ObamaCare Alternatives That Work

Despite President Obama’s declaration that “The Affordable Care Act is here to stay,” there is ample evidence to the contrary. Polls continue to show a majority of Americans are opposed to the law despite Democratic claims that people would like it the more they got to know it.

But people don’t want to go back to the previous status quo either. Recent polls repeatedly show that a clear majority of voters want a better alternative if ObamaCare is to be replaced. When given a choice between (a) keeping or “fixing” ObamaCare and (b) repealing it in the absence of an alternative, repeal splits the electorate evenly. When they are given a choice between (a) keeping or “fixing” ObamaCare and (b) repealing it in the context of a conservative alternative, repeal becomes a nearly 2 to 1 winner.

This presents Republicans with a clear mandate – replace ObamaCare with a better alternative.

To be sure, a better alternative must appeal to both sides of the aisle, Democrats as well as Republicans. It is a major flaw of ObamaCare that it was passed without a single Republican vote. No other entitlement lacked bipartisan support and no other entitlement is less popular than ObamaCare. In reality, this may not be possible before a change of the presidency, but Republicans must show they’ve got the right ideas and they’ll implement them if the voters give them the chance.

There has been no shortage of Republican ideas. Several bills have been introduced in Congress dating back to 2009 before the passage of ObamaCare. The Patient Choice Act was introduced by Congressman Paul Ryan (R – WI) on May 20, 2009. Other bills include The Empowering Patients First Act introduced by Congressman Tom Price (R – GA) and The American Health Care Reform Act introduced by Congressman Phil Roe (R – TN).

Senator Tom Coburn (R – OK) introduced a bill in the Senate similar to the Ryan bill in the House. Recently his bill was re-introduced with some changes and co-sponsored by Sen. Burr (R – NC) and Sen. Hatch (R – UT). It is now known as the Patient CARE Act.

What is needed now is a Republican alternative that can win approval of the American people; a plan that clearly improves on ObamaCare in every way. To achieve that we must understand the goals of a successful new healthcare alternative.

 

The Goodman Proposal

Economist and healthcare analyst John C. Goodman of The National Center for Policy Analysis has unveiled his proposals. Writing in National Review, he outlines his essential elements for a successful alternative as follows:

  • Choice – No mandates. Using a system similar to Medicare, he advocates guaranteed insurance with community rating (the same premiums regardless of pre-existing medical conditions). But if you don’t sign up when you’re first eligible, you pay a penalty that may reflect your health status.
  • Fairness – Annual tax credit of $2500 for every adult and $1500 for every child. The credit is available for anyone purchasing health insurance wherever it is purchased. No income means testing. This makes enrollment easy by removing all of the income data verification necessary in ObamaCare.
  • Jobs – No disincentives for hiring means job expansion is unimpeded. No need to reduce workers to part-time hours or keep companies smaller. Also, with tax credits the incentive for purchasing higher cost insurance is removed. This lowers employer costs for most companies and raises revenue from those who choose to purchase expensive insurance.
  • Universality – Everyone is eligible to purchase insurance with the tax credits. For those who don’t, the money saved by the government should be sent to community-based healthcare institutions to provide care for the uninsured. This should ensure universal access to health care. He would also allow anyone who chooses to enroll in Medicaid; and everyone in Medicaid to leave the program to take advantage of the tax credit and purchase private insurance.
  • Portability – Insurance should follow employees. When they change jobs the insurance goes with them, much like a 401K retirement plan does today. This solves the pre-existing medical conditions problem.
  • Patient Power – Health Savings Accounts (HSAs) should be encouraged by making them completely flexible – and allowed to partner with third-party insurance in innovative ways. These accounts make savings possible up to 30 percent according to a RAND Corporation study. They empower and encourage patients to make better health care choices.
  • Real Insurance – ObamaCare is mostly increasing the number of insured Americans by expanding Medicaid and enrolling people in low-cost plans available on the exchanges that have “narrow networks” that exclude the best doctors and hospitals (who won’t accept the lower rates). Some have called these plans “Medicaid Plus”. Both of these situations may actually decrease access to healthcare for those previously uninsured. A solution to this problem is plans like the current Medicare Advantage plans that accept all comers but premiums are not community rated. As a result, insurance plans compete to enroll these patients instead of trying to avoid the sick. ObamaCare, however, is cutting funding for these plans despite their popularity with patients and insurance companies.

 

The 2017 Project

There are many good minds working on alternatives to ObamaCare. Among these are the founders of The 2017 Project, including Executive Director Jeffrey H. Anderson, writer for The Weekly Standard, and William Kristol, Editor of the same publication. Their proposal, A Winning Alternative to ObamaCare, puts forth reasonable and workable solutions to the problems of ObamaCare that all Americans can and should endorse.

