Republicans just took an unprecedented step toward repealing and replacing Obamacare.
Last week, the GOP-led Congress passed a bill that would gut President Obama’s deeply unpopular health law. This effort was different than Republicans’ previous 61 attempts to repeal the law — it’s the first one to reach the president’s desk.
“It has been a long time in getting here, but here we are,” said House Speaker Paul Ryan.
President Obama vetoed the bill this past Friday. But the saga demonstrates that the GOP can repeal Obamacare if a Republican is elected president in 2017.
The next challenge for Republicans is to coalesce around a single replacement plan that will, unlike Obamacare, lower costs while empowering patients. Fortunately, as I note in my new book The Way Out of Obamacare, they’re already starting to do so.
Even before Obamacare, America’s health sector was burdened by costly government regulations, mandates, and market distortions. President Obama’s brand of “reform” tried to fix these problems with even bigger doses of government. The result has been one failure after another.
Obamacare ignored one of the biggest problems in U.S. health care today — the massive, 70-year-old tax distortion that allows people to purchase insurance through their employer tax-free but forces everyone else to use post-tax dollars.
A relic of World War II wage and price controls, this tax break costs the country more than $200 billion a year, according to the Congressional Budget Office.
Furthermore, it’s regressive. Sixty percent of the subsidies go to the wealthiest 40 percent of families. Meanwhile, those who buy coverage on their own, or pay their health bills out of pocket, must do so with after-tax dollars. This distortion largely explains why 57 percent of people under age 65 get insurance through work.
This tax break also leads to gaps in coverage, since people can’t take their insurance with them if they leave their jobs. That risk can make people hesitant to seek new jobs or start their own businesses.
Congress has taken some steps to level the playing field by creating Health Savings Accounts, which are paired with high-deductible plans and allow people to set aside money tax-free to cover out-of-pocket medical bills.
But any real market-based reform plan must go further.
To start, a replacement for Obamacare should provide refundable tax credits to those buying insurance on the individual market. These levels should be roughly equal to the average tax break workers get from employer-based insurance. So credits should be $1,200 for those aged 18 to 35, $2,100 for those 35 to 50, and $3,000 for anyone over 50.
Because these credits would depend on age rather than income, they’d be simple to administer. There’d be no need for Obamacare’s massive new tax bureaucracy, which exists solely to calculate how much government money a person qualifies for.
HSA eligibility and contribution limits should also be expanded to match those of IRAs. For 2016, that would be $5,500 per person and $6,500 for those over the age 50. These higher levels would provide further incentive for people to move to HSA plans. People should also be allowed to continue contributing to HSAs after the age of 65.
In addition, Obamacare’s replacement should cap the value of the tax exclusion for employer-based insurance at $8,000 for single workers and $20,000 for family plans. Because health costs have historically increased at a rate greater than inflation, those caps could rise at the rate of inflation plus 1 percent.
Such caps would make excessively generous health plans less attractive — and thus rein in overall health spending.
Permitting consumers to shop for insurance across state lines is another way to put downward pressure on health costs. According to economists at the University of Minnesota, a national insurance market would cut costs enough to expand coverage by 49 percent in New Jersey and 22 percent in New York. “The best scenario to reduce the uninsured, numerically, is competition among all 50 states,” they concluded.
Finally, a replacement plan needs to help Americans with pre-existing conditions.
Obamacare banned insurers from denying coverage to these folks — or charging them any more than three times what they charged anyone else. But this “solution” has been disastrous. It encourages irresponsibility — people are likely to buy insurance only after they need it.
Obamacare tried to counter these perverse incentives by forcing people to purchase coverage or pay a penalty. But that hasn’t worked — even though Obamacare defrays the costs of health insurance for those who make between 138 and 400 percent of the federal poverty level. According to the Kaiser Family Foundation, half the uninsured who were eligible for subsidized coverage refused to purchase it last year.
In other words, neither the stick nor the carrot is convincing people to buy health insurance.
Obamacare’s replacement must offer better incentives to get coverage. How? By requiring insurers to cover anyone who has maintained continuous coverage over the past year with an affordable and unrestricted plan.
The young and healthy would then have a reason to buy insurance. They’d buy it now — when they don’t need it — so that they can afford it when they do.
Second, the plan should re-establish state-level high-risk pools until a fully-functioning individual market develops. These would provide targeted subsidies for those with extremely expensive healthcare conditions.
Obamacare did allow for high-risk pools in every state — but only as a stop-gap measure until the exchanges opened. It would be simple to reopen the high-risk pools after closing the exchanges.
By passing a bill that repealed major parts of Obamacare, Congressional Republicans have shown the country they are committed to repealing and replacing Obamacare in 2017. Only then will Americans have access to the affordable, high-quality care they deserve.