After the recent election, virtually all commentators quickly concluded that the Affordable Care Act (Obamacare) is safe; Republicans are powerless to stop it.
The trouble is: Obamacare is a deeply flawed law. Here are five essential changes that could fix it:
First, subsidize all insurance the same way. The way government currently subsidizes health insurance is arbitrary and unfair. Employees with employer-provided insurance get that benefit tax free. There is almost no subsidy, however, for people who must purchase insurance on their own.
Under Obamacare the subsidies become even more arbitrary. Although the new law creates generous tax credits for low- and moderate-income families who buy insurance through the newly created insurance exchanges, the subsidy in an exchange can be as much as $12,000 higher than the same family would get if they received the exact same insurance through an employer.
This is why many companies are considering changing the employment status of their low-wage employees from full time to part time – so they can escape the requirement to provide insurance, while making their employees eligible for subsidized insurance from an exchange.
For higher-income employees, the arbitrariness goes in the opposite direction. They get the current law’s generous tax subsidies through their jobs, but no subsidy in the exchange.
All insurance should get the same tax relief, regardless of where it is obtained.
Second, make the subsidy a fixed sum “tax credit.” Under the current system, there is no limit on how much health insurance we can receive through an employer with untaxed dollars. Most of us get insurance because we want protection against very large medical expenses. But once we have that we face a perverse incentive to get additional _ even wasteful _ coverage because Uncle Sam is subsidizing the extra premium.
Obamacare leaves these incentives in place and creates similar incentives in the exchanges.
There is a better way. Make the subsidy a fixed amount, funded through a tax credit _ that is, a dollar-for-dollar reduction in your tax bill. For example, offer a $2,500 credit against the first $2,500 of health insurance premiums. For a family of four, the credit would be about $8,000. These credits would be “refundable,” a technical term meaning people would get the subsidy even if they owe no income taxes.
Third: Create and fund a safety net option. Under Obamacare, 30 million people are expected to remain uninsured. What happens to them?
If people turn down the offer of a tax credit, make that credit available to safety net institutions that provide care to people without insurance. If people can’t pay their medical bills, these funds would be there as a backstop. Under this arrangement, money follows people.
Fourth, don’t let people “game” the system. Obamacare has a requirement (a mandate) to obtain health insurance, enforced with a fine. However, the fines are small compared to insurance costs. There isn’t much the IRS can do to enforce the mandate, so the agency has announced that it has no plans to vigorously enforce it.
This will leave individuals with strong incentives to game the system by remaining uninsured while they’re healthy, obtain insurance after they get sick, and drop coverage after the medical bills are paid and they’re healthy again. If large numbers of people do this, insurance will become prohibitively expensive.
The answer here is to give people a one-time opportunity to obtain insurance on a guaranteed issue basis, regardless of their health conditions. If they turn down the offer and apply later, insurers would be able to consider their medical condition and charge them a higher premium that reflects the full expected cost of their care.
Finally: Get rid of the mandate.
With the first four fixes in place, there’s no need for a mandate. Instead, there will be a strong financial incentive to obtain health insurance. Government offers everyone a generous subsidy to buy health insurance in the form of lower taxes. If they turn down the subsidy, they pay higher taxes.
That’s not different in principle from the current system, except that the reforms suggested here would make that arrangement fairer and more rational.
John C. Goodman is president of the National Center for Policy Analysis in Dallas and a research fellow with the Independent Institute, 100 Swan Way, Oakland, Calif. 94621 (www.independent.org), and author, most recently, of “Priceless: Curing the Healthcare Crisis.”