The Inside Scoop On The Emerging Republican Plan To Replace Obamacare

Lewis K. Uhler and Peter J. Ferrara National Tax Limitation Foundation
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The components of the Republican Plan to replace Obamacare are already in clear public view, waiting to be boldly promoted. Central to developing that plan has been House Speaker Paul Ryan, who appointed a House Task Force on health reform early last year, which issued a report proposing a comprehensive replacement plan last June.

Congressman Tom Price (R-GA), designated now to become Secretary of Health and Human Services, was instrumental in developing that plan. His appointment by Trump shows Republicans are more unified behind a full replacement plan than has been reported.

Back to Basics: Obamacare Walks the Plank

The Republican Congress has already teed up the full repeal of Obamacare. A shell budget was adopted that would enable Obamacare to be repealed by reconciliation in toto in the current fiscal year, which ends on March 31.

Senate Democrats have no power to stop that repeal by filibuster, which is not allowed in reconciliation. Congressional Democrats used that same reconciliation maneuver to pass Obamacare over Republican objections in 2010.

That complete repeal means the Obamacare repeal will be a trillion dollar tax cut, as all the taxes adopted to finance Obamacare will be junked in the process. Also ejected by full repeal will be the job killing employer and individual mandates.

Republicans should stop being so timid in failing to trumpet exactly what they are doing, as the pro-growth, pro-jobs tax cuts and repeal of the mandates would be wildly popular, after 8 years of economic growth stuck below 2% under Obama. Repealing the mandates means working people will be liberated to choose the health plan they want, rather than forced to pay for the plan the federal government chooses for them, as specified in the mandates.

Those mandates just reinforced rather than reformed what was wrong with health care and insurance in the first place, which is why health insurance costs rose rather than declined as promised. That is why Obamacare failed to get ANY Republican votes when it was first enacted.

The Universal Health Insurance Tax Credit

The central component of the Republican replacement plan is the health care economist’s John Goodman Universal Health Insurance Tax Credit, refundable so that the poor would also benefit. That credit is in last summer’s report by Ryan’s Health Reform Task Force, and in most of the Republican replacement plans, including in the bill introduced in the House by Price.

The credit would provide $2,500 for each person, or $8,000 for each family, not covered by employer provided health insurance, which could be used to help pay for any health insurance the workers choose, including highly popular Health Savings Accounts (HSAs). The concept is to extend the same tax preference that applies to employer provided health insurance to everyone. The tax credits are set at these amounts to provide the same benefit as the employer insurance tax preference.

But just like the employer health insurance tax preference does not pay for all costs of employer provided health insurance, but only helps to pay for it, the credit is not intended to cover the full costs of health insurance, but only to help pay for it.

The fixed, finite, tax credit creates competition in the market to get health insurance expenses down towards the maximum amount of the credit. That is superior to a tax deduction or tax exemption for health insurance costs, which provides an incentive to spend more on health insurance without limit.

Block Grant Medicaid to the States

In his confirmation hearings, Tom Price was a forceful advocate of federal block grants to give control of Medicaid back to the states as part of the replacement of Obamacare. This would follow the welfare reforms enacted in 1996, which block granted just one federal welfare program, the old Aid to Families with Dependent Children (AFDC) program back to the states.

That reform greatly benefited the poor, as two thirds left dependency to go to work. That resulted in poverty plummeting among those former dependents. The block grants provided the states with fixed, finite funding for the program, which gave them the incentive to find work for the poor, instead of more welfare which only encouraged them to remain poor. That sharply reduced the costs of the welfare program for taxpayers, benefiting them as well.

Block grants for Medicaid would benefit the poor even more. Medicaid so sharply limits payments to doctors and hospitals providing health care for the poor that the poor on the program often face grave difficulty finding health care when they need it.

In one case, a boy with a toothache died when the infection spread to his brain before his mother could find the necessary health care. Studies show that those on Medicaid often do not get better health care than those who are uninsured.

With block grants, states could give the poor health insurance vouchers that would supplement the universal health insurance tax credit to help them pay for the private competitive health insurance of their choice. That insurance faces competitive pressure to pay enough to the doctors and hospitals so customers covered by the insurance can get health care when they need it. Otherwise, the insurance could not compete in the market.

Or the states could experiment paying for coverage by Health Maintenance Organizations (HMOs), which would ensure essential health care would be available when it was needed. Yet, CBO has scored such Medicaid block grants as saving the taxpayers nearly a trillion or more over 10 years.

Assuring Coverage for Pre-Existing Conditions

Just before the Inauguration, Betsy McCaughey explained in the Wall Street Journal how coverage for pre-existing conditions could be assured, while sharply reducing the costs of health insurance. She noted that 5% of patients cause 50% of health care expenses.

Obamacare forces the small percentage of workers covered by health insurance in the individual market to bear all of these costs, forcing such insurance to bear all the costs of these sickest individuals. Offering these individuals coverage for their health costs in taxpayer subsidized High Risk Pools would move them out of the individual market, resulting in sharply declining health insurance costs for everyone else in that market. McCaughey, Goodman, and the Ryan report all recommended those High Risk Pools to ensure coverage for pre-existing conditions.

Repealing Obamacare itself would eliminate all other costly federal regulations in the law. That would automatically leave states free to restore their health insurance regulatory authority, which has always been far more sensitive to what private insurers can economically bear. That would further reduce health insurance costs substantially overall.

This Republican alternative would be far more popular than Obamacare. That would constitute the ultimate defeat of “progressive,” socialized medicine.

Lewis K. Uhler is founder and Chairman of the National Tax Limitation Committee and National Tax Limitation Foundation (NTLF). He was a contemporary of and collaborated with both Milton Friedman and Ronald Reagan in California, and later when Reagan became President. Peter Ferrara served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush. He is currently Principal and General Counsel for the Raddington Group, an international international economic consulting firm, and a Senior Fellow for the Heartland Institute and NTLF.