Just repealing Obamacare would get rid of the anti-middle class individual mandate, the anti-jobs employer mandate, and all the other federal regulations that have caused health insurance premiums to soar. This would be a highly popular start, freeing workers and their employers to buy the health insurance they want, rather than the government forcing them to buy the high cost plan bureaucrats insist they must have.
That would deliver on the broken promise that workers can keep the health insurance they like. Freed from regulatory and tax costs, with market competition reinvigorated, health insurance premiums would decline, making good on the promise of making health insurance affordable.
But the centerpiece of the replacement plan should be Universal Health Insurance Tax Credits, as advanced by leading free market health economist John Goodman, the Father of Health Savings Accounts (HSAs). That credit would be another highly popular plank of free market health policy.
Replacing the arbitrary, widely varying credits and subsidies of Obamacare, the Universal Health Insurance Tax Credit would provide the same, equal, tax benefit to everyone, regardless of income. Requiring workers to guess their income for the year, pay a penalty if they guess wrong, and bureaucrats to verify income for each worker, has been the source of much of the unworkable complication of Obamacare.
The amount of the Goodman credit is tied to the cost of Medicaid, ensuring that everyone has access to a basic amount of health insurance. And that we are not encouraging people to choose government insurance over private insurance. For 2017, the credit would be $2,500 for each person, and $8,000 per family.
Just like the tax preference for employer insurance only helps to pay for the insurance, rather than paying for all of it, this tax credit would only help workers and their employers pay for the health insurance of their choice, rather than all of it. That would include the choice of paying for increasingly popular HSAs.
Because poor and lower income workers need to participate in the tax credit on the same terms as everyone else, the credit needs to be refundable. To Republicans and conservatives who see that as an unnecessary expansion of welfare, keep in mind that these people will need social assistance of some sort for essential health care. In our society, one way or the other almost everyone gets medical care.
The Goodman tax credit in fact would actually reduce welfare, as the credit can be used to leave Medicaid and buy private health insurance instead. That would greatly benefit the poor by giving them access to the much better health insurance of the middle class.
Another key factor Republicans need to understand about the tax credit is that it is not the policy equivalent of a tax deduction or exclusion for health insurance with a cap on the maximum amount, as some Republicans and conservatives seem to think. A deduction or exclusion gives a bigger tax subsidy the more that is spent on health insurance, providing an incentive for the purchase of excessive, inefficient health insurance.
The cap only addresses that problem for those whose health insurance costs more than the cap, correcting only the most egregious abusers of the current system. Below the cap, where most workers would be, a deduction or exclusion still encourages people to buy more health insurance than they would otherwise.
A tax credit of $2,500 only subsidizes people to buy essential, necessary health insurance up to that amount. For any insurance that costs more than that, workers would be able to choose less expensive insurance and take the savings in higher wages instead.
Workers with a health insurance plan costing $20,000 a year, as some employer provided health insurance does, might decide they would be better off with a plan costing $15,000 with the difference realized in higher wages. The credit would allow them to do that with no tax penalty. That represents an efficiency in the labor market that throughout the economy would add up to a substantial boost to GDP.
This is why the Universal Health Insurance tax credit needs to be universal, applying to all workers, not just those who don’t have employer provided insurance. That gives more power to workers, rather than leaving them with only the insurance employers choose in their own interest.
Elitist Republicans and conservatives should not delude themselves into thinking that workers, and their unions, would not be able to understand this, despite the scare tactics of elitist Democrats. Employers should know that their workers would prefer this freedom, and labor market competition would lead them consequently to prefer it as well.
Peter Ferrara is a Senior Fellow with the Goodman Institute, the Heartland Institute, and the National Taxpayers Limitation Foundation. He is also Principal and General Counsel with the Raddington Group, an international economics consulting firm. He formerly 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.