December 14, 2012
After the recent election, virtually all commentators quickly concluded that the Affordable Care Act (ObamaCare) is safe; Republicans are powerless to stop it. The trouble is: ObamaCare is a deeply flawed law. Here are five essential changes that could fix it, says John C. Goodman, president and CEO of the National Center for Policy Analysis, and a research fellow with the Independent Institute.
- First, subsidize all insurance the same way. The way government currently subsidizes health insurance is arbitrary and unfair. Employees with employer-provided insurance get that benefit tax free. There is almost no subsidy, however, for people who must purchase insurance on their own. Under ObamaCare the subsidies become even more arbitrary. All insurance should get the same tax relief, regardless of where it is obtained.
- Second, make the subsidy a fixed sum "tax credit" -- that is, a dollar-for-dollar reduction in your tax bill. For example, offer a $2,500 credit against the first $2,500 of health insurance premiums. For a family of four, the credit would be about $8,000. These credits would be "refundable," a technical term meaning people would get the subsidy even if they owe no income taxes.
- Third, create and fund a safety net option. If people turn down the offer of a tax credit, make that credit available to safety net institutions that provide care to people without insurance. If people can't pay their medical bills, these funds would be there as a backstop. Under this arrangement, money follows people.
- Fourth, don't let people "game" the system. Instead of a mandate to purchase health insurance, give people a one-time opportunity to obtain insurance on a guaranteed issue basis, regardless of their health conditions. If they turn down the offer and apply later, insurers would be able to consider their medical condition and charge them a higher premium that reflects the full expected cost of their care.
- Fifth, get rid of the mandate. With the first four fixes in place, there's no need for a mandate. Instead, there will be a strong financial incentive to obtain health insurance. Government offers everyone a generous subsidy to buy health insurance in the form of lower taxes. If they turn down the subsidy, they pay higher taxes.
That's not different in principle from the current system, except that the reforms suggested here would make that arrangement fairer and more rational.
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