With a uniform tax credit, 90 percent of the problems the Obamacare exchanges are now having would go away in a flash. Signing up for insurance would be easy. Insurance companies and brokers would be able to sign people up outside the exchanges without asking privacy-invading questions about their income and assets.
If a goal of health-care reform is to insure millions of uninsured people, enrollment has to be easy. The more complicated the process, the lower will be the success rate and the more likely that only the sick will persevere — causing the insurance pools to experience “death spirals,” in which the premiums needed to cover medical costs increase until no one can afford to pay them.
Jobs. A uniform health-insurance tax credit combined with the absence of a mandate would also get rid of all the chaos Obamacare is creating in the labor market. Businesses would no longer have an incentive to stay small (avoiding the mandate by hiring fewer than 50 full-time employees). Nor would they have an incentive to shift employees to part-time work (avoiding the mandate with work weeks that are less than 30 hours). With a universal credit, they would no longer have an incentive to drop coverage for their active employees or end their post-retirement plans because of more generous subsidies available in an exchange. Health-care reform should be neutral with respect to the number of hours you work and the number of people you work with.
Further, with a tax-credit approach, employers and employees would no longer face perverse incentives to buy wasteful insurance. (Under the current system, the more costly the insurance, the greater the tax benefit.) Instead, they could buy insurance that meets their core needs and increase take-home pay with the savings, with no tax penalty. This would lower the cost of employment and encourage hiring.
Universality. Experts predict that, after all the havoc Obamacare will cause, most of the uninsured will still be uninsured. In fact, since millions of people are having their insurance canceled, we may end 2014 with more people uninsured than a year earlier. Along the way, Obamacare will reduce federal spending on the very safety-net institutions that deliver care to uninsured people. There’s a better way.
There will always be some people who will turn down the offer of a tax credit. But instead of having the Treasury keep the value of those unclaimed credits, the money should be sent to safety-net institutions in the communities where the uninsured live. (The money needs to go to the places where they seek care, and the number varies from place to place.) Uninsured patients will probably be asked to pay their medical bills, but if they cannot, the safety-net institutions will have a source of cash to pay for “uncompensated care.”
Under this idea, money follows people. The federal government promises a credit to every man, woman, and child in the country. If they all buy private insurance, the funds subsidize premiums. If they all decide to be uninsured, the funds go to safety-net institutions. This is a way of ensuring universal access to health care. (There will still be a wait for care through many of these institutions, just as there is a wait in Britain and Canada. But this proposal would provide just as much access to care as those countries do.)
There is something else we could do to promote universal health insurance: We could allow everyone — regardless of income — to enroll in Medicaid, and at the same time allow everyone on Medicaid to leave the program, claim the tax credit, and buy private insurance. This, of course, is the “public option” that the Left has been clamoring for. It’s hard to understand why conservatives are so resistant to it: If a private insurer can’t outperform Medicaid, it doesn’t deserve to be in the market.
The specific tax-credit levels I am proposing are the Congressional Budget Office estimates of the cost of enrolling new people in Medicaid. Under my proposal, people who are already eligible could use their tax credit to buy in, no questions asked, but people with higher incomes might have to pay a premium on top of their tax credit if they have higher-than-average expected costs. Health status wouldn’t be considered, but age and other factors would be. To prevent gaming of the system, no one would be able to move from one plan to another at a premium that is way below his total expected costs. (See below.)
This proposal may appear to be unconservative, but in fact it is consistent with minimizing the role of government. Medicaid would be an insurer of last resort, but, beyond their uniform tax credit, people who are not poor but enroll in Medicaid would not be getting an entitlement. They would have to pay their own way.
Portability. In most states today, it is illegal for employers to buy for their employees what they most want and need — insurance that travels with them from job to job and in and out of the labor market. Employers can buy group insurance with pre-tax dollars, but they can’t buy individually owned insurance (they could buy it with after-tax dollars, but this probably never happens). This means that people lose their insurance when they leave their employer, and that is the primary reason preexisting conditions are a problem for the uninsured in this country.
This policy needs to be reversed. Employers should be encouraged to provide insurance for their employees that is portable in the same way as 401(k) plans and employer-paid life insurance. NFL football players and United Mine Workers members already have portable insurance, with premiums paid by their employers, because of special federal legislation. It’s time to extend this opportunity to everyone else.