The Magazine

The Obamacare Opportunity

An opening for a genuine alternative.

May 5, 2014, Vol. 19, No. 32 • By JAMES C. CAPRETTA and YUVAL LEVIN
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Recent polls demonstrate just how receptive the public would be to such a message, and just how much Republicans need one. In one mid-March poll by McLaughlin and Associates, for instance, only 32 percent of respondents said they wanted Obamacare to remain on the books. But when asked whether they would simply like to see it repealed or to see it repealed and replaced with a conservative alternative that aims to lower health costs and help people get coverage, only 16 percent chose repeal alone, while 44 percent (including 60 percent of Republican respondents, 43 percent of independents, and 31 percent of Democrats) chose repeal followed by a conservative alternative.

The good news is that a plan capable of galvanizing a strong center-right coalition has come into much clearer focus in recent months. The principles that need to drive reform are widely accepted among the law’s opponents: promotion of a genuine, functioning marketplace for health insurance and health services; avoidance of undue disruption of pre-Obamacare insurance arrangements; a flexible and decentralized regulatory structure that encourages innovation in service delivery; state autonomy and flexibility; access for all Americans to affordable insurance that protects them from catastrophic medical expenses; and secure insurance for those with preexisting medical conditions. Simply put, to bring costs under control and thereby make coverage more widely available, the system needs a much greater market orientation, not more government control.

Several plans introduced in recent months by opponents of Obamacare—inside and outside of Congress—adhere to these principles in different ways. But the plans with the greatest potential (in terms of both policy and politics) are those sponsored by Republican senators Richard Burr, Tom Coburn, and Orrin Hatch and the separate plan drafted by the 2017 Project, a nonprofit advocacy organization dedicated to promoting a conservative reform agenda.

These plans stand out because they embrace a realistic and practical approach to replacing Obamacare. Most important, they provide access to secure health coverage to all Americans without disrupting the employer-based health insurance system. They do this by embracing a tax credit for insurance for any household that does not have access to an employer-financed health plan. This is a matter of simple fairness. The tax subsidy for employer-paid insurance is very generous, but no such subsidy exists for persons buying insurance on their own. A credit would make available to low- and moderate-wage households who must buy coverage on their own a tax benefit comparable to the one for employer plans.

There are 160 million people in employer-based coverage in the United States, and the vast majority are happy with that coverage. No replacement plan will be viable if it looks likely to disrupt these people’s arrangements unnecessarily. The Republican senators’ plan, as well as the one proposed by the 2017 Project, would leave them in place but with a high upper limit on the tax preference, which would both encourage economizing among the most expensive employer plans and help to fund the tax credit for those outside the employer system.

Such an approach would avoid the two pitfalls that have proven most problematic for conservative health-reform proposals in the past. It would demonstrate that market-based health reform can both help the uninsured get covered and avoid massive disruptions in people’s existing arrangements without heavy-handed mandates, taxes, and regulations. And it would do so by giving the government less control of American health care, rather than more, and so moving our system well to the right of where it was before Obamacare.

Some conservatives resist this approach, believing the tax credits too closely resemble an entitlement expansion or that such reform is insufficiently bold because it would leave in place the tax benefit that ties insurance to employment. But both concerns are off the mark.

A tax credit would not create a new federal subsidy for coverage but rather make an existing one more fair and effective: It would extend to everyone else the benefit that today’s tax laws make available only to families with employer-based coverage. It is not possible to make that benefit available to lower-wage households (and therefore to help make them consumers of health coverage) without such an approach—these households do not pay enough taxes to benefit materially from an alternative tax break, such as a deduction.

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