Congressional Republicans have had nearly seven years to coalesce behind a patient-centered alternative to ObamaCare, but the discussion draft of repeal and replace legislation recently obtained by Politico shows that the GOP alternative to 2010 law is ObamaCare-lite.
FreedomWorks has maintained that Congress should use the 2015 reconciliation bill, which passed both chambers, as the floor for the effort in the 115th Congress. The replacement for the law is important and should be done at the same time through reconciliation to get over procedural hurdles in the Senate. We have released letters of support for S. 222 and H.R. 1072, the ObamaCare Replacement Act, introduced by Sen. Rand Paul (R-Ky.) and Rep. Mark Sanford (R-S.C.).
While the draft does repeal most of ObamaCare, it effectively creates a new entitlement program and presents Republican versions of some of the law's worst provisions, such as the individual mandate and Cadillac tax.
A New Entitlement: Much like ObamaCare's tax subsidies, the discussion draft offers tax credits as a means to make health insurance coverage more affordable to Americans. The problem here is, tax credits are effectively spending in the tax code. The tax credits proposed under the discussion draft are refundable and age-rated, meaning that the taxpayer's age, not income, is what determines the amount of the credit. Subsidies under ObamaCare are based on income.
The refundable tax credits are capped at $14,000 per taxpayer annually and are available to only those individuals who are purchasing coverage on the individual health insurance market. While the Department of Health and Human Services did not track plan selections based on the age brackets above, the report for the 2016 open enrollment period found (Table A1):
Let's use those 25 years old or younger as an example. This may be a simplified example, but if everyone in this particular bracket signed up for coverage under the House Republican plan, the refundable tax credit — which, again, is an expenditure in the tax code — would cost somewhere in the ballpark of $4.8 billion. Again, this $4.8 billion represents only one part of one age bracket.
Requirement for Continuous Coverage: The discussion draft shows that ObamaCare's individual and employer mandates are zeroed out, but a new Republican version of the individual mandate takes its place. Rather than a fine for a failure to obtain a qualified health insurance plan, the discussion draft contains a penalty “equal to 30 percent of the monthly premium rate” if the policyholder failed to maintain continuous coverage.
Cadillac Tax: ObamaCare sought to wean Americans off employer-provided health insurance coverage through the “Cadillac tax,” or a 40 percent excise tax on health plans that cost $10,200 or more for individuals and $27,500 for a family. Though this was purportedly aimed at high-end health insurance plans, nearly three-quarters of plans will be been hit by the Cadillac tax by 2028. Separating health insurance from a job is good public policy, but ObamaCare did it the wrong way.
The Cadillac tax aside, employers are allowed to deduct the cost of health insurance coverage for employees, lowering their annual taxable income. The deduction cost about $250 billion in FY 2016, according to the Congressional Budget Office. The House Republican discussion draft would tax employer-sponsored plans “equal to the 90th percentile of annual coverage,” or the top 10 percent most expensive plans. This provision, however, is not intended to shift Americans to the individual market. It is, rather, a revenue mechanism to help pay for the cost of the refundable tax credits.
New Mandatory Spending: The discussion draft includes $100 billion in direct, or mandatory, spending for state innovation grants, which will be used to, among other things, fund high-risk pools in states to help consumers with preexisting conditions afford coverage on the individual market or to stabilize premiums. The House Republican “Better Way” blueprint released in June 2016 called for only $25 billion for state innovation grants over ten years.
There are aspects of the proposal that are good, such as the proposed expansion of health savings accounts (HSAs) and the concept of block granting Medicaid funds to the states. On the whole, however, ObamaCare alternative has too many features that have the same effect as ObamaCare. House Republicans are effectively repealing one entitlement only to create a new one. That is not something conservatives should support.