An Obamacare Replacement That Works
Tom Price, the chairman of the House Budget Committee, is the latest Republican to unveil a conservative health-care plan to replace Obamacare. It's a good plan, although it could be made better -- and it helps to clarify some of the trade-offs involved in health policy.
Price's plan would give people tax credits to buy health insurance. The credits would be based on age but not on income. Everyone between 35 and 50 would get $2,100 a year, for example. Both the Affordable Care Act and some other conservative health-care bills, such as the one proposed by Senator Orrin Hatch and colleagues, instead phase out tax credits with income. The credits could be used to buy insurance in a much less regulated market than Obamacare creates: No longer would insurance policies have to cover a federally approved list of essential health benefits, for example.
The plan has already elicited some reasonable criticism over the choices Price made. If you offer the same tax credit regardless of income, you send money to people who don't need it. On the other hand, you relieve the administrative difficulty and unpredictability of an income-based credit. A lot of people don't know how much help they can count on from Obamacare; they would have more certainty with Price's plan.
Price also avoids a potentially serious problem with Obamacare. A credit that phases out with income raises effective marginal tax rates: People don't get the full benefits when they start working longer hours or get raises. That's one reason the Congressional Budget Office found that Obamacare would lead people to work fewer hours.
Other criticisms of Price's bill would apply to almost all conservative alternatives to Obamacare. Those alternatives generally loosen the Affordable Care Act's prohibition on discriminating against customers with pre-existing health conditions. This protection is popular, but it necessitated the law's least popular provision: the fine on people who don't buy insurance. Insurers demanded the fine because otherwise people might wait until they got sick to buy a policy, at which point they couldn't be turned down or charged a higher rate.
Price would instead forbid insurers from discriminating against people based on health status if they've maintained continuous coverage. That way there's no incentive for them to wait until they're sick to buy a policy, and no need for a fine for not buying one. Those with pre-existing conditions would have stronger legal protection than they had before the Affordable Care Act. And people who got insurance through Obamacare could continue to buy policies in the future on the same terms as everyone else.
Should the Price plan move forward in Congress, Obamacare supporters will surely say that it would leave people with inferior coverage -- since it would no longer have to cover essential benefits. Again, though, there are trade-offs. It might well be rational to want a policy that features low premiums and protection against catastrophic health expenses but leaves many routine services uncovered. Some Obamacare policies, by contrast, cover routine expenses but leave people exposed to very high costs should disaster strike. And if more people are paying for some routine services out of pocket because they chose catastrophic coverage, those services should get cheaper.
The main flaw in Price's plan is the danger it poses to employer-provided coverage. He would let people with such coverage use their new tax credit to buy their own health insurance on the individual market. If young and healthy people find better bargains on that market, they might leave employer plans with only older and sicker insurance pools. Thus employer premiums could go up, or employer plans could go under.
That's not going to fly, and it shouldn't. The federal government shouldn't disrupt people's health-insurance arrangements so drastically. The solution is to restrict the tax credit, at least at first, so that it only goes to people who don't have access to employer coverage.
That means that some people would have to stay stuck in plans they dislike. That's too bad -- but, once again, life's full of trade-offs.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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