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What Dreams May Come For The Post-Obamacare World

Conservative proposals are now measured, in part, by the degree to which they deviate from ObamaCare, rather than the pre-ObamaCare system.


The ObamaCare replacement plan proposed Monday by Senators Tom Coburn (R-Okla.), Richard Burr (R-N.C.), and Orrin Hatch (R-Utah) is reasonable, fair, and would make health coverage less expensive for most Americans. It is also a far cry from a free market for health care in the United States, and considerably less conservative than what Burr and Coburn proposed in 2009.

The Patient Choice, Affordability, Responsibility, and Empowerment Act—as it is unfortunately called—is by no means a perfect proposal, and suffers from the kind of big-government thinking that sometimes plagues the Republican Party establishment. That said, it would be a vast improvement over the Affordable Care Act and would correct some of the long-standing distortions in the health insurance market created by too much government interference prior to ObamaCare.

The timing of the proposal, a day ahead of the President Obama’s State of the Union address, is presumably meant to counter the President’s claim that Republicans have no health care solutions except to repeal ObamaCare and send us back to the bad old days.

Not so fast, Mr. President. In broad terms, the Senators’ plan—shall we call it the CARE Act?—seeks to correct major flaws in the pre-ObamaCare system and eliminate nearly all of the unpopular features of ObamaCare itself (while retaining some of the more popular ones, like barring insurers from imposing lifetime limits on medical claims and allowing dependent coverage until age 26).

Specifically, the plan calls for age-based tax credits for low- and middle-income Americans to purchase insurance on the individual market. The idea is to help end the unfair tax treatment of those who don’t get insurance from an employer (although there is no good reason the tax credits should only be available to low and middle income-earners, defined in the plan as those earning less than about $35,000 a year).

Toward that end, the plan would also limit the tax break employers get for paying employee premiums at 65 percent of an average plan’s cost, thus ending the incentive for employers to spend tax-free dollars on health care—generally accepted as a major driver of rising health costs nationwide—without scrapping the preference for employer-based coverage altogether.

Another major feature of the Republican plan includes a complete overhaul of Medicaid funding that converts it into a “capped allotment” for the states, which means that a set amount of federal Medicaid dollars would be assigned to each eligible Medicaid patient in a state, based on age and health status. This is essentially a Medicaid block grant by another name, as states would receive a finite amount of federal funding but be free to redesign and administer the program more or less as they choose—a sorely-needed reform that would go a long way towards addressing Medicaid’s systemic problems.

Funding for non-elderly and non-disabled Medicaid populations would come in the form of “health care grants” that would give states flexibility to impose cost-sharing requirements and insure Medicaid patients with private plans, free from onerous federal regulations of those plans (unlike the over-praised Arkansas private option). Another feature of this Medicaid reform involves funding Health Opportunity Accounts (HOAs) for Medicaid patients to pay out-of-pocket medical expenses in conjunction with a high-deductible health plan—essentially health savings accounts for Medicaid.

The plan also addresses the problem of preexisting conditions by allowing those who remain continuously insured for at least 18 months to move from the employer to the individual market without facing higher premiums, and by offering substantial federal funding for state-run high risk pools. This will be controversial among conservatives who think government subsidies for insurance are a big part of the problem to begin with. But if you’re going to push for a full ObamaCare repeal—including repeal of guaranteed issue that ensures those with preexisting conditions can’t be denied coverage—then funding state high-risk pools as an interim measure is one way to ensure that the sickest Americans don’t get booted off their plans.

Indeed, much of the Coburn-Burr-Hatch proposal seems to be as much a reaction to the new reality of ObamaCare as it is an effort to correct the failures of our pre-ObamaCare system. In doing so, it makes concessions to the various assumptions behind the ACA: tax credits for the purchase of individual coverage should be means-tested, preference for employer-sponsored coverage should be preserved, and states should automatically enroll those who don’t sign up in the interests of “universal coverage.” (This last provision comes with the big-government concession that if they so choose, individuals can “affirmatively opt-out” of coverage they were forcibly enrolled in.)

This approach waters down the free-market elements of the proposal, which would nevertheless go a long way toward making insurance more affordable—even if they are weaker than previous conservative proposals for the sake of being less disruptive. By deregulating the exchanges, for example, individuals receiving tax credits under the Coburn-Burr-Hatch plan could make their health care dollars go much further—especially the young and healthy, who would likely choose the kind of low-cost, high-deductible plans ObamaCare has regulated out of existence.

Likewise, if Medicaid were converted into block grant or capped allotment funding, and control given to the states, some Republican governors might be open to the idea of expanded eligibility, albeit with different criteria than originally called for in the ACA. The Coburn-Burr-Hatch plan, in fact, would allocate funds to states based on the number of people below 100 percent of the federal poverty level, which would amount to a sizeable expansion of Medicaid in many states—but on much more favorable terms.

Such compromises reflect a stark reality now facing Coburn and company: the American public is deeply frustrated with health care reform and has little stomach for the kind of disruptions ObamaCare has unleashed. At the same time, conservative proposals are now measured, in part, by the degree to which they deviate from ObamaCare, rather than the pre-ObamaCare system.

Truly conservative, market-based health care reform would be—and should be—massively disruptive, both to ObamaCare and to the previous status quo. That kind of disruption is unlikely now, but that shouldn’t mean conservatives shy away from sensible, serviceable reforms. In the context of the ACA, the policies laid out in this new Republican plan would be a dream come true.

John Davidson is a health care policy analyst in the Center for Health Care Policy at the Texas Public Policy Foundation.