Even Conservatives Can Learn to Like Obamacare

After four years of Obamacare, conservatives should recognize that it lays the foundation for some of their favorite ideas. 
Have Democrats actually paved the way for a conservative health-care reform? Photographer: Joe Raedle/Getty Images

Sunday marked the fourth anniversary of the signing of Obamacare, which makes it a good time to figure out where the law really stands. It's easy to dismiss it as a failure. But here's something conservatives should begin to wrap their heads around: For all of our consternation, Obamacare may be a blessing in disguise.

Make no mistake: The law still needs to be repealed, because it fails to deal with the fundamental issue of health costs, represents a huge federal overreach into health care, and raises taxes to support the creation of a huge new entitlement. But Obamacare also makes it easier, from both a political and a policy perspective, to move toward the kind of health-care reforms that conservatives have long argued for.

A few concepts animate conservative efforts to reform the American health-care system. Core among them is the notion that the current tax treatment of health insurance -- where individuals acquiring insurance through an employer enjoy significant tax advantages over those acquiring insurance on their own -- is problematic. It drives up health costs and spending, prevents the creation of a true marketplace, and inhibits the portability of health coverage.

Many conservative health policy analysts will tell you that the ideal health-care system is one where individuals effectively "own" their health insurance policies, are free to carry that coverage from job to job, have a variety of insurance products to choose from, and have greater control over and more information about the cost and quality of the health care they receive.

The biggest impediment to moving toward this ideal continues to be a tax code that sustains the employer-sponsored health insurance system. Any changes to that system have been fraught with political peril, because they would probably result in some displacement of individuals from their existing employer-sponsored plans.

That's where Obamacare comes in. Beginning in 2018, employers offering high-value or "Cadillac" health insurance plans will be subject to a 40 percent excise tax, imposed on the value of health insurance benefits exceeding $10,200 a year for individual coverage and $27,500 a year for family coverage.

Employers will probably respond to this tax by paring back benefits to avoid it, or terminating coverage entirely and instead offering a defined contribution toward an employee's individual health insurance purchase. Either way, the current system of unlimited tax benefits for employer-sponsored health insurance is ending soon -- thanks to Obamacare.

This is good news for conservatives. Every serious Republican alternative to the law seeks to move away from the existing unlimited tax exclusion for employer-sponsored health insurance and toward a system where that tax benefit is either capped or scrapped entirely, in favor of tax deductions or credits to help people buy insurance on their own.

That means Democrats will have a tough time attacking future changes to the tax treatment of health care, because Obamacare acknowledges that the current tax treatment is problematic. The Cadillac tax on some plans is part of the way that the law attempts to pay for the coverage subsidies it provides to low and middle-income Americans. In much the same way, conservatives want to change the tax treatment of health insurance to help individuals buy their own plans in a vibrant marketplace.

Also helpful to conservatives is the way Obamacare disrupts insurance markets and forces people out of their current coverage. The Congressional Budget Office estimates that 7 million fewer Americans a year will have employer-sponsored coverage in 2018, partly due to the Cadillac tax but also because some employers will opt to stop offering health benefits. That limits Democrats' ability to argue that Republican alternatives separate people from the coverage they already have -- because it's clear that Obamacare does, too.

Even the law's health insurance exchanges, much maligned by many conservatives, lay the groundwork for a post-Obamacare conservative reform to blossom. The exchanges under the law are, after all, a highly regulated set of marketplaces, where only certain plans offering certain benefits may be offered at a certain price. They are also a mechanism through which Obamacare distributes tax credits to help people buy health coverage, and a place to create competition between private plans.

Thus, the infrastructure that conservatives would need to administer a tax subsidy to individuals for the purchase of health insurance is already there because of Obamacare. All that's left now is to simplify the tax subsidy that's provided and remove Obamacare's regulatory burdens, which inhibit greater competition and affordability in the marketplace.

Of course, if conservatives are to make any of these reforms a reality, the U.S. will need to elect a sympathetic president and Congress. Thus, the road to replacing Obamacare with something better remains a difficult one.

So while it's easy for conservatives to say after four years that there's nothing redeeming about Obamacare, that's not entirely true: If we ever get to real health-care reform, it may be thanks in part to President Barack Obama and Obamacare.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.