Senate GOP Health Reform Plan Has Room For Improvement — But Still Better Than Obamacare

In his recent State of the Union address, President Obama threw down a gauntlet for Republicans opposed to his health reform law. “If you have specific plans to cut costs, cover more people, increase choice, tell America what you’d do differently,” he said. “Let’s see if the numbers add up.”

As it happens, the day before the State of the Union three Republican Senators — Richard Burr (N.C.), Tom Coburn (Okla.), and Orrin Hatch (Utah) — put forth a plan to repeal and replace Obamacare. They argue that their plan would provide insurance coverage for about as many Americans as the president’s law — but would be “roughly budget-neutral over a decade.”

The White House was quick to trash the GOP plan, dishonestly claiming that it would “raise taxes” and keep the uninsured “locked out of the market.”

But Burr-Coburn-Hatch is a far better approach to health reform than Obamacare. In fact, it could stand to move even farther away from Obamacare and toward market-based solutions.

Coming up with a plan that produces better numbers than Obamacare shouldn’t be hard. According to the latest Congressional Budget Office projections, the president’s reform package will cost $2 trillion and still leave some 31 million Americans uninsured a decade from now.

Obamacare also preserves some of the most costly features of the status quo. Paramount among them is the provision that allows employers to furnish health insurance to their workers tax-free. By taxing every additional dollar of cash wages — but not every additional dollar’s worth of coverage — the government effectively encourages people to over-consume health benefits.

Such over-consumption is partially to blame for the ceaseless increase in healthcare costs. Obamacare does nothing to rectify these perverse incentives.

The Senate GOP plan, by contrast, takes some steps in the right direction. It would cap the tax exclusion for employer-provided health insurance at 65 percent of an average plan’s cost — and thus discourage employers from providing expensive plans that cover everything.

Burr-Coburn-Hatch would use the money this move would generate to pay for age-based tax credits available to anyone buying insurance on the individual market who makes up to 300 percent of the federal poverty level. The credits would amount to $1,560 for Americans under 35 ($3,400 for families), $2,530 for Americans between 35 and 50 ($6,610 for families), and $3,720 for Americans 50 and older ($8,810 for families).

The three GOP senators have also found a more cost-effective way to cover those with pre-existing conditions.

Obamacare does so in the most expensive way possible — by mandating that insurers accept all comers and capping how much they can charge. Such an approach encourages folks to wait until they get sick to purchase insurance.

The Senate Republicans’ plan, by contrast, discourages people from gaming the system by creating a “continuous coverage” requirement. Anyone who has been consistently insured for 18 months or more can move from employer-sponsored insurance to the individual market without having to subject themselves to underwriting and the higher prices it may entail.

For others with pre-existing conditions, the plan provides federal funding for state-based high-risk pools, where people who can’t find affordable coverage elsewhere can get subsidized insurance. Such pools were functioning well in many states before Obamacare — and in some cases providing coverage at prices more affordable than those available to folks with pre-existing conditions through Obamacare’s new exchanges.

The Burr-Coburn-Hatch proposal is also better for the poor than Obamacare, as it allows states to use Medicaid funds to supplement the federal tax credits for the purchase of private insurance. So rather than trapping low-income Americans in a failing insurance program that doctors are increasingly refusing to participate in, the Senate GOP plan would give poor Americans private coverage, which provides more options and more reliable access to care.

Finally, the senators have taken a more realistic approach to regulating insurance rates — one that ensures that coverage is actually affordable for average Americans. The GOP plan would allow insurers to charge older Americans up to five times as much as younger Americans, in contrast to Obamcare’s three-to-one ratio. Covering the old is more expensive than covering the young, and the GOP plan better reflects that actuarial reality.

Obamacare, on the other hand, forces the young to unfairly subsidize coverage for the elderly, who tend to be wealthier. Such a scheme also discourages young people from buying policies by pricing them out of the market. As young people exit the market, premiums must go up for those that remain.

But the GOP plan is not perfect. Because the individual insurance tax credits stop at 300 percent of the federal poverty level, middle-class Americans are still subject to the unfair tax exclusion for employer-sponsored coverage. A better system would allow all Americans to purchase insurance with pre-tax dollars.

The GOP plan also doesn’t address tort reform, though frivolous medical malpractice lawsuits — and the defensive medicine they engender — are driving up costs. The plan also doesn’t allow for the purchase of insurance across state lines, which would increase competition and drive down prices. And it’s silent on Medicare — even though the program accounts for one-fifth of all healthcare spending nationwide.

But Sens. Burr, Coburn, and Hatch have made a laudable effort to show the country how they’d replace Obamacare. And they may have compelled their counterparts in the House to take action. House Majority Leader Eric Cantor (Va.) recently announced that his caucus would be working on its own alternative to Obamacare.

The fact that Republicans are coalescing around healthcare reform plans of their own could be very bad news for Obamacare. Once voters see that the Republican alternative adds up to sensible and affordable health care, Obamacare’s days will be numbered.

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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