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Must-Read Memo on GOP Health Proposal

11:09 AM, Jan 27, 2014 • By WILLIAM KRISTOL
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2017 Project executive director (and frequent TWS contributor) Jeff Anderson has an important memo outlining the new health care reform proposal from three senior Republican senators that would repeal Obamacare and replace it with legislation that "beats Obamacare in every particular" and would also "address many of the most serious shortcomings of the pre-Obamacare status quo."  You can read Anderson's memo in full, below. There's been a lot of talk in magazines and from think tanks about a "conservative reform agenda"—and some laments as to the slowness of GOP elected officials to champion such an agenda. This proposal could mark an important moment in the dam of timidity and resistance breaking, and could prove to be an important inflection point in the GOP's effort to become by 2016 a national governing party.

MEMORANDUM

TO: Interested Parties
FROM: Executive Director Jeffrey Anderson
SUBJECT: Senators’ Obamacare Alternative

Polling on Obamacare in the New Year has been grisly. Six major polls have been taken, and all six have shown Obamacare to be facing at least a 15-point public-approval deficit, while Fox News’ polling indicates that independents are now aligned against it by a margin of more than 2-to-1 (29 percent approving, 64 percent opposed). In light of this, President Obama was no doubt looking forward to using his State of the Union address on Tuesday night—with all of the pomp and circumstance it affords—to offer up his favorite defense of his namesake: Well, at least it’s better than the nonexistent Republican alternative. Unfortunately for Obama, three senior Republican senators are releasing an alternative today that beats Obamacare in every particular.  

To be sure, that may seem like a low bar to clear (and, indeed, it is). Still, this is a noteworthy effort from Republicans and a welcome development in the crucial quest to bring about Obamacare’s full repeal. It is particularly good, moreover, to see such a proposal emanating from the Senate, whose Republican members have previously acted almost as if their marching orders have been to avoid offering any indication of what conservative health-care reform would look like.  

The proposal, which will be released later today by Senators Tom Coburn (Okla.), Richard Burr (N.C.), and Orrin Hatch (Utah), would repeal Obamacare and address many of the most serious shortcomings of the pre-Obamacare status quo. Here are some of the proposal’s best features:

It wisely offers a tax credit to help end the tax code’s unfair treatment of health insurance purchased in the individual market. Like an upcoming alternative that will soon be released by the 2017 Project, it also makes those tax credits age-based. This is a feature that has previously been lacking in GOP proposals, but it’s an important one. Obamacare artificially hikes the cost of health care for the young, but in the real world—the world in which Obama, Kathleen Sebelius, and congressional Democrats don’t get to set the prices—actuarial tables suggest that those in their 20s should be able to get health insurance for roughly a sixth the price of those in their 60s. To avoid their being unduly skimpy or excessively costly, tax credits should reflect that reality.  

The senators’ proposal nicely blends considerations of policy and those of simplicity on this point, having three levels of tax credits: $1,560 for those under 35 ($3,400 for a family), $2,530 for those between 35 and 50 ($6,610 for a family), and $3,720 for those who are 50 or over ($8,810 for a family).  

Their proposal is also quite strong in how it deals with the sticky problem of preexisting conditions. Following the general framework advocated by James Capretta, Tom Miller, and others, it would enable those who have remained continually insured (those who have remained insured for something on the order of 18 months without a significant break in coverage) to move seamlessly from the employer-based market to the individual market—without being subject to the underwriting process and the higher prices (or outright rejections) for preexisting conditions that can result. It would also provide meaningful federal funding for state-run “high risk” pools, through which anyone could get partially subsidized coverage and couldn’t be turned away on the basis of a preexisting condition.

The proposal is also well-conceived in what it wisely doesn’t contain. It doesn’t end, or replace, the tax break for employer-sponsored insurance (although, importantly, it does stop that tax break from being an open-ended invitation to spend ever-more money on health care, tax-free). And it doesn’t deal with Medicare reform. (An Obamacare alternative isn’t the place for that.)  

The president’s supporters will surely claim that this proposal wouldn’t result in as many people being insured as under Obamacare. Of course, the Congressional Budget Office had already projected that 31 million people would remain uninsured under Obamacare even before people started finding out firsthand that, just because they liked their health plan, that didn’t necessarily mean they’d get to keep their health plan (or their doctor). (Remember the CBO’s number when Obama brazenly, but predictably, claims again tomorrow that Obamacare provides “universal coverage.”) To be sure, when a president spearheads legislation that, for the first time in United States history, compels private American citizens to buy a product or service of the federal government’s choosing, one would expect that more people would buy that product.  But it seems safe to say that the Coburn-Burr-Hatch proposal would result in more people freely choosing to purchase insurance than would occur under Obamacare’s architecture of coercion.

That’s not to say that the senators’ proposal is without weaknesses. Indeed, it has two major ones. First, somewhat ignoring Americans’ backlash against Obamacare’s individual mandate, it calls for states to auto-enroll private citizens in insurance plans if they “fail to make an affirmative choice in choosing a plan” (to quote their language)—and to use federal (taxpayer) money to do so. Their proposal stipulates that those who were auto-enrolled could always opt out, but is this really a level of taxpayer-funded paternalism that Republicans want to endorse?

Second, the proposal’s tax credits follow the lead of Obamacare’s subsidies in ignoring the middle class, and thereby fail to take advantage of one of Obamacare’s prime political weaknesses. Under the senators’ proposal, if a single person makes $25,000 annually, he or she wouldn’t get the full tax credit. With an income over about $35,000, he or she wouldn’t get the tax credit at all. Means-testing the credit in this way hardly equalizes the tax code’s treatment of employer-based and individual-market plans.

But even here there is cause for optimism. Before this proposal, the last serious Republican alternative to Obamacare was the Republican Study Committee’s proposal, released last fall.  In addition to taking the politically perilous path of ending (and replacing) the employer-based tax break, the RSC proposal didn’t offer a tax credit but rather a deduction, which (despite the deduction’s rather clever design) would have given too much of a tax break to Americans in the upper half of the income spectrum and not enough to those in the lower half. As a result, the RSC’s proposal wouldn’t have led to enough people getting, or maintaining, insurance—even though a key element in bringing about the full repeal of Obamacare involves offering an alternative that would result in major increases in the number of people with insurance in relation to the pre-Obamacare status quo. So, the Coburn-Burr-Hatch tax credit would disproportionately benefit those with lower incomes. The RSC’s deduction would disproportionately benefits those with higher incomes. The sweet spot, which future proposals like the 2017 Project’s soon-to-be-released alternative will aim to hit, lies in between these two proposals. In other words, Republicans/conservatives are starting to zero in on the target. If they can hit it, Obamacare will fall.

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