They identify the three core concerns of our healthcare system: the large number of people without insurance, the plight of the uninsured with pre-existing expensive medical conditions, and the high cost of care. They propose solutions to all three concerns in a “three legged” approach that takes advantage of the best of the previous conservative approaches put forth to date.

The First Leg is ending the unfairness of the tax code by offering tax credits to the uninsured and the individually insured. This approach is similar to Goodman’s by providing universal tax credits that are not means tested – no income qualification or verification needed. They do have a sliding scale of credit by age ranging from a beginning tax credit of $1200 for those under age 35, to $2100 for those between ages 35 and 50, to $3000 for those ages 50 or over. In addition they give $900 per child. These credits are only available on the individual market, unlike Goodman whose credits are available in any market. Those who purchase more expensive insurance would have to supplement their premiums. Those who purchase less expensive coverage could put the extra into an HSA account.

The Government Accountability Office (GAO) reports that these tax credits would be sufficient to purchase insurance through the individual market with no more than a $15/month supplementation in all but five states; the liberal havens of Maine, Massachusetts, New Jersey, New York, or Rhode Island. Smokers would pay more in some other states. However, with new regulations to permit the purchase of insurance across state lines, these differences would be moot.

The Second Leg addresses the problem of pre-existing conditions. It creates a “buy in” period of the uninsured; a grace period when they can purchase insurance and not be denied coverage due to pre-existing conditions. However, to prevent the gaming of the system, those who fail to enroll during this grace period will pay higher premiums if they enroll later. They would also have a two-month grace period if they change jobs and lose their employer-provided insurance. They would also propose state-run “high risk pools” to cover those with expensive medical conditions with federally provided subsidies.

The Third Leg would seek to lower the high cost of healthcare by expanding the use of HSA accounts. They would provide a one-time $1000 tax credit ($2000 per couple and $4000 for a family of four) for anyone establishing an HSA account. They would also cap the tax exclusion for employer-sponsored plans at the 75th percentile with a 3% annual escalation. This would incentivize employers to reduce costs while also providing revenue to pay for the plan from those who insist on purchasing these high cost plans.

 

Cost Comparison with ObamaCare

How do these alternatives compare with the cost of ObamaCare? ObamaCare is expected to cost over $2 Trillion dollars from 2015 to 2024 according to the Congressional Budget Office (CBO). Over 90 percent of this amount, $1.863 Trillion would come in the form of direct spending or new outlays. The 2017 Project proposal is estimated to cost $977 Billion – and most of that “cost” would come in the form of a tax cut. In direct spending terms, the cost is only $399 Billion over the decade – a savings of $1.464 Trillion compared to ObamaCare!

The Coburn–Burr-Hatch bill in the Senate was scored by the Center for Health and Economy, run by former CBO director Douglas Holtz-Eakin. They estimate a savings of $1.473 Trillion over the next ten years. They see the greatest deficit reduction in the caps on tax exclusion of employer-sponsored insurance plans. Some have labeled this a “big tax hike” and this portion of their plan is certainly that. But the plan still delivers $416 Billion in deficit reduction even if this portion of the plan is eliminated. In reality, there is no reason for the federal government (actually the taxpayers) to fund more and more expensive insurance policies as a way of employers increasing benefits without paying taxes.

 

Realistic Reforms

There is general agreement on many issues even among most Democrats. Every alternative proposal advocates selling insurance across state lines to increase competition and lower premium costs. Every alternative encourages the formation of small business pools to give these employers the same pricing advantages as large employers. Every plan seeks to ensure that those Americans with pre-existing medical conditions will not be shut out of the healthcare insurance market.

What is new is the realization that tax credits are better than tax deductions because they provide the means to purchase insurance for Americans of all income levels. Goodman and The 2017 Project propose that these tax credits be available for anyone purchasing health insurance, regardless of their economic means. This provides the simplicity necessary in the system to eliminate most of the problems that bogged down the ObamaCare web site due to income verification. To provide the funds for such a program these recent proposals all place caps on the tax exclusion of employer-provided insurance. Even ObamaCare has a 40% surcharge tax on all insurance policies that exceed $10,000/year beginning in 2018.

The evolution of Republican alternatives has now produced proposals that improve upon the inadequacies and perverse incentives of ObamaCare and should garner broader support from conservatives, independents, and even liberals. They provide more coverage of more Americans, eliminate the problems of pre-existing medical conditions, and lower costs to both patients and the taxpayers. What’s more they do so with the preservation of religious freedom and choice, and without the takeover of one sixth of the economy by the federal government. What’s not to like?

One comment

  1. I am really glad to see this valuable article. Lots of important material therein. Also glad to see the positive evolution of this blog!

    Comment by Tom Hooker on May 27, 2014 at 7:24 pm