Published January 30, 2014
The introduction of an Obamacare replacement plan by Republican senators Richard Burr (N.C.), Tom Coburn (Okla.), and Orrin Hatch (Utah) has given Obamacare’s apologists — who admittedly have had very tough duty over the past four years — a rare opportunity to get out of their defensive crouches and go on the attack. Not surprisingly, fast out of the gate has been Ezekiel Emanuel, who has a piece up at the New York Times website claiming that the fatal flaw of the Republican senators’ plan is that it would raise taxes on millions of American households.
There are a couple of problems with Emanuel’s analysis. The first is not Emanuel’s fault: He based his assessment of the tax consequences on an imprecise description of the tax policy in the original write-up of the plan. That description said an upper limit would be placed on the tax preference for employer-paid health premiums at 65 percent of the average employer plan. But the policy the senators have actually adopted, as explained in a clarification, would place the upper limit at 65 percent of the cost of a very high-cost employer plan. In Obamacare terms, think of the fully loaded benefit package with very low cost-sharing. Setting the upper limit at this level would mean most employer plans would fall well below the cap, and only a relatively small percentage of the work force would see any changes in job-based coverage. Those who today have expensive employer plans that would be over the upper limit would see adjustments, of course, such as higher deductibles; but those adjustments wouldn’t take away their employer plans but would only bring them more in line with the coverage an average worker experiences.
The other major problem with Emanuel’s analysis is that he conveniently excludes Obamacare from the assessment. That’s right: In a comparison of the relative tax burdens of Obamacare and a competing Republican plan, he looks at the supposed taxes in the Republican plan, but none of the tax hikes in Obamacare. That might be okay, if the Republican plan sought to impose new taxes on top of the ones imposed by Obamacare. But that’s not the Republican plan. The three senators made it very clear that their plan would repeal the entirety of the Obamacare tax hikes. That, by itself, would represent one of the largest tax cuts in American history. When Obamacare was enacted, the Congressional Budget Office (CBO) estimated the net Obamacare tax hike at $525 billion over a decade. The estimate now is that the total tax hike will be around $1 trillion over the next ten years. Senators Burr, Coburn, and Hatch would wipe this entire tax increase off the books.
Emanuel and others also like to argue that Obamacare’s taxes don’t hit the middle class. That is false. For starters, the Obama plan includes the so-called Cadillac tax: a new excise tax, to begin in 2018, on all insurance plans with premiums exceeding a certain threshold. This tax is supposed to serve the same purpose as the upper limit on the tax preference in the Republican plan, which is to say it is supposed to inject an incentive for cost discipline into the design and selection of employer-provided insurance. It is odd that Emanuel does not even acknowledge that this tax is imposed by Obamacare, as he goes about criticizing the plan from the Republican senators. Perhaps one reason he ignores this tax is that he realizes that it is irrationally designed: It would impose a uniform excise tax on all insurance premiums above the statutory threshold. Excise taxes are more regressive than income taxes. Insurers and employers could adjust and raise deductibles and engage in other forms of cost-sharing to avoid the tax, but the possibility remains that some insurance plans won’t avoid the tax — and will pass it on equally to the enrollees in the form of premium surcharges.
Emanuel also skips by the burdens associated with Obamacare’s other major taxes — those on insurance premiums, on the manufacture of prescription drugs and medical devices, and, of course, on the employers and individuals who choose to pay the taxes instead of offering or enrolling in Obamacare-compliant coverage. Who does Emanuel think will pay all of these taxes?
The truth is that the Burr-Coburn-Hatch plan would provide substantial net tax relief to the American people. All of Obamacare’s tax hikes would be repealed, and only a fraction of the work force would be affected by the upper limit on the tax preference for employer-paid premiums. When this plan is scored, it would not be surprising to see that it provides hundreds of billions of dollars in net tax relief over the coming decade.
Obamacare’s defenders may try to defend its massive tax hikes by arguing that Obamacare will cover more people than the plan of the Republican senators. That’s not likely to be true either. As the disastrous rollout has demonstrated, the widespread enrollment in Obamacare insurance is not a foregone conclusion. CBO projected last year that Obamacare would reduce the ranks of the uninsured by 14 million people in 2014. That target is very unlikely to be met, as the vast majority of enrollees so far have been people who were previously covered with insurance. In other words, Obamacare is largely crowding out coverage that already existed. The Burr-Coburn-Hatch plan has a far better chance of attracting the uninsured, because it doesn’t impose expensive benefit mandates and because it attaches to continuous insurance enrollment a new right that protects enrollees from future rate hikes based on their health status. Ironically, Obamacare makes insurance a less attractive product, by allowing consumers to enroll in coverage at any time without penalty.
Polls show that, as Obamacare has been implemented, it has become even less popular. Voters are getting a good look at the law’s implications, and they don’t like what they see. The Burr-Coburn-Hatch plan provides a full escape hatch. It would begin to address the very real problems in American health care that predate Obamacare, including insecure insurance and ineffective cost discipline. But it would address these problems without the baggage of Obamacare. Taxes would be lower, not higher, as would government spending. And the Department of Health and Human Services wouldn’t have the authority to make decisions about coverage for every American citizen.
In short, the Burr-Coburn-Hatch plan beats Obamacare on every metric that matters with the public — which means the plan is likely, over time, to have something like the opposite experience of Obamacare. The more people understand it and how it will work, the more they will like it. Especially when compared with the alternative.
James C. Capretta is a senior fellow at the Ethics and Public Policy Center and a visiting fellow at the American Enterprise Institute.