Politics & Policy

The Importance of the House GOP Health Plan

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Its proposals would do away with Obamacare’s excesses and give consumers greater control over their health-care options.

The release of the House GOP health-care plan last month was a milestone event in the long-running debate over the future of health care in the United States. Republican leaders had been promising to repeal and replace the Affordable Care Act — a.k.a. Obamacare — since it was enacted in 2010. But this is the first time that GOP leaders in Congress have presented a plan that could accurately be described as “the Republican alternative.” If the GOP is in a position in Congress to take up health-care legislation in 2017 (or later), this plan will almost certainly be the starting point.

House Speaker Paul Ryan deserves the credit for making this happen. He announced last fall after taking over the speakership that he wanted the GOP to offer a proactive agenda in order to give voters a clear idea of what Republicans would do if given the opportunity to govern. He followed through on that promise by getting his House colleagues to support plans for top-to-bottom reform of most key responsibilities of the federal government. In addition to the health-care plan, the House GOP released proposals to reform the tax code, improve anti-poverty efforts, cut back on growth-retarding regulations, strengthen national security, and protect the role of Congress under the Constitution.

The Obama administration and its allies in Congress immediately criticized the health-care plan for lacking specifics. But that isn’t true; the plan is plenty specific. It is very clear about what is being proposed for employer-sponsored health care, for people buying coverage on their own, and for Medicare and Medicaid. But it wisely leaves for another day decisions on some details — like the value of the new federal tax credit for health insurance — that would only serve as targets for criticism by the plan’s opponents. Moreover, there is no need at this point to put the plan into legislative form, which would require specifying most details, because there is no possibility of enacting it while President Obama is still in office.

EDITORIAL: A Better Way on Health Care

The plan provides a clear contrast to the ACA. President Obama bristles when critics say the ACA has put the country on the road to government-run health care, but that is the reality. The law gives the federal government the power to make all the important decisions in health care, including what plans insurers can offer to customers and how doctors and hospitals should organize themselves to care for patients. The House GOP plan would move health care away from centralized government control and towards markets and consumer choice.

The plan is practical. It recognizes that more than 150 million Americans are enrolled in job-based health-insurance plans today, and, for the most part, they like what they have. These workers and their families are not that interested in proposals to upend employer-sponsored plans based on the promise of something better on the other end. To their credit, the authors of the House GOP plan recognized this reality.

The plan recognizes that more than 150 million Americans are enrolled in job-based health-insurance plans today, and, for the most part, they like what they have.

The only change for employer-sponsored coverage in the House plan is an upper limit on the tax preference for such coverage, set at a level that would bring cost discipline to the most expensive job-based offerings (the plan did not specify the level of the upper limit but made clear that it would affect a relatively small percentage of plans). This upper limit would replace the despised “Cadillac tax” of the ACA, which imposes a 40 percent excise tax on all plans above a certain threshold. One reason both parties dislike the “Cadillac tax” is because it imposes the same level of taxation on the highest- and lowest-paid employees of a firm. Under the House GOP proposal, employer-paid premiums above the threshold amount would count as taxable income to the employees, which means that the tax liability would be much higher for the highest-paid workers.

An upper limit on the tax preference for job-based insurance is necessary because, under current law, employers and employees both have a strong incentive to move a large portion of the compensation package into the health plan, since it is entirely untaxed, unlike cash compensation. This distorts decision-making, imposes costs on other taxpayers, and leads to very expansive employer plans that drive up costs system-wide. It is also unfair: Individuals buying insurance on their own do not get a comparable, open-ended tax break for their premiums.

RELATED: The Latest Problem under the Affordable Care Act: Deductibles

For individual and families who do not have access to employer coverage, the House GOP plan would provide a refundable tax credit that could be used to offset the premium of a health-insurance plan. The tax credit would be available to anyone who wasn’t offered an employer plan, regardless of their income, so it would provide much more help to the middle class than the ACA’s premium credits, which are gradually reduced as household income rises and eliminated altogether for families with incomes above four times the federal poverty line.

The tax credits in the House proposal are a very important part of the overall plan. With this proposal, the House GOP can rightfully say that it has offered a plan that would ensure that all Americans have access to affordable health insurance. There would be no reason for anyone in the United States to go without health insurance if they want it. If they are eligible for Medicare or Medicaid, they would be enrolled in those programs. If they were offered employer coverage, that would be the source of their insurance. And a person who wasn’t eligible for employer coverage or public insurance would get the tax credit that would allow him to buy insurance that provides, at a minimum, protection against major medical expenses, which is the whole point of insurance.

#share#The plan also addresses the question of consumers with expensive pre-existing conditions. Insurers would be barred from charging higher-than-normal premiums to, or restricting coverage for, customers who have stayed continuously insured. This means that people who have a chronic condition, or have previously battled an expensive disease like cancer, can move freely from employer coverage to the individual market, and vice versa, without penalty so long as they have continued to stay covered. Unlike the ACA, which may be encouraging some young and healthy people to go uninsured (since they can wait until they get sick to buy coverage, knowing that insurers will be legally required to insure them), the House plan provides strong incentives for everyone to stay insured and thus remain under the umbrella of the plan’s “continuous coverage protection” approach.

RELATED: The House Stands Up to Unconstitutional Obamacare Payments

For Medicaid, the plan recommends moving away from today’s flawed approach of federal matching payments for state-initiated spending. Under current law, the federal government pays about 60 cents of every $1 spent by the states on Medicaid. So states have a strong incentive to move as much spending as possible into Medicaid to maximize the federal government’s payments. The House plan would fundamentally change the incentives in the program by substituting per-person allotments to the states, based on historical spending: The federal government would give the states a fixed amount per program enrollee, and no more (the amount would vary based on four categories of enrollees: the elderly, the disabled, able-bodied adults, and children). States would be responsible for all program spending above the fixed federal contribution, and thus would have a strong incentive to make the program operate as efficiently as possible. They would also have the flexibility to run the program consistent with the wishes of their citizens.

Some of the most damaging provisions of the ACA have to do with the Medicare program. Obamacare gives the federal bureaucracy substantial power to push hospitals and doctors into conforming to the government’s preferred models of taking care of patients. The House plan would sweep away these provisions and instead give the program’s enrollees the ability to choose the kind of coverage they prefer. The plan would also modernize the program’s outdated benefit structure.

RELATED: The Increasing Instability of Obamacare

There are other important proposals in the plan, for expanding enrollment in health-savings accounts, speeding up the production and approval of breakthrough cures, and encouraging states to explore innovative reform approaches, among things. The plan provides ample material for an ambitious legislative agenda, whenever the time is right.

#related#Of course, it’s far from clear that the House will get to act on this agenda. If Hillary Clinton wins the presidential race, the next four years are likely to look a lot like the last eight, which means most of the ideas in the House plan will not make it far in the legislative process. And if Donald Trump wins, it’s also not clear what would happen. So far, his campaign has issued only a sketch of a plan, and even that seems to contradict much of what he has said in debates and on the campaign trail. The safest assumption is that the candidate and his campaign really don’t have any idea what they would do on health care if he were to win.

Regardless, Ryan and his colleagues deserve credit for issuing this plan. They have done their part to provide the starting point for moving health care away from the heavy government focus of the ACA. They are ready to begin passing legislation when the time is right to do so. Unfortunately, it’s hard to tell when that will be, and the election results in November may or may not clarify things.

— James C. Capretta is a resident fellow at the American Enterprise Institute.

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