Is There a Republican Alternative to ObamaCare?

GOP to the Uninsured: (Feel Free to) Drop Dead.” So reads the title Michael Millenson post at the Health Care Blog yesterday. It gets worse:

[N]o Republican presidential candidate has ever presented a serious plan to cover all the uninsured … The difference between Democrats and this generation of Republicans — unfortunately including even the GOP Doctors Caucus — is not at its core a disagreement on what government can legitimately do to help create universal access to health care for the 50 million Americans without it, but whether the goal itself is worth pursuing.

Was Millenson completely asleep (like Rip Van Winkle) during the last election? Does he not read my Wall Street Journal editorials? Does he never visit my blog? Or was this meant to be an April fool’s column?

John McCain’s health plan was more radical and even more progressive than Obama Care. I’ve never seen any serious health policy wonk deny that.  Maybe Millenson doesn’t live in a battle ground state. If he did, he would know that the Obama campaign spent more money attacking the McCain health plan during the election than has ever been spent for or against a public policy idea in the history of the republic. In fact, it is probably no exaggeration to say that Obama successfully turned the election into a referendum on the McCain health plan!

The McCain health plan is discussed at this blog here, here, here, here and here.

And although Millenson singles out Oklahoma Senator Tom Coburn as an especially egregious example of the Republican failure on health policy, the McCain vision actually was based on a bill, sponsored by Sen. Coburn and Sen. Richard Burr (R-NC), along with Reps. Paul Ryan (R-WI) and Devin Nunes (R-CA), [hereinafter called the Coburn bill]. That bill, in turn, was based on an idea which Mark Pauly and I proposed in a Health Affairs article more than a decade ago. (Does Millenson not read Health Affairs?)

What makes this Republican approach so radical is that it would replace all government tax and spending subsidies for the purchase of private health insurance with a fixed-sum tax credit — essentially giving every American the same number of dollars to apply to their health insurance, regardless of where they obtain it.

Under the current system, federal state and local tax subsidies for private health insurance approach $300 billion a year. The distribution of these dollars is arbitrary, unfair and wasteful.

How much help a family gets from government depends on such factors as its tax bracket, the type of health plan the employer chooses, and state and local tax rates.

The subsidies are also regressive. According to the Lewin Group [Note: this link is from 2007 and reflects a factor of 4 times. Newer estimates by Lewin show that families earning $100,000+ get 6 times the tax subsidy and are based on a personal correspondence with John Sheils] families earning more than $100,000 a year get nearly six times as much tax relief as families earning $25,000. We give the most encouragement to buy health insurance to those people who least need encouragement and who probably would have purchased it anyway.

In addition, people can always lower their taxes by spending more on health insurance, and there is no limit to how bloated a health plan can be.

Oddly enough, we place special burdens on people who must purchase their own insurance. Essentially, they must pay taxes first and bring the insurance with what’s left over.

For a worker facing a 15.3% (FICA) payroll tax, a 25% income tax rate and a 5% state income tax, having to buy health insurance with after-tax dollars essentially doubles its cost.

Special burdens also are placed on part-time workers and the self-employed.

Consider that 1-in-5 workers are part time. Employers usually do not offer these workers health insurance. And federal law makes it difficult for employers to give them a choice between wages and health insurance.

The self-employed are now able to deduct health insurance costs on their income tax returns. Unlike other workers, they get no relief from the 15.3% payroll tax. For many, the payroll tax bite is larger than the income tax.

These problems can be solved with an approach that treats everyone alike, regardless of income or job status.

It should start with these basic ideas:

  • The current system of tax and spending subsidies would be replaced by a tax credit of, say, $2,500 per person or $8,000 for a family of four for the purchase of health insurance.
  • The subsidy would be refundable; everyone gets it even if he does not owe any income taxes.
  • Families can obtain the subsidy in the year in which the insurance is purchased and would not have to wait until April 15 the following year to get their credit.
  • Insurance companies and other intermediaries would be able to help families obtain their credit and apply it directly to the health insurance premiums.

As a result, people who must purchase their own insurance (including part-time workers and the self-employed) would get just as much tax relief as people who obtain insurance through an employer.

The tax credit would subsidize the core insurance that everyone should have. It would not subsidize all the bells and whistles, as the current system does.

Since employees and their employers would be paying for additional coverage with after-tax dollars, everyone would have an incentive to compare the value of extra health benefits to the value of other things money can buy.

John C. Goodman, PhD, is president and CEO of the National Center for Policy Analysis. He is also the Kellye Wright Fellow in health care. His Health Policy Blog is considered among the top conservative health care blogs where health care problems are discussed by top health policy experts from all sides of the political spectrum.

10 replies »

  1. Over the course of 2009 conservatives and Republicans have done a far better job than anyone would have thought possible when it came to blocking ObamaCare from becoming law. Everyone thought it was a fait accompli, but it ran into the brick wall of public opinion.

