March 7 2017
Republicans have answered the call: Monday night they released the text of legislation that could repeal and replace ObamaCare. The bill would repeal most of ObamaCare’s taxes, subsidies, and mandates, and offer a refundable age-based tax credit instead. It devolves most insurance regulation back to the states, freezes the Medicaid expansion, and converts the program’s funding to a per-capita allotment.
There are no surprises in this bill, which represents compromise on the Republican side. Not all conservatives will support the concept of a refundable tax credit, and others will quibble the bill doesn’t go far enough. But this latest Republican legislation is a good starting point for discussion, and it includes some helpful policy changes.
The purpose of the tax credit in the Republican ObamaCare replacement is not to emulate ObamaCare’s redistributive system of subsidies and tax credits, but to address the unequal tax treatment of employer-provided health plans versus individually purchased plans.
Employer plans are excluded from taxes, meaning, unlike wages, employees don’t pay tax on the value of their benefits. This tax exclusion is unfair; it only benefits those with employer-sponsored plans. It effectively works to make employer insurance plans cheaper than plans people have to buy on their own. And it is regressive; it is of greatest value to those with high incomes. Worst of all, it creates a huge market distortion in health insurance that favors large group plans.
By offering a tax credit to individuals, the Republican plan attempts to level the playing field for the many Americans who, because they work in the “gig economy” or for a variety of other reasons, don’t have on-the-job benefits.
Republicans have struggled with how to structure the tax relief for individual plans.
ObamaCare’s tax credits are means-tested, meaning they decrease as income increases. The latest Republican plan includes only one income threshold, $75,000 for individuals and $150,000 for couples. Above this threshold the credit phases out, but under it, the credit is flat and based on age, starting at $2,000 per person under age 30. Older Americans get a higher tax credit, up to $4,000 per person, because they generally face higher healthcare costs.
As important as it is for Republicans to get this tax credit right, it’s only one piece of the puzzle. Importantly, Republicans want to see a major shift in the regulation of insurance plans away from ObamaCare’s federally mandated, one-size-fits-all approach. The idea is to return this authority to states, where insurance regulators know their markets and populations better, and are therefore better equipped to make decisions about how rates and plans are negotiated and regulated.
But even in Republican replacement plan, several major federal regulations would remain on the books, like the requirement that plans cover adult dependent children up to age 26 and the ban on lifetime limits in insurance plans.
The plan addresses the issue of pre-existing health conditions differently than the ACA, which requires all plans accept all enrollees (and offer them the same premium rates) no matter their health status. The flipside of this requirement in the ACA is the individual mandate, intended to incentivize healthy people to buy in.
The Republican plan also includes an incentive to insure while healthy: It allows insurance companies a 12-month “look-back” period to determine if enrollees went more than 63 days without coverage in the prior year. If they did, insurers can add a 30 percent surcharge to premiums for one year. This is very similar to a mandate, except that the penalty is paid to insurers during the first year of enrollment rather than as a tax penalty year after year.
Finally, the Republican replacement would include major reforms to the Medicaid program. It treats the Medicaid expansion like a careful negotiation between expansion and non-expansion states. The plan freezes funding for the Medicaid expansion in 2020, after which point states will simply receive regular federal matching dollars for new enrollees, not the generous expansion match rate.
And the plan would convert Medicaid funding to a per-capita allotment for states, which represents a middle ground between the status quo and full-freedom block grants. This cost-control measure would put a per-enrollee limit on federal payments to states for Medicaid expenses.
When scored, the Republican plan likely won’t cover as many Americans as the ACA. It’s hard to compete with a piece of legislation that forced Americans to buy insurance or pay a penalty. But this shouldn’t trouble Republicans, or Americans who may support the effort. After all, as we’ve found out with the ACA, “coverage” doesn’t always mean access to care. Care should always be the focus of health policy.
The Republican legislation under discussion this week represents an acknowledgement of the tough political realities facing the repeal and replacement of ObamaCare.
It’s certainly not the most conservative or ambitious plan Republicans could propose, but that won’t stop Democrats from attacking it. Nevertheless, it’s a reasonable, thoughtful plan that includes many good ideas, and it’s worth strong consideration.
Hadley Heath Manning is the director of health policy for the Independent Women's Forum. Her work has been featured in The Wall Street Journal, Forbes, POLITICO, Roll Call, Real Clear Policy, National Review Online, and Huffington Post, among others. Manning is also the Tony Blankley Fellow at the Steamboat Institute.