House Republican Plan Only The First Step Toward Repealing And Replacing Obamacare

Yesterday, the House Republican leadership formally unveiled their effort to repeal and replace Obamacare — the American Health Care Act.

The legislation is far from a free-marketer’s dream. But it may also represent the only politically viable way to repeal Obamacare — and set the stage for a replacement that can attract votes from moderates and conservatives alike.

Two of the tax reforms with the American Health Care Act are worth a closer look. First, the Act finally begins to give those who purchase coverage on the individual market some of the tax benefits that those who get coverage through work have long enjoyed.

Americans could claim refundable tax credits that start at $2,000 a year for those under 30 and jump by $500 per decade, to a maximum of $4,000 a year for those over 60. These credits would phase out above $75,000 in individual income — for every $1,000 beyond that threshold, the credit would decline by $100.

The credits would be paid directly to individuals on a monthly basis to help offset the cost of health insurance. And if they didn’t spend the full amount of the credit, they could deposit the remainder in a tax-advantaged health savings account.

Under Obamacare, those at the lower end of the income scale would have seen their income-based insurance subsidies decline if they got a raise at work. That created a strong disincentive for people to log more hours, or seek promotions. The GOP plan removes that disincentive.

The American Health Care Act also preserves the status quo in the employer-sponsored insurance market. It delays the introduction of the Cadillac tax on high-cost employer-sponsored plans until 2025, largely to ensure that the bill doesn’t add to the deficit. Given the bipartisan opposition to the tax, a future Congress will no doubt figure out how to repeal it down the line.

More important, the latest version of the GOP leadership’s replacement plan scraps a proposed cap on the tax exclusion for employer-sponsored insurance. This move appears to be a gift to businesses and conservative Republicans.

But the issue could rear its head again — and it should. By effectively subsidizing employer-sponsored health insurance for decades, the federal government has exacerbated the long-term increase in health costs. Capping the exclusion would finally rein those costs in. The Senate should consider how to use the exclusion as a bargaining chip once the House plan makes its way into their chamber.

The American Health Care Act isn’t perfect. But it’s thus far the only proposal that has any hope of attracting support from across the Republican caucus. Based on comments from Senator Rand Paul, the Freedom Caucus, the Republican Study Committee, and many others, this support is in jeopardy. But the proposed bill that will be considered on Wednesday in both the House Energy and Commerce and Ways and Means Committees is slightly better than Obamacare. If it passes the House and Senate, let’s hope the legislative process can make it more market-friendly so the American people are not stuck with Obamacare Forever.

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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