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Eliminating that tax preference, which since World War II has allowed employers to purchase health coverage for employees on a tax advantaged basis, would actually result in a substantial tax cut, Cannon argues counter-intuitively. If employers cashed out the amount they now pay for health insurance, workers with family coverage would see an average compensation increase of $11,000. The trick would be to replace that tax preference with the creation of very large health savings accounts-tax-free savings that could be applied toward health purchases. Versions of these accounts exist today, but they are capped at $3,300 for individual coverage and $6,550 for families; Cannon's proposal would dramatically increase the cap, perhaps tripling it, and in the process free thousands in individual income both from taxation and from employer control. The result would be to simultaneously give individuals control of thousands of dollars in compensation now tied up in employer health benefits, while eliminating the government-granted financial advantage of employer-provided coverage. Individuals, and not their employment status, would then dictate health insurance coverage.
Other proposals focus on eliminating the employer-provided tax advantage by introducing a broad-based system of tax credits. An idea outlined by John Goodman and Peter Ferrara of the National Center for Public Policy Analysis would provide uniform tax credits for the purchase of health insurance to every individual, regardless of employment status or income. In addition to breaking up the employer system, that idea would also reduce its inequities: Today, the highest earners tend to get the biggest health care tax advantages. A uniform credit would make the system blind to income.
The advantage that the tax system confers on employer-sponsored coverage is in many ways the original sin of American health policy, since it creates a huge incentive to get coverage through work. But job-based coverage is not portable, which upends the incentive to create policies that can be bought at an early age and stuck with for life. And because coverage is a tax-advantaged portion of an employee's compensation package, there is an additional incentive to buy more expensive and expansive coverage than might otherwise be the case.
Unlike Obamacare, which sought to pre-serve the employer-sponsored system, most every recent right-of-center health policy proposal of significance has sought to either eliminate it or mitigate its distortionary effects. Former Bush administration health official James Capretta, for example, has proposed converting the employer tax break into a standard deduction.
But overhauling the employer-based system means that if you like your current health plan, you probably won't be able to keep it, a state of affairs that has battered the approval ratings of President Obama and his signature legislative achievement. Since Republicans' single most politically effective critique of Obamacare has been pointing out the president's phony you-can-keep-it promise, they are further tethering themselves to the health care status quo. In November, the House GOP successfully passed the "Keep Your Health Plan Act," garnering 39 Democratic votes in the process. Republicans were never particularly enamored with upsetting the health care status quo, and now they are all but duty-bound to preserve it.
GOP legislators got into this position in part because they lagged behind conservative policy wonks. "In terms of proposing something," says Yuval Levin, another former Bush health official who now edits the influential conservative policy journal National Affairs, "there's been for a while a pretty clear outline of what a Republican alternative would look like." It's just that this outline has not yet translated into concrete legislative proposals, Levin argues. "There's not been a huge desire on the Hill to get very specific about it."
Big Changes, Big Risks
Rep. Tom Price (R-Ga.) is a rarity on Capitol Hill-an elected Republican who not only talks about the need to replace Obamacare but has put forth a detailed legislative proposal to do so. "Just saying that Obamacare is bad isn't enough," he tells me.
Price's plan, a 250-page bill dubbed the Empowering Patients First Act, was originally drawn up in 2009 in conjunction with the conservative Republican Study Committee. It too relies heavily on tax-system reform: After repealing Obamacare, it would facilitate health coverage through a multilayer system of deductions combined with both refundable and advanceable tax credits, create short-term purchasing pools for individuals with pre-existing conditions, and attempt to ward off waste by reducing the need for doctors to engage in defensive medicine. In the past, Republicans have pushed for reforms that cap non-economic damages in malpractice lawsuits; Price's plan avoids caps and would instead offer legal protection to doctors whose medical treatments were consistent with federally approved best practices. In December 2013, an analysis by former Congressional Budget Office director Douglas Holtz-Eakin projected that the plan would result in $2.3 trillion in federal savings over a decade.
Rethinking the health care system has long been a priority for Price, an orthopedic surgeon. When he first came to Congress, he says, "there were people nipping at the sides and margins of health care to try to fix the challenges that we have, but no one was addressing the big picture." His goal was to develop a comprehensive alternative. "The reason why comprehensive is important is because the system has been so tinkered and so flawed for so long that the financing and delivery of health care no longer works." The American health care system has a mixture of high quality care, exorbitantly high costs, and too many individuals without insurance, he says. "That's the fault of the system."
But with all the moving parts, changing that system isn't easy. "Health care is complex," Price says. "Most individuals kind of have their topline talking points. But if they're asked any questions beneath that veneer about the practicality or logistics of providing care and the consequences of whatever system you're recommending, it becomes very difficult to answer any of those questions in a normal talking-points kind of language." Agreeing to complex specifics, and finding acceptable ways to talk about them, is a problem that affects policy makers in both major parties, he says. "Once you drill down a little bit, people become a bit uncomfortable."
GOP staffers on Capitol Hill say that the replace effort Republican leadership promised back in 2011 became bogged down in part because too many members didn't feel comfortable supporting anything their policy staffers proposed. Reforms required changes to the current health and tax systems-the bigger the reforms, the bigger the changes. And Republicans, particularly those who came to office in 2010, understood all too well that changing the existing health system entails significant political risk.
"There's been a lot less policy entrepreneurship amongst Republicans" than in the past, says Levin. GOP legislators used to be more willing to propose legislation, make a case for it, and then wait for reactions to come in to see if an idea had staying power. That sort of leadership "just doesn't happen anymore," he says. Now, the policy conversation "happens at the staff level. Some of the ideas are discussed. There's a meeting. Some people say 'I don't like that.' And nothing happens."
The political scandals of the past year don't make it any easier for Republicans to rally around a plan. One Republican policy aide notes that changing the tax code, which is at the core of so many conservative reform plans, presents a potentially thorny messaging problem for a party that has spent months attacking the Internal Revenue Service as politically biased because of unusual audits conducted on Tea Party groups. The IRS, he argues, is now viewed as so unfair, incompetent, and biased that conservatives would resist any program that relies on it to implement complex reforms.
And Obamacare's disastrous fall launch complicates the picture even further, souring politician and voter alike on grand policy schemes. Several Republican aides say that negative public reaction to Obamacare's size and scope has made party leaders less interested in pursuing a large-scale reform plan of their own. "There's certainly some resistance, especially among conservative voters, to any big bill, and it's understandable that they share it," says Levin. "I think an alternative wouldn't have to be the kind of big bill that Obamacare is."