  2. The only “Republican” strategy that can work is to wait for the Dems to fall on their sword. Just let them continue to overpromise and villify anyone who proposes intelligent cuts in growth of spending. Like Icarus, they will crash and burn, taking all of us down some, but not all of us down all the way. Their constituents will get sizzled. The self-sufficient will not get burned.

    It will be worse than the Civil War.

  3. There several issues that are not being addressed here:
    1. Health care simply does not operate effectively as a supply and demand, capitalist system. The dynamics are not the same
    2. Insurance masks and even supports higher healthcare costs in an unhealthy relationship between insurer and provider.
    3. For profit, publicly traded health insurance companies bloat the true cost of health care.
    3. Pre-existing conditions.
    4. What to do about those who can’t afford health care at all.

    One thing I might add to the “first step” Republican approach is to divorce health care from employment altogether.

  4. “Is There a Republican Alternative to ObamaCare?”

    Romneycare, only Republicans will say they thought of it first.

  5. IIRC, the McCain plan was never scored by the CBO. Also, as John notes, no one in the GOP ever got behind the plan. I think Michael has the better of it here. The closest to a GOP plan at present would seem to be the PCA, also unscored. I did like the following from John.

    “What Obama Needs from Romney: A Consistent Mandate. Another weakness in Obama’s approach is the idea of imposing a pay-or-play mandate on employees (through their employers) but not on people who are not employees. As with the unintegrated subsidy, this distorts labor market choices. It also penalizes and discourages employment. Romney’s approach is better: treat everyone the same, whether employee, independent contractor or out of the labor market altogether. If you’re uninsured in Massachusetts, you pay a fine. Period.”

    Go mandate.


  6. “Does he not read my Wall Street Journal editorials”.

    John, your articles are not editorials but op-eds.

  7. John, to recap a comment I put on your site: you are one of my favorite policy entrepreneurs, but I stand on my facts. Having debated Sen. McCain’s health care adviser in 2008 on behalf of the Obama campaign, I can say two things with certainty.

    First, if you take away the issue of the uninsured, there was a lot of agreement on the need for the government to improve its performance as a care purchaser. A lot of the ACA efforts the right-wing GOPers have savaged because they are in the ACA are initiatives that came from conservative intellectuals and are a
    continuation of Bush administration initiatives. Reflexive right-wingers are
    as bad as the reflexive left-wingers (who’ve also criticized me).

    As for McCain’s plan, no objective observer, including folks like Laszewski,
    thought that it covered anywhere close to as many of the uninsured as the
    Obama plan. And, though I’m not a single-payer fan, no objective observer
    believes the Obama plan covers as many as single-payer. More to the point,
    as people like Regina Herzlinger of the Harvard Business School have pointed out, there are private-public models in Europe in places like Switzerland and Germany that we could adapt.

    No GOP presidential candidate or president ever has submitted a serious plan to cover all the uninsured. Newt Gingrich toyed with the idea when he was out of power, but his think tank never followed through. Theodore Roosevelt was the first presidential candidate to propose universal care as an objective, but he was a Bull Moose Pa;rty candidate in 1912, not a Republican.

    Since the first universal coverage came from Prussia, from the Iron
    Chancellor as a way to one-up the Socialists, it would be great to see our
    current conservatives do the same thing.

    As Nixon A-G John Mitchell put it, “Watch what we do, not what we say.”

  8. Hmmm. . .

    Would everyone have to purchase insurance to get the credit? If someone does not purchase insurance will his tax bill be $2,500 higher? This all sounds very familiar, yet lacking in consumer protections. Why is it when we call something a “tax credit” it becomes more palatable politically?

    Honestly, it’s an idea worth pursuing if it includes a regulated exchange with consumer protections. I think the ACA is an incremental step in this direction. If we can get the individual markets working well, we can start to move away from the employer-sponsored system and the associated tax breaks.

  9. It comes down to two choices by what really is a one party system, Democrats offering dependency and government overregulation, and the Republicans offering distant independence with private enterprise overregulation. But, they do overlap in one area, not really caring in the end how their ideas realistically impact on the society these bumpkins alleged represent.

    No one still talks about that dancing 800 pound gorilla in the room, the entitlement programs that are Medicare, Medicaid, and Social Security that still sell this false premise of endless life without accountability. No one wants to watch an ill child die, no one wants to watch a horribly traumatized person languish in long term care, no one wants to watch grand mom or dad die of chronic disease. We all want to live forever. But, no one wants to pay the bills for this endless life, do they!?

    Social Darminist here just to remind you all, no health care reform will work if we don’t accept the limits that life sets on this species!

  10. “The current system of tax and spending subsidies would be replaced by a tax credit of, say, $2,500 per person”

    2011 per capita NHE ~ $8,648.50. (Office of the Actuary)

    “Insurance companies and other intermediaries would be able to help families obtain their credit and apply it directly to the health insurance premiums.”

    Right, we don’t want health care, we want intermediaries (and their fees) for getting “plans.”