Sept. 23 (Bloomberg) -- House Republicans are starting to fill in the details of what health-care policies they would prefer over Obamacare. The 175 conservative representatives in the Republican Study Committee released a plan last week. It’s a good start, but there’s room for improvement.
The plan, which is mostly the work of Representatives Phil Roe and Steve Scalise, repeals President Barack Obama’s health-care law. It replaces the unlimited tax break for employer-provided health insurance with a new tax deduction -- $7,500 for individuals or $20,000 for families -- to purchase health insurance, whether through an employer or on their own. It would let insurers sell policies across state lines. And it would put $25 billion into high-risk pools to help people who would still be unable to buy insurance.
The prevailing liberal reaction to the plan has been to dismiss it. It isn’t a serious alternative to the Affordable Care Act, they say, because it doesn’t provide health insurance to as many people or offer the same protections to those with pre-existing conditions. Obamacare supporters expect the law to increase the number of people with insurance by 25 million. The Lewin Group has estimated that a tax deduction would increase that number by only about 9 million.
These criticisms are partly right. The Republicans should replace their tax deduction with a tax credit, which would have a higher value for people with low incomes and thus do more to extend insurance. Increasing the number of people with health insurance may not do much for their health -- the evidence that it would is pretty weak -- but it will make them more financially secure. That’s especially worth doing because federal policy, by tying insurance to employment, has locked a lot of people out of health insurance markets and thus made them less secure.
Republicans should make two other modifications to the plan. People who have access to employer coverage shouldn’t be allowed to use the tax deduction or tax credit to purchase health insurance on their own. Eventually we ought to move toward a system that’s much less dependent on employers, but we should minimize the disruptiveness of this transition.
And medical malpractice reform, as popular as it is among Republicans, shouldn’t be done at the federal level. Medical torts have traditionally been regulated by states, and states have the incentive to set their policies on it the right way -- because their residents will pay the price if they don’t.
Even with these flaws, though, the Republican plan is superior to Obamacare. It’s less coercive. It requires fewer taxes. It doesn’t have as much potential to reduce full-time employment. And it’s more likely to control costs, relying as it does on the power of competition rather than the guidance of Washington-based experts.
It also takes a more sensible approach to people with pre-existing conditions. Obamacare requires insurers to offer them insurance on the same terms as healthy people. This rule fundamentally changes the nature of insurance. And it creates an incentive for people to go without coverage until they get sick, which could make the law unworkable as healthy people leave the market, premiums rise and more healthy people leave. If that happens, we never reach that 25 million figure Obamacare’s supporters crow about.
The Republican plan, by contrast, treats pre-existing conditions as a significant but discrete problem. It doesn’t try to redesign the entire insurance market around them. It offers subsidies and strengthens regulatory protections for them, but in a way that doesn’t pose the risk that Obamacare does of destroying that market.
One liberal complaint about the plan is especially wrongheaded. That’s the idea that letting insurers sell out of state will create a “race to the bottom.” On this theory, insurers will all set up in states that don’t require them to cover a lot of medical treatments, and thus people will end up with “skimpy” plans. It’s true that states will face pressure not to overregulate, but it’s also true that, all else being equal, consumers will want more coverage. They might be willing to choose less extensive coverage, but only if it is cheaper. That’s a trade-off they should be able to make.
Perhaps many people would end up with insurance policies that protect them against the risk of catastrophically high medical expenses, but pay for routine care out of pocket. That arrangement could be more efficient than using insurance to cover a larger share of medical expenses.
Look at the Republican Study Committee’s plan without liberal presuppositions, and you see the beginnings of a promising alternative to Obamacare. Whether it becomes anything more than that is up to Republicans.
(Ramesh Ponnuru is a Bloomberg View columnist, a visiting fellow at the American Enterprise Institute and a senior editor at National Review.)
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