The Economics Of Replacing Obamacare: The Good, The Bad, and The Ugly

//The Economics Of Replacing Obamacare: The Good, The Bad, and The Ugly

The Economics Of Replacing Obamacare: The Good, The Bad, and The Ugly


Republicans have not unified behind a single bill to replace Obamacare because conservatives have been debating among themselves exactly what the components of that bill should be. The ongoing collapse of Obamacare, economically and politically, is heightening the stakes in that debate, delaying matters.


But the replacement plan now emerging will broaden health coverage at least as much as Obamacare, which teased universal coverage but never delivered. Moreover, the replacement plan would actually reduce health costs (through tried and true market incentives, proven to work in the real world), again which Obamacare promised, but instead produced exactly the opposite. Indeed, the plan would do this while cutting government spending, taxes and regulation as compared to Obamacare. Just think of the historic political significance of the Democrat Left finally enacting socialized medicine, after fighting for it for over a century, and the country rising up in political rebellion to reject it, and replace it with free market medicine instead.


Jim Capretta, a Senior Fellow with the Ethics and Public Policy Center, recently wrote about this emerging plan in the book, Room to Grow, published by the YG Network, a conservative organization that grew out of the work of the Republican House majority.


Capretta starts with a fundamental point that more conservatives need to grasp: “[I]f a plan to replace Obamacare is found by CBO to do little or nothing to reduce the number of uninsured Americans, it is unlikely to get the political momentum necessary to fully displace Obamacare.” He adds quite correctly,


“Conservatives must see the present opportunity provided by Obamacare, clearly. We have an opportunity to move our health-care system to the right not only of Obamacare but also of the pre-Obamacare status quo. The middle class is ready to hear from conservatives about their practical and realistic proposals to improve their lives. If conservatives seize the political moment, they could displace the largest expansion of governmental power in a generation with a program that would unleash, for the first time, the real potential of consumer choice in health care. It would be the most significant conservative policy victory in many years.”


Capretta also grasps the core of the issue when he writes,


“The Obama Administration claims that Obamacare is a marketplace, but the reality is that it is a top-down, bureaucratic solution, with all of the critical decisions made in Washington. HHS strictly defines the insurance product and then compels insurers to sell it while the IRS compels consumers to buy it. That is not a market. The conservative alternative must employ a decentralized approach, with consumers driving the system by the decisions they make about insurance coverage and the use of medical services. It must therefore feature far less prescriptive insurance regulation.”


Capretta also correctly identifies the core problem with health policy even before Obamacare: “[E]conomists of all political stripes have long agreed that the open ended tax subsidization of employer-paid health insurance is one of the main distortions of the existing system. It encourages excessively costly employer plans and discriminates against households that do not have access to employer coverage and thus must rely on the individual market for insurance.”



Surgery (Photo credit: Army Medicine)

But Capretta too easily accepts conventional wisdom among Republican health policy staffers when he writes, “But conservatives must resist the temptation to simply undo current tax policy in an Obamacare replacement plan. Approximately 160 million people in the United States are enrolled in employer-sponsored insurance. Any widespread disruption of that coverage, as a complete rewrite of the federal tax treatment would surely involve, would be strongly resisted by the families benefitting from that coverage and would likely doom the entire reform effort.”


Yes, it is wise that in repealing and replacing Obamacare we don’t do what Obamacare has just done in causing millions, perhaps tens of millions ultimately, to lose their current health insurance, which they were promised they could keep. But Capretta and too many others too easily forget a central difference between the two approaches. Obamacare is based on coercive mandates prescribing from the top down exactly what health insurance everyone must buy, so that naturally involves banning many existing health policies people currently have and like. The conservative Obamacare replacement is based on unrestricted individual consumer choice in a competitive marketplace. So anyone who likes the current plan they have can just choose that one under the Obamacare replacement reforms. And the plans people like in widespread numbers are precisely the ones that are going to continue to be offered in the competitive marketplace.


Replacing Obamacare: The Good


Capretta’s central strategy for the Obamacare replacement plan is to extend the tax preference for employer provided health insurance to everyone, in the form of a tax credit, with a fixed, finite, maximum, for purchasing health insurance. That has been advocated for many years now by John Goodman, President of the National Center for Policy Analysis.


Capretta references an earlier paper, A Winning Alternative for Obamacare, produced by The 2017 Project, an organization dedicated to developing policies for the post-Obama world. That paper proposes a tax credit of $1,200 a year for those under 35 years old, $2,100 for those between 35 and 50, and $3,000 for those over 50, plus $900 per child. Goodman proposes a credit of $2,500 a year for everyone, and $8,000 per family. These credits would all be refundable, meaning that if the taxpayer has less in income tax liability than the amount of the credit, the government would pay the taxpayer the difference in cash.

By | 2014-06-02T06:48:24+00:00 June 2nd, 2014|Economics|

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