by Katherine Restrepo
Director of Health Care Policy, John Locke Foundation
The ‘Repeal and Replace’ plans released by Republican presidential contenders strive towards universal catastrophic coverage by distributing refundable tax-credits to individuals without employer-sponsored coverage. With this age-adjusted lump sum, beneficiaries can purchase health insurance. A tax-credit seems to be a more market-driven method because a consumer has control over how he wishes to spend it on a health care plan. Under Obamacare today, tax-credits, or subsidies, are not distributed to consumers, but instead to insurance companies. Individual marketplace shoppers are essentially masked from the underlying cost of Obamacare plans.
Perhaps tax-credits may be the most politically feasible approach to reform the federal health law, but Michael Cannon of the Cato Institute explains why market-oriented health reformers should be wary of selling this idea and instead advocate for the expansion of Health Savings Accounts (HSAs):
A health-insurance tax credit functions exactly like an individual mandate. Under both proposals, if you choose not to buy a government-designed health plan — even if you want to buy coverage, just less than the government requires — the IRS takes more of your money. Under Walker’s plan, the effective penalty can reach $7,800 for a family of four.
Under a tax credit, Washington would exercise as much control over your health plan as it does under Obamacare’s individual mandate. Just as Congress must define what level of coverage lets you avoid that explicit penalty, it would define what level of coverage lets you avoid a tax credit’s implicit penalty. Special interests would have the same incentive and ability to force you to buy coverage you don’t want, as with Obamacare.
Again like Obamacare, the Walker/Rubio tax credits are “refundable.” So if you have no income-tax liability, or if it’s just less than the amount of the credit, you get a check from the government. We don’t have numbers on Walker’s or Rubio’s plans, but Obamacare’s “tax credits” are roughly 80 percent government spending. With a Republican imprimatur on such spending, Obamacare supporters could probably increase spending more than they could under Obamacare itself.
Large HSAs would let workers take that money as a tax-free HSA contribution, and thereby let taxpayers own and control $9 trillion of their earnings that someone else currently controls. That’s an effective tax cut equal to all of the Reagan and Bush tax cuts combined, and nine times more than taxes would fall by repealing Obamacare. Workers could use those funds to remain in their employer plan, purchase better coverage elsewhere, buy medical care directly, or save for future medical needs. All tax-free.
Moreover, Large HSAs involve no income redistribution and create no dependence on government. They would bring health care within reach of those with low-incomes by turning hundreds of millions of other Americans into cost-conscious consumers who force prices downward.
You can read Cannon’s full op-ed here.