The problems with the law are well documented; now is time for a solution.
The conservative opposition to Obamacare is well documented, as are the problems with the law and the unpopularity of it. With each passing day, the American public becomes increasingly aware of the costs and burdens of the Affordable Care Act.
America’s health care system was riddled with problems long before Barack Obama became president. But Obamacare only made things worse. So now that Republicans control both houses of Congress, and with the 2016 presidential campaign about to begin, it is up to conservatives to offer a better solution.
Instead of having the federal government mandate health care directives to a vast and diverse nation, an efficient system would have individual consumers play a more active role in their health care. Because who better to make decisions about health care than the person whose health is at issue? A competitive consumer market is the only known means of lowering costs while increasing supply. The problem is: Obamacare went in the opposite direction.
The problems and betrayals of Obamacare give conservatives a chance to show that they realize the health care problems faced by the average American. And now is the time for them to show how a workable health care system would function.
Defenders of Obamacare are using the absence of a Republican alternative to suggest that the ACA is the only answer to the problems of American health care and that without Obamacare millions of Americans would have no insurance coverage. This ends up being one of the most effective arguments for Obamacare, but conservatives and Republicans can easily take away this argument.
A workable health care system should enable people to purchase coverage and to approach health care as cost-conscious consumers shopping for insurance. This can be done by first equalizing the tax treatment between the two types of private coverage: employer-provided and individually-obtained. Also, the tax exclusion for employer-provided health coverage should be capped so that some people do not get a bigger tax break by buying more expensive and unnecessary insurance. (The tax break for employer-provided insurance rewards people for choosing the most expensive insurance options.) This would make employees more cost-conscious, which would intensify competition that would in turn make insurance cheaper. And less expensive health care is vitally important, given that Americans spend around 18 percent of national output on health care alone. Indeed, much of the income stagnation of the middle and working class during recent years can be explained by the growth in health costs.
To equalize tax treatment, the tax breaks for employer-provided insurance should also be available to people who do not have access to employer coverage and who purchase health insurance on their own. This tax break would ideally be available as a refundable credit sufficient at least for the purchase of catastrophic coverage. This would enable people who formerly chose not to buy insurance to now obtain catastrophic coverage with essentially no premium costs.
By making at least catastrophic coverage available to all, and by giving people incentives to obtain it, this approach could cover more people than ObamaCare was ever projected to reach, and at a significantly lower cost. This alternative would not require the mandates, taxes and complex regulations of Obamacare. It would turn more people into shoppers for health care instead of passive recipients of it, and this creation of a consumer market would drive health costs down. In such a competitive consumer market, there would be much fewer distortions of health markets by government regulation and spending than has occurred for the last several decades.
There are only two basic choices for controlling costs in health care: government-imposed cost controls, or a fully functioning competitive marketplace where consumers control the allocation of resources through their economic choices. However, even before Obamacare came into existence, there was never a true and open marketplace in health care. It consisted of massive and inefficient entitlements that drove the nation further into debt. It relied on a one-sided tax treatment of employer-provided coverage that created incentives for waste and overspending. And it contained a vastly underdeveloped individual market for those who didn’t have health care coverage from their employers.
One of the big complaints leading to Obamacare was that the great majority of Americans received health care from their employers and were afraid to leave their jobs for fear of losing their health insurance. But the reason employer coverage became so widespread was because of a policy enacted during World War II-era price and wage controls: that employer-paid insurance premiums would not be counted as taxable income to workers. And of course, one reason Obamacare is now so unpopular is because many workers perceive correctly that the law is increasing the costs of their employer-sponsored insurance.
This employer system was the one in place when Obamacare was passed in a climate of public anxiety about rising health costs. In fact, the pre-Obamacare open-ended tax break for employer plans encouraged expensive, high-coverage insurance, which in turn fueled a rise in health care costs. To address this problem, a conservative approach would set a high upper limit on tax-preferred employer-paid premiums – say, $20,000 for family coverage. Any plan with premiums below this cap would see no change at all. Employees enrolled in the relatively small percentage of more expensive plans would still be allowed to keep that coverage without change, but the premiums above the threshold would no longer be tax-free.
Obamacare tries to set an upper limit on the cost of insurance through its so-called Cadillac tax, which imposes a 40 percent excise tax on all employer-paid premiums above a certain threshold. This approach is less fair because it imposes the same tax on all workers, regardless of income. But under the conservative approach, higher-income workers would pay more for premiums above the cap because their income puts them into higher tax brackets. Most Americans would never confront the tax, and those who did would be far better positioned to deal with it, or to change their coverage to avoid it.
A major change that a conservative health care policy would make in the pre-Obamacare system would be to discontinue the tax discrimination against people who don’t have access to employer-provided insurance and who must buy health insurance on their own. It is not fair to give a generous tax break for health insurance to employees and their families, and nothing at all to persons who must buy insurance on their own. A conservative approach would provide tax credits to households that don’t have access to employer coverage. The credits would be roughly equal to the value of the tax break for employer coverage and would be refundable, meaning that taxpayers would get paid the full credit, even if the credit exceeds their tax liabilities. And a credit is better than a tax deduction for insurance costs. Deductions are valuable to high income taxpayers, but a credit provides the same value to all taxpayers, regardless of income and tax liability.
Obamacare tries to solve the problem of expensive pre-existing conditions by first outlawing the use of health status in setting premiums, which completely distorts a rational pricing process, and then by forcing all Americans to purchase government-approved insurance plans or else pay a new tax. Even though this individual mandate is among the law’s most unpopular provisions, the law would not work without it, because consumers would wait until they were sick to sign up for insurance. In fact, people may still do this, because the tax for remaining uninsured is far below the cost of insurance for most households. Moreover, the problem of people with preexisting conditions having trouble getting insurance actually arose because federal policy has prevented the emergence of a robust individual market in which people have the incentive and the ability to buy renewable policies.
Instead of forcing people into government-mandated insurance plans, a conservative approach seeks to provide a strong incentive for consumers to stay insured. For instance, anyone who stays continuously enrolled in insurance could be protected from higher premiums based on health status if they ever switched insurance plans. This would allow consumers to go from employer plans to the individual insurance market without fear of higher premiums based on a pre-existing condition. Moreover, the tax credits available to those outside the employer system would ensure that all Americans could afford continuous insurance even if they left an employer plan. Besides providing a strong incentive to stay insured, this approach, unlike Obamacare, would help create a robust and competitive market in individual insurance.
Such a competitive market is the only way to control costs and allow the individual some power over his or her health care. But instead of moving toward a more open consumer market, Obamacare went the other way.
Patrick Garry is a professor of law at the University of South Dakota, and Director of the Hagemann Center for Legal & Public Policy Research.
