Politics & Policy

A Creditable Plan


Republicans are making progress, albeit slowly, toward replacing Obamacare. Last year, three Republican senators — Tom Coburn, Richard Burr, and Orrin Hatch — outlined a serious plan to replace it with a set of health-care policies that are much more free-market and limited-government in orientation, and not just compared with Obamacare but compared with what we had before it. Senator Coburn is not, alas, in the new Congress, but the other two senators have offered a slightly revised version of the plan with Representative Fred Upton.

Conservatives who worry that Republicans will come up with “Obamacare Lite” and call it a replacement can rest easy about this plan. It has no individual mandate, no employer mandate, no federally supported exchanges, and no Independent Payment Advisory Board. Obamacare essentially outlaws what conservatives consider true health insurance (protection against the risk of financially devastating health expenses); this plan legalizes it, and allows it to compete on a more level playing field than even the pre-Obamacare system did.

The federal tax code has for decades favored employer-provided over individually purchased health insurance, and favored expensive insurance that covers routine health expenses over cheaper insurance that is limited to catastrophic ones. The federal government has also allowed states to create regulatory obstacles to the emergence of a national market in individually purchased insurance. The senators’ proposal vastly diminishes the distortions worked by the tax code and knocks down those obstacles. There will be a limit on the tax break for employer-provided insurance so that it does not reward the most gold-plated plans for their expense. And people who do not have access to employer-provided plans will get tax credits with which to buy their own health insurance.

The Republican plan reduces the total amount of health-care subsidies. More important, it reforms them so that they are less destructive. The old policies — again, even the pre-Obamacare ones — effectively locked some people out of the health-insurance market while distorting the behavior of those who were in it. The proposal takes the most practical approach to remedying this situation: People will get a tax break for health insurance whether they get it themselves or through their employers.

It also creates the opportunity to liberate many low-income people from Medicaid. States would be allowed to cash out most Medicaid funds and give them to the beneficiaries so that they could participate in the broader insurance market rather than being stuck in that subpar program.

A formal estimate has found that the Republican approach would enable slightly more people to get insurance than Obamacare would — and at lower cost. And it would do this with, of course, a great deal less coercion and while increasing people’s choices.

The plan is not perfect. It keeps Obamacare’s requirement that insurers let adults up to age 26 stay on their parents’ plans, which raises premiums. But because that requirement is popular, and does not make a basically free insurance market unworkable in the way Obamacare’s other regulations do, that may be a trade-off worth making. The proposal also tapers off the amount of tax credits people get based on their income. We would prefer a flat tax credit, both because it would be simpler and because it would keep people’s effective marginal tax rates from rising as they earn more.

This health-care proposal remains, as we said last year, the best one to have emerged from Congress. Especially when combined with the Medicare reforms that almost all Republicans have endorsed, it would go very far toward reducing the influence of federal regulations, taxes, and spending on health-care decisions and toward allowing a functioning market to emerge. It now has the support of the chairmen of the Senate Finance Committee (Hatch) and the House Energy and Commerce Committee (Upton), and the chairman of the House Ways and Means Committee (Paul Ryan) has endorsed a similar approach in the past. Republicans are getting closer to a consensus on how to replace Obamacare, and — with the Supreme Court poised to make the issue ignite once again — not a moment too soon.


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