Replacing Obamacare Saves a Lot of Money

Published September 19, 2014

National Review Online

Supporters of the Obama administration like to create the impression that there is no viable alternative to the Affordable Care Act — i.e., Obamacare. But that is demonstrably not true. Republican senators Richard Burr, Tom Coburn, and Orrin Hatch introduced a plan earlier this year that would cover just as many people with insurance as Obamacare at a fraction of the cost.

Now we have confirmation, in the form of a new cost estimate, that a similarly constructed but slightly different proposal would also cost less, while covering nearly the same number of people.

The plan, developed and promoted by the 2017 Projecta group dedicated to developing a conservative reform agenda — shares several key features with Burr-Coburn-Hatch:

  • It repeals the ACA.
  • It leaves in place the employer-sponsored system of coverage through which the vast majority of working Americans and their families get insurance today.
  • It would provide new “continuous coverage” protection for people who stay enrolled in health insurance. They could move from employer coverage to the individual market, and vice versa, without their health status factoring into the premiums they owe. Their preexisting medical conditions would also have to be covered by insurance plans, and they couldn’t be denied coverage by an insurer based on their health status.
  • It provides new federal funding for high-risk pools, aimed at ensuring affordable options for persons with expensive conditions and minimizing the premium effects of more high-cost patients entering the individual insurance market.
  • It provides new, age-adjusted tax credits for persons who do not get their health insurance through an employer. Workers in firms with 50 or fewer employees could opt for the credit in lieu of tax-exempt employer-paid premiums.
  • It places an upper limit on the tax preference for employer-paid premiums, pegged initially to a premium level exceeded by 25 percent of employer plans.
  • It allows participants in the Medicaid program to get the tax credits and thus enroll in the same private insurance plans available to others in the individual insurance market.

The 2017 Project plan is not identical to Burr-Coburn-Hatch, however. There are important differences between the two plans:

  • The 2017 Project plan repeals the entirety of the ACA, including the law’s Medicare cuts. Burr-Coburn-Hatch would leave those cuts in place, pending consideration of broader Medicare reform in separate legislation.
  • Burr-Coburn-Hatch phases out the age-adjusted tax credits for households with incomes above 300 percent of the federal poverty line. The 2017 Project plan has no such phase-out and provides the tax credits to all households without access to employer-sponsored insurance.
  • The 2017 Project proposal provides a one-time payment of $1,000 to persons enrolled in Health Savings Accounts (HSAs), while also doubling the contribution limits to the accounts.

The new cost estimate of the 2017 Project plan — produced by the Center on Health and the Economy (H&E) — demonstrates that a genuine, market-based approach to reform would be a vast improvement over the ACA:

  • The availability of the age-adjusted tax credits and the new insurance rules would ensure that all Americans would have access to an affordable insurance plan. H&E estimates that the 2017 Project plan would dramatically reduce the uninsured rate compared to the pre-ACA status quo, such that there would be 44 million uninsured in 2023 (down from 57 million in the Congressional Budget Office’s baseline).
  • Premiums would fall across the board compared with the ACA. For instance, the premiums for high-deductible insurance for a single person would fall, on average, by 15 percent in 2023 compared with what they would be under the ACA.
  • Americans would experience improved access to care because fewer people would be enrolled in Medicaid and Medicaid-like insurance plans that physicians avoid because of their low reimbursement rates. The health system would also become more productive because of more intense competition and consumer choice.
  • The 2017 Project plan would cut taxes, spending, and future deficits. The H&E projection shows the plan would cost about $1.1 trillion less than the ACA over a decade. Much, but not all, of the reduced cost of the plan would be offset by eliminating the ACA’s tax hikes and Medicare cuts too. The 2017 Project plan would produce substantial additional deficit reduction from an across-the-board budget cut that was not included in the H&E estimate.

A potential criticism of the 2017 Project plan is that it would cover 6 million fewer people with insurance in 2023 compared with the ACA. That gap could probably be closed if the plan included a “default enrollment” provision similar to what is included in Burr-Coburn-Hatch. The 2017 Project plan provides a tax credit to every household without access to an employer plan, but the H&E estimate is assuming that millions of these households will decline to use the credit to buy any kind of health-insurance product.

Burr-Coburn-Hatch addressed this issue by giving states the option to place tax-eligible persons who do not select an insurance plan into one of a number of default insurance products. The premiums for coverage in a default plan would be set exactly equal to the premium credits; the insurers would adjust the up-front deductible as necessary to ensure that was the case. Consequently, the enrollees in default insurance plans would owe no premium themselves. The default enrollment process would ensure they would have catastrophic insurance for their major medical expenses and also that they stay continuously insured and thus avoid the penalties of trying to secure insurance after a spell without coverage.

Critics might object to this provision as intruding on the right of people to go uninsured if they want to. But no one would be required to stay in a default plan if he preferred a different option, or if he wanted to go uninsured. Moreover, inertia, not some principled objection to health insurance, is the main reason many people would neglect to use their tax credit to secure an insurance plan. Providing a default option for these households would greatly reduce the ranks of the uninsured and thus provide a ready financing mechanism for the care these households might need in an emergency.

It will not be possible to repeal the ACA without simultaneously putting in place an appealing and practical replacement plan. There’s no appetite in the public for returning to the dysfunction of the pre-ACA status quo. And with the ACA now nearing full implementation, there’s no more time to debate the merits of this or that alternative.

It’s time — long past time — for ACA opponents to begin coalescing around something that is realistic, politically and substantively. The H&E estimates make it clear that a synthesis of Burr-Coburn-Hatch and the 2017 Project would do the trick.

James C. Capretta is a senior fellow at the Ethics and Public Policy Center and a visiting fellow at the American Enterprise Institute.

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