An Actual Republican Alternative to Obamacare

Well, I'll be! That looks like a health-care plan.

Photographer: Adam Berry/Getty Images

A viable Republican substitute for Obamacare used to be the yeti of Capitol Hill: often talked about, never seen. But it has suddenly become real. This week, three leading Republican members of Congress offered a realistic plan for reform, one that accepts the need to provide all Americans access to health insurance.

True, the proposal, from Senators Orrin Hatch of Utah and Richard Burr of North Carolina and Representative Fred Upton of Michigan, would repeal several essential features of the Affordable Care Act, including the requirement that individuals carry health insurance (and that most employers provide it) and the expansion of Medicaid. Other provisions would be scaled back; tax credits for buying insurance would go to those making up to 300 percent of the poverty line rather than 400 percent, for example.

Obamacare, Assessed

But insurers would (mostly) still be prevented from denying coverage to those with preexisting health problems. Young adults could remain on their parents' insurance until they're 26. And the so-called Cadillac tax on gold-plated health plans would go away. Instead, the value of those plans above a certain threshold would be taxed as regular income.

That last change is one even President Barack Obama should like. The infinite tax exemption on employer-sponsored health insurance has always been troublesome: It boosts demand for coverage, increasing spending. And it's a tax giveaway to those with the highest incomes, who tend to enjoy the most generous health benefits.

Obamacare tries to minimize the first problem by simply levying a 40 percent excise tax on the value of high-cost plans beyond the threshold. But that's a regressive strategy. Taxing the value of health insurance beyond $12,000 ($30,000 for a family plan), as the Burr/Hatch/Upton plan does, would work better because the federal income tax is progressive. Its effect would be bigger or smaller according to the taxpayer's earnings.

The income strategy has drawbacks of its own. For one thing, it would produce less revenue than the Cadillac tax does, making the law's benefits harder to pay for. And it would affect just 1 percent of health plans, according to the Kaiser Family Foundation, limiting its ability to influence the market. But these flaws could be fixed by lowering the threshold at which health insurance counts as income.

That's not the only way the Burr/Hatch/Upton plan could be improved. The test for any Obamacare replacement remains its ability to provide comparable insurance to at least as many Americans, at the same (or lower) cost. And this proposal probably fails on the first two characteristics.

Nevertheless, it embraces important principles of the Affordable Care Act: that the federal government ought to fund health coverage for those who can't afford it, and that the insurance market should be required to offer coverage to everyone.

In the event the Supreme Court cripples Obamacare later this year by ruling against the law's insurance subsidies, the new plan would be a good place to start in congressional negotiations over how to move forward. But first, these three members of Congress will have to get their Republican colleagues to embrace the idea.   

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.