How Republicans and Democrats can come together to fix Obamacare – Washington Post

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Alberto Abin walks out of a UniVista Insurance office after shopping for a health plan under the Affordable Care Act in December 2015 in Miami. (Joe Raedle/Getty Images)

Since the election, I, among others, have pointed out that Donald Trump would not be able to keep his promise of repealing the rest of Obamacare while protecting people with “preexisting conditions.” To do so would still require everyone to buy insurance — the controversial “individual mandate”— while still requiring insurers to offer policies to anyone who wants to buy one at the standard “community” rate.

It would be wrong, however, for Democrats to jump from that observation to the conclusion that there aren’t other ways to structure a health insurance market to achieve near-universal coverage at affordable prices. Republicans have proposed a number of credible reform ideas that could preserve most of the gains from the Affordable Care Act while restructuring the system to better conform to conservative, market-oriented principles. A few would even make the system more efficient and more progressive.

Broadly speaking, these Republican plans would induce more of the young and healthy into the market with lower premiums, even as premiums rise for those who are older and sicker.  Most would abolish many of the health law’s taxes and reduce federal regulation of insurance markets while preserving some but not all of the premium subsidies for the poor and working class.

The most interesting and radical of the Republican reform ideas is to eliminate the tax-free treatment of employer-paid health insurance and use the $260 billion in increased revenue to give tax credits for every American to offset the cost of buying health insurance. This idea was originally proposed by Republican candidate John McCain in the 2008 presidential campaign and has now been picked up in one proposal by Republican Sens. Richard Burr (N.C.) and Orin G. Hatch (Utah) and Rep. Fred Upton (Mich.), and in another by Avik Roy, head of a new conservative think tank.

The current exclusion is the largest and one of the most regressive tax breaks in the current income tax code. The biggest benefits go to people who have the highest incomes and have the most expensive health insurance policies, while people who are unemployed or work for employers who don’t offer health insurance don’t get any tax benefit at all. The only justification for such a regressive and inefficient tax is a political one: eliminating it would trigger fierce political opposition from big business and big labor.

In these proposals, the tax credit would be adjusted by age and income and be sufficient to allow those with median incomes or lower to buy “catastrophic” insurance that would cover major medical incidents. Individuals and their employers would be free to supplement the catastrophic policy and buy another layer of more comprehensive coverage but only with after-tax dollars. Or they could put additional money in a tax-free health savings account to pay for routine medical care not covered by insurance. The government could deposit additional money in the health saving accounts of lower-income households.

By tying the level of the tax credit to the cost of catastrophic insurance, a well-designed Republican “replacement” could make it possible for all Americans to afford less-expensive basic coverage without resorting to a mandate. Surely this is a framework that Democrats should be able to work with as an alternative to the Affordable Care Act, which relies instead on an individual mandate, premium subsidies for the poor and working class and a “Cadillac tax” on gold-plated insurance policies. Like Obamacare, it would require insurers to sell policies to everyone at the standard rate, albeit with greater variation based on age. Unlike Obamacare, the structure of the tax benefits would be progressive rather than regressive.

Democrats at this point will surely complain that catastrophic insurance is unacceptable because it leaves households responsible for paying thousands of dollars for routine medical bills until insurance kicks in. After all, a lot of people resent large co-payments and deductibles, even if they lower premiums. And there is evidence that if low-income households are required to pay anything out of pocket, they will not get necessary preventive or routine medical care, putting them at risk for getting seriously sick later on.

But there is equally compelling evidence that when people have health insurance that covers any and all medical expenses, they act like hungry football players at an all-you-can-eat buffet, consuming much more health care than they need, irrespective of cost, driving up health insurance premiums for themselves and everyone else. When people pay for routine health care the way they pay for other necessities, they are more likely to buy only what they need and shop around for the best value.

Both sides in this debate overstate their case.

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