President Obama wasted no time earlier this month vetoing a bill that would’ve repealed large parts of Obamacare. To the president and his fellow Democrats, the entire process was pointless. Sixty-one previous repeal efforts by the GOP have failed. Obamacare is almost six years old, here to stay and Republicans should accept it, they argue.
Not quite. For the one in two Americans who oppose Obamacare, the repeal effort proved that there’s only one obstacle to scrapping it — the law’s namesake in the White House. If Obamacare’s critics can put one of their own candidates there this fall, the next repeal effort may be successful.
That effort will have to be accompanied by a single replacement plan. Fortunately, most of the main contenders for the GOP nomination are coalescing around a comprehensive alternative to Obamacare that will actually reduce costs and improve access to care. That replacement plan must first tackle Obamacare’s convoluted subsidy scheme. The system requires a small army of IRS workers to determine eligibility for subsidies and has been largely ineffective at helping much of the middle class cover the premiums and deductibles of the plans available on the exchanges.
Instead, Republicans should extend age-based refundable tax credits to any person or family buying insurance who doesn’t have employer-based coverage. This approach would help level the playing field between employer-based coverage — which is exempt from taxes — and the individual market, where consumers pay premiums with after-tax dollars.
These new tax credits should be $1,200 for those aged 18 to 35, $2,100 for those 35 to 50, and $3,000 for those over 50. These amounts would cover most of the cost of the individual insurance plans that were available pre-Obamacare.
The GOP reforms should also cap the value of the tax exemption for employer-based insurance at $8,000 for single workers and $20,000 for family plans. Since health costs usually rise faster than inflation, these limits should increase at the rate of inflation plus one percent.
Such caps would help make excessively generous plans less attractive — and thereby slow overall health spending.
Obamacare’s replacement should also put Americans — not the federal government — in control of their health care. And that means expanding access to Health Savings Accounts, which allow people to set aside money tax-free for health expenses. Because patients control the funds in their HSAs, they have a strong incentive to shop wisely for their care. That consumerism helps reduce overall health spending.
A simple way to expand the use of HSAs? Make them like IRAs, where people can set aside $5,500 per year for retirement — or $6,500, if they’re over the age of 50.
A replacement for Obamacare must also help those with pre-existing conditions find affordable coverage. Obamacare forbids insurance companies from denying coverage to anyone, or from charging the sick more than three times what they charge anyone else. But that structure simply encourages the young and healthy to avoid purchasing insurance until they get sick.
Obamacare tried to counteract this incentive by mandating that people buy insurance or pay a fine. But it’s not working. Last year, half of those who refused to enroll were aged 18 to 34. This year, only 26 percent of current enrollees are young — a far cry from the estimated 40 percent needed to keep the exchanges stable.
A replacement plan should incentivize people to sign up — not penalize them. Insurers should be required to offer affordable coverage to anyone who maintains continuous insurance coverage for at least one year. Such a system would encourage the young and healthy to buy coverage now, secure in the knowledge that they’d be protected from potential price shocks later.
For those suffering from chronic and expensive ailments, Republicans should reconstitute the high-risk pools that Obamacare eliminated, at least until a fully-functioning individual market can be created. These state-based pools can provide affordable coverage to folks who truly need the government’s help.
Forcing the president to veto their Obamacare repeal effort was an important political victory for the GOP. It showed Americans that the GOP is committed to replacing a law that they don’t support. Now it’s time to present a better alternative that gives Americans the affordable, high-quality care they deserve.