Some conservatives are saying that they will not go along with House Republican leaders’ tentative plan to replace Obamacare, a plan that these critics say amounts to “Obamacare lite” and creates “a new entitlement.” The conservative holdouts include many of the congressmen for whom we have expressed the most admiration over the years. In this case, though, we fear that they are making a big mistake.
Like them, we start from the premise that we should seek markets in health care and health insurance that are much less distorted by government and especially by the federal government. The extent to which governments have distorted those markets, even before Obamacare, is often underestimated. Government policies have done a lot, in particular, to make it impossible for people to purchase cheap, renewable insurance policies that would protect them from catastrophic health-related expenses and that they could own. Federal tax policy has for decades encouraged people to get coverage that pre-pays a lot of routine health expenses, and to get it from their employers. State governments have mandated that the policies individuals buy for themselves cover such expenses too. Obamacare made the problem worse. The federal government became, for the first time, the chief regulator of health insurance, and effectively outlawed catastrophic coverage.
The government’s deep involvement in health care is not going to be eliminated overnight. Ending the tax break for employer-provided coverage would be disruptive and unpopular, and the doughtiest congressional conservatives are not proposing it. Thus many conservative health-care experts have concluded that the best way to reach a freer market would be to let people enjoy a similar tax break when they buy their own insurance policies on a deregulated market.
Tom Price, the new health and human services secretary, has proposed repealing Obamacare and giving the fraction of Americans without access to Medicare, Medicaid, or employer health plans a tax credit that would enable them to buy coverage. The level of the credit would be set so that everyone would be able to afford catastrophic coverage; they could choose more extensive coverage by supplementing the credit with their own funds. The government would not be forcing anyone to buy catastrophic coverage, that is, but would no longer be discouraging or prohibiting it either.
This approach might also help Obamacare-repealers jump over a parliamentary hurdle. Senate procedures allow Republicans to repeal the law’s tax and spending measures with a simple majority vote, but it is not clear that they can repeal its regulations the same way. But a simple majority may be able to offer people a new tax credit that they can use without complying with Obamacare’s regulations — effectively sidelining them.
Some conservatives oppose offering any tax credits. Some want to limit them to people who have income-tax liability, which would mean that many people on Obamacare’s exchanges would not get them. And some say that people should have to wait until filing their taxes to claim their credit rather than getting it as they pay their premiums. While it’s hard to see any point of principle in that last stand, we will stipulate that in an ideal world we would not be subsidizing health insurance as much as we do and perhaps not at all. But there’s no compelling reason to maintain subsidies for a much larger number of people while cutting off a small number cold turkey.
Political considerations buttress the case for providing tax credits to this fraction of Americans. For seven years, Republicans have been saying that they would “repeal and replace” Obamacare when they got the chance. They didn’t say that they would only repeal it, and they did not include the word “replace” only because conservatives have health-policy ideas of our own that we would like to see implemented. They included it to reassure people who had gotten insurance through Obamacare that they would not be left without coverage in a post-Obamacare world. Republicans cannot keep that promise, which seems to have been important to a significant number of voters who backed them, without a tax credit.
Tax credits would promote a stronger individual insurance market, a more level playing field for different types of insurance, and Republican political health. Those interests ought to be considered sufficiently strong to overwhelm our friends’ objections.