How to Replace Obamacare

Republicans have a lot of ideas about how to replace Obamacare.


You can't swing a dead cat these days without hitting someone who has made fun of congressional Republicans for not having a plan to replace Obamacare. And the critics are right: Republicans don't have a plan. They have a whole bunch of plans. House Speaker Paul Ryan has one. Texas Sen. Ted Cruz has another. HHS nominee Tom Price not only has a plan, he has a bill: The Empowering Patients First Act. The trouble is that Republicans haven't collated all those plans into one single, omnibus proposal.

To some degree, that's their own fault. The GOP has painted itself into a corner. Republicans had a whale of a good time mocking President Obama's claims that under the Affordable Care Act, if you liked your doctor or health plan you would be able to keep them. That turned out to be untrue for millions of people, a fact that Republicans took great delight in repeating.

But repealing Obamacare also would cause millions of people to lose coverage—many more, in fact, than lost it through Obamacare's passage. The GOP might find this awkward. On the other hand, Democrats can make too much of the point. Many Americans bought insurance under duress, and might not be brokenhearted at no longer having to pay for something they didn't want in the first place.

Still, even many conservative Trump supporters might be unhappy if they lost coverage due to ACA repeal. Indeed, as the Washington Post's Catherine Rampell recently pointed out, "there's an entire subgenre of journalism" devoted to seeking out and interviewing Trump supporters who could lose their health insurance if Obamacare is repealed. (Somebody's gotta teach those rubes a lesson, apparently.)

Polls do show widespread public support for several provisions of the ACA, because—let's be fair—the law does try to address things about health care in the U.S. that Americans don't like, such as not being able to afford insurance or getting turned down because of an existing medical condition. The trouble is that Obamacare tries to solve those problems with a gargantuan law that tries to regulate the entire health-care system through central planning. Many Americans don't like that, either.

Nor should they. People need food as much as they need medical care—and yet somehow the U.S. manages to feed everybody without employer-sponsored food plans and state-run food-purchase collectives and a federal Ministry of Eating and a Center for Breakfast and Lunch Services and so forth.

The government helps the very poorest by giving them food vouchers, but Washington doesn't micromanage every grocery store and farmer's market. It's almost as if there were some kind of "invisible hand" at work.

When Republicans do get around to collating their proposals, what should they include?

The first order of business should be to fix what has been called the original sin of U.S. health care: WWII-era decisions, driven by wage and price controls, that exempted fringe benefits such as health coverage from those controls, then treated employer-provided health insurance as wage income for the purpose of collective bargaining—but not for the purpose of taxation.

This led to several harmful results: It created an incentive to expand health insurance more than necessary. It reduced the incentive for patients to price-shop for medical care. It left the self-employed at a disadvantage. And it stunted the growth of wages. (It's no coincidence that wages have stagnated as the costs of employer-provided health care have soared.) It also led to the loss of "portability": If you change jobs, you can't take your coverage with you.

To begin addressing those issues, Congress should eliminate the tax preference for employer-provided insurance and replace it with a standard income-tax deduction for health insurance from any source. To help the poor, couple it with a refundable tax credit—i.e., a subsidy.

Obamacare tries to solve the problem of pre-existing conditions the Rube Goldberg way: Make insurers cover individuals no matter what, then guard against people buying coverage only once they get sick by forcing everybody to purchase a policy through the individual mandate—an unprecedented expansion of government power.

Congress should replace that approach with a more direct one: Offer Medicaid or Medicare coverage to anybody turned down by private insurance. Or simply create a high-risk insurance pool similar to the ones that states create for problem drivers. This would protect insurance companies against the sick-customer "death spiral" and protect patients against premature death.

Another option, which would help address the portability issue, entails allowing organizations to create multi-state insurance pools. Instead of having to choose between a tax-advantaged policy offered by your employer or a tax-disadvantaged individual policy, you could choose from plans offered on a level playing field by your church, or Kiwanis, or the ACLU, or the NRA or a host of other groups.

Any change from the status quo will leave some people better off and some people worse off. That's the nature of change. But moving the U.S. away from Obamacare toward a more rational, market-oriented system would be a huge improvement. The three steps outlined above would make a good place to start.