Republicans are working hard to find an ObamaCare alternative. The American public is demanding something better and the Supreme Court is poised to give Republicans the chance to deliver. On March 4, 2015, the Supreme Court will hear arguments for King v. Burwell, which challenges the Obama administration’s liberal interpretation of the law in order to provide subsidies for health insurance purchases on the federal exchange.
The anticipated victory of King is putting pressure on Republicans to come up with an alternative plan so that millions of Americans are not left without healthcare insurance. This is the fourth in a series of posts that have discussed these alternatives
Patient CARE II v. Roy Proposal
Last post we discussed the latest plan introduced in Congress which is a revision of an earlier proposal called the Patient CARE Act. This revised plan, or Patient CARE II, is co-authored by Senators Richard Burr and Orrin Hatch, and Representative Fred Upton.
Avik Roy, healthcare analyst for The Manhattan Institute and blogger on Forbes, helped us analyze the Burr-Hatch-Upton new plan. Today we will compare how his own proposal, called Transcending ObamaCare, measures up to this new plan.
There are similarities between the two plans. Both use a system of means-tested tax credits, on a sliding scale, to help the uninsured purchase health coverage. The top income threshold for subsidies under Burr-Hatch-Upton is 300% of FPL; under Transcending ObamaCare, it’s 317% of FPL.
Both plans would reform the employer tax exclusion, while repealing ObamaCare’s tax hikes. Both plans repeal the Individual Mandate while preserving the popular coverage of pre-existing conditions – as long as coverage is maintained.
Both plans improve the healthcare outcomes for the poor by allowing those on Medicaid to obtain tax credits for the purchase of private health insurance and health savings accounts. Both plans would cover more people than ObamaCare, because they lower the cost of health insurance for those who can’t afford it now.
The Key Difference
Roy believes the key difference is that Transcending ObamaCare doesn’t require the full repeal of ObamaCare to work. He says it functions as a repeal-and-replace plan, but also as a plan that repeals ObamaCare’s worst features – its tax hikes, Medicaid expansion, and Individual Mandate – while deregulating the rest, so people can use ObamaCare’s tax credits to buy Burr-Hatch-Upton style insurance products. He says the virtue in doing it this way is that you minimize the disruption to people who are on ObamaCare-sponsored health insurance plans.
Means-testing v. Uniform Tax Credits
It has become clear in most circles of debate that refundable tax-credits offer the most help for individuals purchasing health care insurance. These can be used to defray the cost of insurance regardless of whether or not you pay taxes. The debate now is between those who believe they should be means-tested (based on income) or uniform (available to everyone).
Both Burr-Hatch-Upton and the Roy Plan prefer means-testing. Roy argues this takes into account the fact that we already massively subsidize health coverage for upper-income folks, through the employer tax exclusion and Medicare. These plans offer the attractive benefit of increasing coverage of the uninsured – beyond ObamaCare.
Those plans taking a uniform tax credits approach include The 2017 Project and the Goodman Proposal from healthcare economist John Goodman. They argue a means-tested approach represents a tax on earning more money and discourages more work. Furthermore, this represents another income redistribution plan like so much of the Obama administration policies. Lastly, this simplifies the enrollment online because there is no need for income verification.
Roy believes these plans provide too much help to upper-income individuals and not enough to the poor and middle class. Because they must distribute the tax credits over a larger population, the tax credits are smaller and therefore fewer people will be covered by insurance. The 2017 Project was scored by Stephen Parente and was estimated to cover 6 million fewer than ObamaCare. Roy believes these plans are not politically viable in an election year.
Means-Tested Tax Credits v. Uniform Tax Credits
o Benefits poor and low-income Benefits everyone
o Covers more people Covers fewer people
o Discourages earning more money Encourages earning more money
o Redistributes income Avoids income redistribution
o More complex enrollment Simpler enrollment
o Politically more attractive Politically less attractive
This graphic outlines the pros and cons of means-tested v. uniform tax credits. Each has strengths and weaknesses. The last line, political attractiveness, may be the deciding issue, since no plan matters if it doesn’t become law. Both will be an improvement over ObamaCare. Therefore, the one that can be passed by both houses of Congress and be signed by the president is the one that should be chosen.