Why Obamacare Must Be Repealed and Replaced
Beyond question, ObamaCare has failed and is leaving millions of Americans in economic distress. Republicans in Congress are striving to find solutions that will decrease health insurance costs and increase accessibility for all Americans, particularly for the 7 percent with non-group coverage (83 percent of Americans have government funded or employer sponsored insurance). Their efforts to date demonstrate that even failed entitlement programs are harder to repeal and replace than to expand and perpetuate.
Progressive Democrats want to create a government run--enormously expensive--single payer health care system to replace ObamaCare. Predictably, they choose to address the problems an expansive government program created by further expanding government. That is not the answer. The only effective way to reduce insurance costs and improve quality is through competition. With a single payer system, by definition, there would be none.
Senate Republicans have a far better alternative. Their recently revised bill would decrease government control while increasing private sector competition, substantially repealing and vastly improving ObamaCare.
First, it would effectively repeal ObamaCare by eliminating both the individual and employer mandates, ending this misguided attempt to substitute government compulsion for consumer choice.
The Senate bill would then replace these government mandates with increased private sector competition by (1) putting money in the hands of consumers to purchase health insurance through refundable tax credits (2) empowering insurers to compete for those dollars by expanding the coverage options they can offer, and (3) expanding the use of Health Savings Accounts (“HSAs”) so consumers can choose the insurance coverage that best meets their needs and competitively shop for non-insured medical expenses with pre-tax dollars. This is a rational free market based approach that will reduce health insurance costs.
Using refundable tax credits (either a tax deduction or a check) to put money in consumers’ hands effectively shifts decision making power from the government back to the people. The Senate bill provides age and means tested credits up to 350 percent of the federal poverty level. Such credits would incentivize people to buy insurance (no insurance, no tax benefit) and could be used to purchase high-deductible plans intended to cover major medical events. Insurers would be free (if not anxious) to compete for the business of these individuals who now have cash and an incentive to purchase insurance.
Key to this effort is the ability of insurers to offer consumers innovative products they want at prices they can afford, rather than standardized products designed in Washington that they don’t want. To this end, the revised Senate bill includes a version of the amendment Senator Ted Cruz proposed that would increase the range of plans insurers are able to offer.
Insurers that offer at least one plan that complies with ObamaCare’s mandated coverage standards, could also offer other plans that are more tailored to the needs of the individual. Consumers could choose to avoid paying for mandated coverage they don’t need (like maternity or mental health) that increases their costs. This approach creates more diverse and affordable insurance options while also using the potential of selling these new plans as an incentive for insurers to continue offering plans that may not be as profitable.
In the event this causes costs for ObamaCare compliant plans to increase (as healthy people flock to the lower cost reduced coverage plans), the Senate bill establishes a fund to offset such increases and help keep the compliant plans affordable, protecting individuals with pre-existing conditions. Only Insurers who offer at least one compliant plan can take advantage of this fund.
The Senate bill then expands HSAs by doubling the tax-free contribution limits to help pay for out-of-pocket medical costs. It also allows individuals to pay insurance premiums from their HSAs. This increases the ability of consumers to control costs by allowing them to hone their insurance coverage to meet more serious medical needs as they use pre-tax dollars to shop competitively for non-insured services.
In addition, the Senate bill lowers costs for young people. Under ObamaCare, young healthy people failed to enroll in the numbers required to offset the costs of insuring older, less healthy individuals. Premiums were unable to keep up with cost increases and insurers withdrew from the exchanges, reducing competition and further driving up costs.
ObamaCare prohibited insurers charging older customers more than three times what they charge young customers. The Senate bill restores the ratio that existed prior to ObamaCare, which prevents insurers from charging older customers more than five times what they charge younger individuals. By drawing more young people into the market with affordable plans, older individuals can enjoy more stable markets that aren’t plagued by ObamaCare’s death spiral.
The Senate bill also ties this lower cost risk pool for younger insureds to the risk pools for the people who purchase the higher cost ObamaCare compliant plans, helping to rein in costs for higher risk individuals including those with pre-existing conditions.
Unfortunately, when scoring a prior version of the Senate bill, the Congressional Budget Office (“CBO”) forecast that premiums would initially increase following repeal of ObamaCare’s individual mandate as fewer healthy people are compelled to obtain coverage they don’t want. But CBO has consistently overestimated the individual mandate’s impact despite its weaknesses (low penalties and numerous exceptions) while underestimating the impact of economic incentives.
According to the IRS, in 2014 roughly 12 million people claimed an ObamaCare exemption and another 7.5 million paid the penalty, meaning that for each person enrolled, two others declined. In great part, healthy individuals who don’t want health insurance have already figured out how to avoid the individual mandate. Lower costs may well draw them back into the system.
On the positive side, CBO projected that by 2020 premiums would be 30 percent lower under the prior Senate proposal than under current law. CBO is in the process of scoring the current bill.
No Obamacare replacement will work unless it reduces costs. This requires a more competitive free market approach. The Senate bill employs that approach. The House has already passed a bill that contains similar provisions. The American people voted to repeal and replace ObamaCare in the last election. We have a President eager to do so. It’s time for Republican Senators to step up and put a bill on his desk.