The Supreme Court’s decision to hear arguments in King v. Burwell next year poses an enormous danger to ObamaCare, but it also presents an urgent challenge to the law’s opponents. The outcome might result in many thousands of residents in more than half the states being unable to afford health insurance. The next Congress must be ready to respond with a consumer-oriented health reform. That means preparing now.
The issue in the case is that the Affordable Care Act makes subsidies available for individuals to buy health insurance through exchanges “established by the states.” But 36 states have not established exchanges of their own and rely instead on the federal healthcare.gov portal. The plaintiffs assert that the IRS has no authority under the law as written to provide subsidies to residents of states with no state exchange.
If the court agrees, about four million individuals who are currently receiving these subsidies would lose them. For these people, the highly regulated and expensive coverage mandated by the law’s insurance rules might not be affordable. Governors and legislators in those 36 states that declined to set up exchanges may confront intense pressure to quickly restore access to subsidies.
In essence, if the court rules today’s subsidies illegal, those state officials could face a choice between creating a state exchange (and so reinforcing ObamaCare) or seeing some residents lose coverage they now have. ObamaCare’s opponents in Congress should give them a third option: a viable alternative to the Affordable Care Act.
The first step is to introduce legislation that would allow any state to opt out of all of ObamaCare’s mandates, regulations, taxes and requirements, and instead opt into a far simpler and more flexible alternative system. In that system, state residents not offered health coverage by their employers could receive a federally funded, age-based credit for the purchase of any state-approved health-insurance product—including those bought outside of any exchange and regardless of whether they meet ObamaCare’s coverage requirements.
Anyone who remains continuously insured in this system would be shielded from higher premiums or exclusions from coverage based on an existing condition. This would give consumers a strong incentive to buy coverage without a mandate to do so. All other insurance regulation, however, would happen at the state level.
States that opt for this approach would also be permitted to transform their Medicaid programs into premium-support systems for lower-income households. These would function as add-ons to the credit and allow eligible residents to buy the same kind of coverage everyone else can purchase.
The credit could be large enough to allow anyone to purchase at least catastrophic coverage—enabling the uninsured to be covered and everyone to be protected from the most extreme health expenses. Alternatively, it could be used to supplement the purchase of more comprehensive coverage. In essence, the credit would extend to everyone else the same benefit that many people have long received in the employer system. It would do so without disrupting the employer system, the coverage most Americans have.
To further minimize dislocation, Congress could allow today’s ObamaCare subsidies to continue to flow through the end of 2015, when the new system would gradually take effect. This would be an optional version of the kind of reform that conservatives have suggested as an alternative to the Affordable Care Act—allowing that approach to take effect incrementally in the states that most desire it and enabling it to be tested and strengthened in preparation for a full replacement of ObamaCare after the 2016 election. It would show voters that a better system is possible—and at a far lower cost—without ObamaCare’s punishing taxes, burdensome mandates and inept micromanagement.
President Obama will be hostile to any such reform from congressional Republicans. Still, the circumstances following a decision for the plaintiffs in King could force him to work with Congress and accept a reopening of the law. Regardless of how the case is decided, it is far better that Republicans get accustomed to arguing for their kind of health reform and show the public that the GOP has a concrete alternative to offer.
Mr. Levin is the editor of National Affairs and a fellow at the Ethics and Public Policy Center. Mr. Capretta is a fellow at the EPPC and a visiting fellow at the American Enterprise Institute.