would alter the tax credit so that it’s about equal to the average tax break workers get for employer-sponsored health benefits.

Second, making the tax credit available irrespective of income would do away with Obamacare’s huge subsidy-calculating machinery — such as its privacy-threatening data hub, legions of IRS workers and hugely complicated tax forms. Additionally, unlike Obamacare’s subsidies, which are paid directly to insurance companies, tax credits should go directly to individuals. That would provide people with a strong incentive to shop around, and it would force insurers to aggressively compete for individuals’ business.

An Obamacare replacement plan should also raise the contribution limits for Health Savings Accounts (HSAs), where consumers can save money tax-free for routine health care expenses. The accounts must be paired with a high-deductible insurance plan.

HSAs have proven effective at reducing health care costs. The National Bureau of Economic Research published a report earlier this year that studied 13 million people with high-deductible plans paired with HSAs. The authors found that health spending declined in all three years they examined — with no evidence of worse health outcomes.

A revamped health care system must also eliminate Obamacare’s “guaranteed issue” and “community rating” rules, which require insurers to sell policies to all comers, regardless of health status or history, and forbid them from charging the old or those with pre-existing conditions any more than three times what they charge the young. These rules may seem fair. But they encourage people to wait until they get sick to buy insurance.

Instead, a replacement plan should protect those with pre-existing conditions by barring insurers from raising a person’s premiums because of health status or history as long as that person has maintained continuous coverage. This move would encourage people to buy and keep insurance — not to game the system.

Finally, policymakers must fix Medicaid, the joint federal-state program for individuals earning below 138 percent of the federal poverty level. As it stands, costs in the program are surging — even as the poor must deal with one-size-fits-all rules and are often unable to access care. Medicaid, along with other federal health programs for the poor, should be transformed into a single block grant to states.

That would free states to experiment in order to find the best ways to meet the health care needs of their own low-income residents.

Every Republican presidential candidate has pledged to repeal and replace Obamacare if elected. These tenets should be the blueprint for doing so.

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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