Today Senators Richard Burr, Tom Coburn, and Orrin Hatch introduced an outline of the first major Republican health-care legislation of the post-Obamacare world — and it attempts to accommodate some of the changes the president’s law has made to our health-care system, which makes it a more modest move toward a free-market health-care system than some other Republican proposals, but maybe one with more political feasibility. Broadly speaking, they propose to repeal Obamacare and replace it with a system of consumer protections, tax credits, and reforms that would move the American health-care system away from an employer-based system that favors comprehensive insurance to one where more people buy their own insurance, and they buy cheaper insurance.
Here are the major elements of the legislation, and a bit on how they relate to Obamacare and the existing conservative alternatives and health-care-reform priorities:
Tax credits for individuals to purchase health insurance if they work for small business, are self-employed, or are otherwise on the individual market. They’re more tailored to the lower and working classes than Obamacare’s subsidies: The full credit is available to people earning up to 200 percent of the federal poverty line (around $23,000 for individuals and more for families — about 1 in 3 Americans) and is phased out until one’s income reaches 300 percent of the federal poverty line, by contrast to Obamacare’s coverage up to 400 percent of the federal poverty line (which includes families making more than $90,000 a year). The value of the credits for low-income people isn’t arbitrary: The senators say they’re meant to be something like the cost of catastrophic insurance — enabling states to auto-enroll recipients of the full tax credit in such plans, if they’d like (more on this below).
One big difference between the president’s law and this bill: It provides Medicaid, in the states that have expanded it (which we can expect to grow) to people earning up to 133 percent of the federal poverty line. They’re not eligible for subsidies. Under the Burr-Coburn-Hatch plan, these people would instead have a tax credit to buy health insurance — conservatives would like this because they could buy better insurance, providing better access to doctors than Medicaid and creating fewer distortions in the health-care system, though it would have to be less comprehensive.
The credits may work to slow the growth in cost of health insurance: While Obamacare’s subsidies are calculated in part by providing whatever is necessary so that people don’t have to pay more than a percentage of their income for health insurance, the GOP plan’s subsidies will grow at inflation plus one percentage point, which will probably be somewhat slower than the rate of medical inflation and growth in premiums. (Over the long term, though, Obamacare could be less generous — premiums are capped as a percentage of income, but there’s a complicated indexing mechanism that could actually lead them to shrink eventually, but it seems likely to be adjusted or fixed.)
The GOP plan also uses the tax credit to push people toward the individual market, away from the employer-provided insurance system (this is a good thing that Obamacare does only indirectly – more on this below), by providing the tax credit to individuals who work for companies with fewer than 100 employees — under Obamacare, those people can’t get subsidies if their small businesses make an affordable offer of coverage, and the law gives the businesses fairly significant tax credits to do so.
But this is a more generous system than what other Republican proposals have provided (some of those are pre-Obamacare, but the Republican Study Committee’s plan was recently reintroduced): Those would provide a tax deduction for individuals buying health insurance. A flat tax deduction (say, up to $5,000) is worth much more to wealthy people than it is to poor people, because its value is determined by the tax rate one pays. The Burr-Coburn-Hatch bill, by contrast, is worth more to poor people than it is to middle-class people. This creates concerns about poverty traps and implicit marginal tax rates, but it minimizes the distortion in health-care markets and avoids creating a middle-class entitlement. Moving to a tax deduction for individually purchased health insurance, like the other GOP proposals, would approximate the current employer-based system more than it would Obamacare — but our current system is hardly worth preserving, and this is one of the few good things about Obamacare. (There are arguments in favor of a flat tax credit rather than a phased-out one: It would be more expensive, but it avoids the implicit increases in marginal tax rates created by welfare programs and would make insurance more affordable for middle-class families.)
Reducing the tax exclusion for employer health insurance: The plan would limit the value of a health-insurance plan an employer can provide tax-free to 65 percent of the cost of the average health-care plan. In other words, people would start paying taxes on the health-care plan their employer provides right away (though one assumes it would be somehow phased in), but they wouldn’t pay taxes on all of it. Over time, this should encourage employers to move toward less-generous health-care plans, but this is actually a good thing: Free-marketeers want people paying more of their health costs out of pocket, because it’s the most reliable and simplest way to control costs. In a healthy labor market (we’re getting there!) this won’t mean Americans will get less compensation from their employers — it will just make more sense to provide it to them in cash rather than health-care premiums. Obamacare does much to discourage such a system and little to encourage it. The revenue from this system, of course, can go toward the tax credits described above, for people who can’t afford insurance; the plan does away with Obamacare’s taxes on insurance companies and medical devices, arguing that they raise the cost of care while their taxes will reduce it.
