The Conservative Alternative to ObamaCare: Tax Cuts for Rich People

Courtesy of the National Republican Senate Committee

Yesterday on Twitter I linked to the above fundraising graphic from the National Republican Senate Committee characterizing it as the GOP plan to help the uninsured. Daniel Foster, a National Review writer, suggested I might be interested in a more substantive take from his magazine in the form of a print cover story from Ramesh Ponnuru and Yuval Levin. The article is dedicated to rallying the forces of Obamacare repeal, arguing that it’s not a lost cause and is in fact essential to the betterment of the country. It contains several thousand words, many decent arguments, and precisely nothing to suggest what conservatives would do to help the uninsured gain access to affordable medical care.

After repealing the Affordable Care act, Levin and Ponnuru want to do two things. The first is to destroy the health insurance that insured people have. The second is hand-waving. Step one:

The core of a replacement would be a change in the tax treatment of health insurance. The tax break for coverage would be flattened and capped so that people would not get a bigger break the more comprehensive their insurance. The break would also be extended to people who do not have access to employer coverage. People would be allowed to purchase health insurance across state lines. Medicaid and Medicare would be converted into subsidies—essentially add-ons to the tax break or credit for coverage—for people to buy private coverage and pay for out-of-pocket health expenses.

The problem with this approach is simple and well-known. The core of the insurance concept is to create a risk pool. By offering a tax subsidy to employers that encourages them to compensate employees in part through health insurance, the tax code encourages employment sites to serve as risk pools. Removing that subsidy destroys the risk pools. The result is a health insurance system that only works for people who don’t have substantial health care needs.

Their answer is hand-waving:

Once a robust market for individually purchased insurance has emerged, the problem of people who are locked out of that market because of preexisting conditions should diminish: People will have both the incentive and the ability to buy cheap, renewable catastrophic policies before getting sick. In the interim, though, conservatives should commit to funding well-designed high-risk pools to cover the healthcare expenses of sick people who have been failed by the current system. These subsidies will be much cheaper and more likely to work than Obamacare’s solution to the problem, which is a federally imposed redesign of the entire health-care system.

If high-risk pools could solve these problems so simply, you might ask why it’s not already been done. It turns out to be really expensive: $200 billion over 10 years to cover about 4 million people. But the real core of the idea here is “cheap, renewable catastrophic policies.” These policies are not cheap through some feat of magic; they’re cheap because they’re stingy. Which is fine. If your priority is to minimize federal expenditures, then obviously giving everyone very low-quality health care is better than giving high-quality health care. But it’s like saying that your affordable housing policy is to hand out tents so people can sleep in the park. In exchange for accepting a much lower standard of insurance, working-class Americans will get nothing from the Ponnuru/Levin plan. High-income Americans, on the other hand, will receive large tax cuts from Obamacare repeal that will more than cover any higher out-of-pocket expenses.