Obamacare Will Wreck U.S. Taxpayers, So Here’s Another Plan

The government shutdown has entered its second week, and House Republicans have remained steadfast in their insistence that changes to the president’s signature healthcare reform law accompany any deal to re-open the government.

But the GOP isn’t talking about what it would put in Obamacare’s place. And that’s a shame, as the House Republican Study Committee (RSC) just released a patient-centered healthcare reform plan principally authored by Reps. Steve Scalise (R-La.) and Phil Roe (R-Tenn.) — one that can deliver affordable coverage to the American people without bankrupting taxpayers. Opponents of Obamacare should use it as the foundation of their effort to replace the president’s misguided law.

The most revolutionary aspect of the House plan — officially titled the American Health Care Reform Act — is its decoupling of insurance from employment.

Americans have gotten health insurance through their jobs essentially since World War II, when wage and price controls forced employers to compete for workers by offering generous fringe benefits, like health insurance. This insurance, of course, is simply tax-free income provided by employers. Consequently, workers’ wages are lower than they otherwise would be.

Individuals, by contrast, have had to purchase coverage with dollars that have already been taxed.

This system puts entrepreneurs and the self-employed at a significant disadvantage — and limits people’s employment choices. Workers may stay in jobs they don’t want, simply so that they don’t lose their health insurance, particularly if they or their family members have a pre-existing condition.

The RSC health reform plan would give a tax deduction of $7,500 to every American — and $20,000 to every family. And if a person bought coverage that cost less than that, then he could keep the difference as untaxed income — and perhaps use it to fund a Health Saving Account, a special tax-advantaged savings vehicle for health services.

This system would help arrest the non-stop growth of health costs. After all, most Americans over-consume health care because their employer-subsidized coverage insulates them from the full cost of their care. Such over-consumption drives up costs.

But tax deductions favor the relatively well-off; those with lower incomes often can’t take advantage of the full value of the deduction. Lawmakers should therefore swap out the deduction for a refundable tax credit that applies equally to all Americans, regardless of income.

The RSC plan would also grant consumers the ability to purchase health insurance issued in other states, where it may be cheaper.

That makes a lot of sense. There is no reason that health insurance should cost two and a half times as much in Rhode Island as in Alabama. Increasing the size of the insurance marketplace — and therefore increasing competition — will drive down prices.

The RSC proposal would inject consumerism into the healthcare marketplace in other ways, too. Consider its expansion of Health Savings Accounts (HSAs). These accounts allow patients to save pre-tax dollars for health services — and to keep whatever they don’t spend. Consequently, HSAs encourage Americans to take care of their health and shop smartly for care. About 15 million Americans today have HSAs.

The RAND Corporation estimates that the average American worker who switches from a traditional health plan to a consumer-directed one uses 14 percent fewer medical services – without any associated adverse effect on health outcomes.

Overall health costs come down, too, as providers have to compete for patients’ business. According to RAND, expanding the share of employers with HSA-style plans to 50 percent — from the current 13 percent — would reduce national health costs by $57 billion per year.

Critics of consumer-driven care claim that it prevents those with pre-existing conditions from finding affordable coverage. All the tax-free savings in the world won’t be of use if coverage is too expensive.

The Study Committee’s plan would ensure that folks with pre-existing conditions could get affordable coverage by devoting $25 billion in federal funding for state-level high-risk pools. Premiums in these pools would be capped at 200 percent of the average premium in the state.

Obamacare covers high-risk individuals in the most expensive way possible — by guaranteeing coverage for all comers, throwing all patients into the same pool, and prohibiting insurers from charging high-cost patients any more than three times what they charge the lowest-cost patients.

That gives people a strong incentive to go without coverage until they get sick. As premiums rise to offset the costs of the folks using their coverage to pay for needed care, relatively healthy individuals will increasingly drop their policies. This process will repeat itself until insurance is unaffordable for everyone.

Finally, the RSC plan attempts to rein in the more than $100 billion spent every year

on unnecessary treatments and testing ordered by doctors trying to protect themselves from the threat of lawsuits. GOP lawmakers would do so by limiting the amount of lawyers’ fees and non-economic damages in medical liability cases.

Their intent is right, but tort reform of this sort is better left to the states, who traditionally have jurisdiction in medical-liability cases.

Despite all these proposed reforms, the House Republican Study Committee plan is incomplete. Lawmakers must reform Medicare and Medicaid, too. Spending in the two programs already exceeds private health insurance spending — and will only grow in the future.

Congress must bring Medicare and Medicaid outlays under control — and vouchers for beneficiaries and states, respectively are the best way to do so. Empowering individuals and state leaders to spend their Medicare and Medicaid dollars as they see fit will inject much-needed competition into the healthcare marketplace — and thereby reduce costs.

Although the House Republican Study Committee’s plan is an exciting starting point for replacing Obamacare, it ought not be the finish.

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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