The Blog

Hitting the Political Sweet Spot on an Obamacare Alternative

2:50 PM, Jun 5, 2014 • By JAMES C. CAPRETTA and JEFFREY H. ANDERSON
Widget tooltip
Single Page Print Larger Text Smaller Text Alerts
Obama doctors

Over at Forbes, Peter Ferrara has written an interesting assessment of the state of the debate among conservatives on how to advance an alternative to Obamacare that will lead to its repeal.  His analysis gets many things right.  Most especially, he is right that it will not be possible to move away from Obamacare without a viable plan to replace it — and not just any replacement plan will do the trick.  A politically viable alternative must substantially increase insurance coverage versus the pre-Obamacare status quo while also providing real solutions for persons with expensive pre-existing health conditions — doing so, of course, without the heavy-handed mandates and regulations of Obamacare.  Plans that fall short of these objectives will be successfully attacked as inadequate.  Most Americans rightly believe that a return to the pre-Obamacare status quo would not be satisfactory because health care in the United States desperately needs real reform.  What they don’t want is the massive government takeover of American medicine that Obamacare represents.

Ferrara is also right, as he has been for a long time, that moving to a real marketplace in U.S. health care will require some change in the tax treatment of health insurance.  Today’s tax law provides generous subsidization of employer-sponsored insurance plans, but nothing equivalent for persons who must buy insurance on their own.  This unbalanced treatment is the source of many problems.  First, it has fostered an over-reliance on employer plans, to the point that the market for individual coverage is far less robust than it could, and should, be.  Second, reliance on job-based insurance disrupts the continuity of insurance coverage, as workers must switch insurance when they switch jobs.  Third, until the enactment of Obamacare, the tax preference for employer plans had been without an upper limit and therefore encouraged overly expensive employer plans and provided a disincentive to pursue cost-effective care. 

An effective reform would rationalize this tax treatment to ensure all Americans are treated fairly and can get insurance that protects them financially, while not discouraging cost-conscious consumption.  For all of its expense and coercion, Obamacare does not address the first two of these concerns — at least for the middle class.  The Obamacare “Cadillac” tax (which isn’t slated to go into effect until January 2018, a year after President Obama leaves office) addresses the third concern, but it does so with an irrationally designed penalty on expensive employer insurance plans that would hit anyone on such plans with a 40 percent excise tax, whether that person be the company’s janitor or its CEO. 

Most conservatives agree on the problems and the need for a politically viable solution.  But there continues to be debate over exactly how to proceed.

Where Ferrara misses the mark is in arguing that his favored approach — full replacement of today’s tax preference for employer-paid premiums with a universal, refundable tax credit that all U.S. households would receive — would be more politically viable than the alternative we favor.  Our approach, reflected in the 2017 Project’s health reform plan, would provide a fixed, refundable tax credit to households without access to stable employer coverage but would generally leave in place the tax preference for job-based insurance.  The only change for employer plans would be to replace the Obamacare Cadillac tax with a more rational cap on the tax break for such plans.

Why do we approach the problem this way?  Because there is very little to be gained by disrupting the insurance arrangements of the 160 million or so Americans who are enrolled in job-based coverage and basically like what they have.  It is far better to provide a tax credit for those outside this system that is comparable to the tax break for employer plans, and then replace the Cadillac tax under Obamacare with a rational and not overly constraining upper limit on the tax break that employer plans can enjoy.

Recent Blog Posts

The Weekly Standard Archives

Browse 18 Years of the Weekly Standard

Old covers