As Bill Kristol and Jeff Anderson noted earlier today, the introduction by Republican Senators Burr, Coburn, and Hatch of an Obamacare replacement plan is an important milestone in the health care debate. This is a serious and practical replacement proposal, offered by three prominent legislators. It could easily serve as the starting point for a legislative effort, perhaps even next year if Republicans regain control of the Senate, to undo Obamacare and replace it with something far better.
This plan is well thought out substantively and politically. It would cover tens of millions of Americans with private insurance, solve the pre-existing condition problem, inject cost discipline into the marketplace, and begin the process of reforming the nation’s massive health entitlement problems. And it would do all this without unduly disrupting current insurance arrangements (including employer plans), and without the federal power grab or massive spending and taxes of Obamacare.
The plan would solve the pre-existing condition problem, which is real but not nearly as widespread as the president would like Americans to believe it is, in a manner that is something like the opposite of the Obamacare approach. The irony of Obamacare is that it makes insurance less desirable as a product by requiring insurers to sell it to anyone who comes in the door, regardless of their health status. This means consumers have far less incentive to get coverage when they are healthy because they know they can sign up when they are sick without penalty. The Obamacare solution is to try to compel enrollment through the individual mandate tax.
The Burr-Coburn-Hatch approach makes insurance attractive by attaching a new and unambiguous right to continuous insurance enrollment: anyone who stays insured will be allowed to move between insurance platforms without facing higher premiums based on their health status. This right, already operative when Americans move between employer groups, is not in place when Americans move from employer plans to the individual market (the 1996 law that smoothed the transition between employer plans was also supposed to improve the situation for transitions from job-based plans to the individual market, but it did not work for a number of reasons). Senators Burr, Coburn, and Hatch propose to clear away the current obstacles and ensure those with continuous insurance can buy a product in the individual market without facing higher premiums based on pre-existing health conditions.
They also understand that granting this right will likely drive up costs in the near term, as some people who have felt compelled to stay in the employer system to keep their insurance would exit for the individual market because of this new protection. To keep costs down, state high risk pools, with additional federal funding, would help stabilize premiums during a transition period.
The Burr-Coburn-Hatch reform also deftly handles the issue of the tax preference for employer coverage. Proponents of a market-based solution for American health care have long pointed to this tax preference as a major distortion in the marketplace. And that criticism is of course accurate. But it is unwise to propose abandoning the tax preference altogether in favor of a universal credit, as Senator McCain did in the 2008 presidential race. Such a move would be perceived today, as it was in 2008, as disrupting coverage for tens of millions of people who are perfectly satisfied with their existing employer plans.
The three senators have proposed a far more sensible approach this time around. They would leave the employer tax preference in place, and thus not displace any of the stable employer plans in force today. The only change would be to put a reasonable upper limit on the tax preference, to encourage employers and workers to select cost effective coverage.
The Senators then provide a refundable tax credit to anyone who works in a small firm or who doesn’t have access to employer coverage at all with incomes between 100 and 300 percent of the federal poverty line. This ensures that everyone who is uninsured and low income today will have the financial wherewithal to get insurance that, at a minimum, protects them from major medical expenses. With this credit, the Burr-Coburn-Hatch plan can rightfully be called a genuine universal coverage plan, with every American ensured of reasonable access to an insurance plan.