On the Republican ‘Alternatives’

With the glow of victory still fresh, it’s a little unseemly to start criticizing the Republicans already on their proposals to replace Obamacare. But I can’t let Michael F. Cannon stand alone in his observation that they are “weaker” on replacing than repealing. As Reihan Salam notes, we would not be in the fix we are today if a previous Republican regime had reformed (or eliminated) the employer-based exclusion of health benefits from taxable income. Or, to put it in other words: The federal government should give the American people the health-care dollars that it currently gives our employers.

Republican leaders really muddy this issue. To wit: Karl Rove’s advice to the new majority in today’s Wall Street Journal: “But they should also present conservative alternatives — such as permitting Americans to buy health insurance across state lines, allowing small businesses to pool their risk to get the same discounts that big businesses get, giving the tax advantage of having insurance to the individual as well as the employer.” More freedom is always better, but the order in which these reforms are listed is backwards. (See also Marco Rubio’s “Ten Simple Ways to Make Health Care More Affordable and Accessible” for the same backwards order.)

To understand this, first realize that what we call health “insurance” is not really insurance, but pre-paid medical care. We launder almost all our medical costs through health plans, which is just fine for the health plans but adds lots of administrative costs. It’s as if your household insurance also paid your rent or mortgage, furnished your home, and gave you a “free” lightbulb when one burned out. Obviously, your premium would skyrocket from what it is now.

Then suppose that, because of historical accident, the federal government did not give you a mortgage-interest tax deduction, but excluded the value of your home from your taxable income, but only if your employer “gave” it to you as a benefit.

The results would be similar to what we see for health care today: Wages would stagnate as the share of our income dedicated to housing increased; the design and furnishing of homes would satisfy the needs of corporate and government bureaucrats instead of residents; and people would automatically lose their homes when they changed jobs.

What would housing “reform” look like? It could look like what Congress and President Clinton did in 1996: Pass a law that allowed people to stay in their homes for six months after leaving their jobs, provided they pay their former employer 102 percent of the home’s cost.

The government could also allow employers to buy homes across state lines, allow small businesses to band together to buy homes in groups for their employees, and allow people to use the pre-tax dollars themselves to buy the homes that they choose.

Of course, only the last reform would have any effect, because homeownership should belong to the individual, not his employer. It’s the same for health insurance. Republican leaders have less than two years to get focused on this reform.

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