Speaker Ryan and Universal Health Tax Credits

 

House Speaker Paul Ryan has been an advocate of healthcare tax credits as a means of reforming our current tax and spending subsidies of healthcare for over a decade.

Economist John C. Goodman says this concept is actually bipartisan with support even in such liberal places as the current White House. The Obama administration’s Chairman of the Council of Economic Advisors, Jason Furman says the ideal way to encourage private insurance is by means of a refundable tax credit. Even ObamaCare architect Zeke Emmanuel agrees.

The disagreement begins with whether the credit should vary by income, age, geography, and other factors. The size of the credit is also debatable, but the use of a health tax credit is not controversial among the health policy community.

Ryan has put forth healthcare tax credits as an integral part of previous healthcare reform legislation in the 2009 Patients Choice Act. He also featured it in the original “Roadmap” which he proposed to get our fiscal house in order. He partnered with Senator Marco Rubio in drafting an alternative to ObamaCare before Rubio entered the 2016 presidential race.

Goodman asks three good questions:

  • Why aren’t more Republicans supporting this idea?
  • Why aren’t more Democrats supporting this idea?
  • Why isn’t it already a law?

 

His answers involves three concerns:

  • Political
  • Insurance economics
  • Humanitarian

 

A number of other Republican proposals have been put forth to counteract the damage done by ObamaCare but none has garnered wide support in the party. Hopefully, that is about to change with the newly proposed Sessions Cassidy plan.

Political Concerns

Senator John McCain in his 2008 presidential campaign proposed to level the playing field for the tax treatment of healthcare insurance. His solution was to tax employer-provided health insurance benefits just like ordinary wages and then give people a fixed sum tax credit in return. This revenue-neutral proposal would have given nearly everyone earning less than $100,000 a bonus.

Unfortunately this solution was too complicated for most voters who don’t understand how health insurance is subsidized. Consequently, Barack Obama saw an opening and demagogued the issue, claiming “McCain wants to tax your health insurance.” He implied that everyone would be worse off, when in fact most low to middle income families would have benefited. Obama spent about $100 million on TV commercials that misled the public. McCain failed to respond adequately to this onslaught of misinformation.

Senator Bill Sessions (R-LA) sees a way out of this problem. Under his Sessions Cassidy proposal, employer-provided insurance is not taxed (just like the current system.) Those without employer-provided insurance can purchase their insurance with the tax credits.

Everyone is treated equally – because employees are not allowed to double dip. If their employer buys insurance for them with pre-tax dollars and the implicit subsidy is less than the tax credit amount, they will get a tax refund to make them whole. However, if their implicit subsidy is more, they will be taxed on the excess amount. Now the playing field is truly level – and Democrats cannot say that employer-provided insurance is being taxed.

Labor unions have also been a political problem in the past. To eliminate this issue, Sessions Cassidy proposes a choice: unions can stay with their old plan if they like it better or choose the tax credit system if they prefer the change. Goodman believes they will all eventually come to realize the tax credit plan is better in the long run – but this way they can make up their own mind.

Insurance Economics Concerns

One of the benefits of ObamaCare is the coverage of pre-existing medical conditions. Unfortunately, this popular provision of the new law has been abused by those who game the system (ObamaCare Rules Encourage Gaming the System).

The solution is portable insurance. Unlike now, when you lose your insurance every time you change jobs, with this new plan you can take your insurance with you (like a 401K plan.)

But some people choose to change insurance on their own. To make sure this doesn’t adversely affect the insurers, and to make certain they treat both the healthy and the sick equally, this plan calls for free market risk adjustment.

Just as exists in the Medicare Advantage program, a health plan would always get an actuarially fair premium when it receives a new enrollee from another plan. By making the sick just as attractive to the insurers as the healthy, this plan will eliminate misleading advertising and the development of “narrow networks” designed to attract only the healthy. 

Humanitarian Concerns

How does this plan protect the poor and the most vulnerable?

Sessions Cassidy does this six ways:

  • Anchors the federal tax credit to the government’s contribution to a well-managed, privately administered Medicaid plan. This ensures everyone will have a plan available at least as good as Medicaid.
  • Defined contribution approach frees insurers to compete with better plans that will provide more for the same tax credit. Everyone should be insured because they will be able to afford the premium.
  • Everyone will have the opportunity to escape Medicaid by using the tax credit to purchase private insurance.
  • States may allow Medicaid to compete with private insurance – which should improve Medicaid for those who choose to stay with it.
  • Low-income families may choose “limited benefit insurance” to save money but cover most expected medical needs
  • Unclaimed tax credits will be used to fund local safety net institutions so that those who choose to remain uninsured will not be denied care.

 

The best news is that Sessions Cassidy makes good on the broken promises of ObamaCare providing universal coverage, cost control and protection for pre-existing conditions. Most impressive, it does this with no new taxes, no new spending, and massive deregulation.

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