A softer version of Obamacare’s protections for Americans with preexisting conditions: Rather than require that insurers must cover sick people without charging them more, as Obamacare does, the law would ensure that Americans who maintain continuous health-care coverage couldn’t be rejected by insurers or charged more because of preexisting conditions. This is a more substantial protection than what was provided before Obamacare, though there were some protections like it, especially for employees of big businesses. Under Obamacare, sick Americans can buy individual coverage during open enrollment every year; under the GOP plan, they could buy insurance whenever as long as they’ve maintained insurance coverage, and people with preexisting conditions who are uninsured will have a one-time open enrollment. The Burr-Coburn-Hatch plan repeals Obamacare’s individual mandate, calling it unconstitutional, unnecessary, and unfair, but this can be seen as a less-coercive replacement: Rather than having the government actively penalize people without insurance, it provides strong incentives to stay part of the health-insurance market (and makes it cheaper to do so).
Weakening Obamacare’s insurance restrictions: The bill would return a good deal of power to the states to regulate their own insurance markets. Under Obamacare, no insurer is allowed to charge more than three times as much to its oldest customer as it does to its youngest; the GOP plan would establish the federal baseline regulation at a ratio of 5:1 rather than 3:1, and states would be able to retain tighter restrictions or create looser ones as they wish. (Loosening this much more than 6:1 isn’t actuarially necessary.) Most important, insurers, in less-regulated states, can go back to selling insurance with widely varying degrees of coverage. Obamacare’s various coverage mandates — which have led to the cancellation of millions of plans and huge ratings increases — will go away, and insurers will be able to innovate. Allowing the sale of and encouraging the purchase of catastrophic coverage, for instance, should lead to more use of health-savings accounts — which Obamacare, with a number of regulations (e.g., on medical-loss ratios) make less appealing.
Empowering states to expand coverage and cover the sickest people: States, if they’d like to, would be allowed to “auto-enroll” those eligible for tax credits in insurance plans. This kind of system is generally not congenial to conservatives, but it’s a much more effective way to expand coverage than Obamacare’s more-generous subsidies and coercive but misunderstood mandate. Individuals wouldn’t be required to purchase a plan from insurers; states would be allowed, if they want, to use the federal tax credit to purchase insurance for them — which would likely be some kind of catastrophic coverage, a key conservative priority (David Goldhill has a much more comprehensive treatment of this topic in a recent issue of NR).
The law would provide some federal funding and encouragement for high-risk pools, which are intended to cover people with especially expensive medical conditions. These were essentially ended by Obamacare, dumping these sick individuals into the general insurance market – states may find it useful, as many states with affordable insurance markets have, to run such programs. It would also allow small businesses to band together to create larger risk pools, given them some of the flexibility and advantages afforded large employers; states could also form interstate compacts to sell insurance across state lines. Both of these provisions are moves toward conservative health-care reform, but somewhat less radical than what conservatives might want in an ideal world.
The plan does a good number of other things, too: It places a cap on the spending the federal government currently allocates toward Medicaid, but one that does grow when the state’s Medicaid-eligible population expands; it should make Medicaid — or an alternative — work a lot better by basically allowing states to spend the money however they like on providing insurance to Medicaid-eligible individuals.
The bill also will further encourage health-savings accounts in specific ways, though its biggest step in this direction will be its repeal of Obamacare and encouraging consumers to buy less-comprehensive health-care plans. Another longtime Republican priority, medical-malpractice reform, is addressed; Medicare reform is not, and Obamacare’s changes to Medicare remain. On the Corner, Yuval raises some issues with this, but at least on its face, it seems sensible to tackle the private health-insurance market and Medicare in separate efforts — even though their problems do interact.
For more on the proposal, Senator Hatch’s website has a number of useful resources: A frequently asked questions document (which includes an explanation of the mandate debate), an (admittedly generous) side-by-side comparison with Obamacare, and a comparison of various hypothetical consumers under Obamacare and the Burr-Coburn-Hatch plan. The co-sponsors have published an op-ed about the bill on FoxNews.com.
Avik Roy is a fan of the plan: He’s especially optimistic that this bill is a move toward accepting that health-care reform will involve trade-offs and grappling with the effects of Obamacare.