The Washington PostDemocracy Dies in Darkness

The conservative Obamacare replacement doesn’t insure nearly as many people as Obamacare

(J. Scott Applewhite - AP)
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The Republican Study Committee put out a new proposal Wednesday, billed as legislation that could replace the Affordable Care Act. Dubbed the American Health Care Reform Act, H.R. 3121 starts by repealing President Obama's health law and standing up a whole other set of reforms in its place. The component parts are likely to cover fewer people than Obamacare.

Perhaps the biggest idea in the RSC plan is to give everyone a standardized tax deduction– $20,000 for families and $7,500 - to help make the purchase of health insurance more affordable. The whole idea here is to level the playing field between people who buy health insurance on their own, and those who receive a plan through their employer.

Right now, since I get health insurance through the Washington Post, I get to pay my monthly premiums with pre-tax dollars. If tomorrow I left to become a freelance writer, I would have to head onto the individual market and use my post-tax earnings to buy my own health plan (or, alternatively, remain uninsured). The tax-exclusion for employer sponsored health insurance ends up making coverage a whole lot cheaper when purchased through a workplace.

The Republican plan would still let the Washington Post pay for my health plan with pre-tax dollars. But any contribution that I make, out of my pay-check, would have to be with post-tax money. That would essentially put me on more similar footing to the people who don't have employer-sponsored insurance.

The RSC doesn't estimate how many people would gain coverage under this provision, but the Congressional Budget Office did score a similar proposal from President George W. Bush in 2007. His plan included a $15,000 standardized tax deduction for health insurance coverage, and the CBO estimated that 6.8 million people would gain coverage. The tax deduction would, on average, cover about 70 percent of the premium's cost.

The CBO noted, back then, that using tax deductions, which reduce taxable income, would likely make this a more desirable benefit for higher-earning Americans who have a higher marginal tax rate.

"Compared with people who would be uninsured in 2010 under current law, those gaining insurance coverage under the President's proposal would have higher income, on average," the agency wrote. "The reason is that the value of the new deduction would be greater at higher marginal tax rates, which are associated with higher incomes. Nonetheless, the majority of newly insured people would come from lower-middle- and middle-income households."

Budget-wise, the CBO projected that the Bush proposal would cost $33 billion over a decade. It's difficult though to infer too much from that since the proposals do have different budgetary approaches: While Bush would have repealed the preferred tax status of employer contributions to health plans, the RSC plan allows that to continue.

One challenge with this approach to health insurance is that the deduction would be applied like a lump sum at tax filing time, unlike the health law's tax credits, which reduce each premium payment.

"From a behavioral economics standpoint, it's a harder sell," says Steve Parente, a health economist at the University of Minnesota who advised Sen. John McCain during his 2008 campaign. "It's like when I travel for my university, and I have to take out my personal credit card, and wait to do my expenses."

Another big change would be allowing health insurers to sell across state lines, which conservatives often contend could lower the price of health insurance by reducing the number of benefits that insurers have to cover. If a health plan from Montana (a state with few insurance mandates) were to set up shop in New York (which has lots of mandates), it would likely be able to offer lower premium prices–and bring down the rest of the market players in the process.

Liberals worry about that this would create a "race to the bottom," with insurers offering the skimpiest plans possible to stay competitive; conservatives contend that it would give individuals more choice. If someone had significant health needs, they could still purchase a more robust plan.

Parente co-authored a paper with Roger Feldman that estimated 12 million people would gain coverage if any person could buy any policy sold in any state. A Congressional Budget Office score of a similar proposal, in 2005, to allow insurance sales across state lines concluded that it would not have a significant impact on insurance coverage. Separate research from Georgetown University - which looked at states that have actually opened their markets to outside insurers - have not yet seen new entrants actually come in.

The last big set of changes would affect people with pre-existing conditions, since the RSC proposal repeals Obamacare's guarantee issue provisions. Instead, this plan would put $25 billion towards high-risk pools where people with pre-existing conditions could be guaranteed coverage. The rates there would be twice as high as the standard rates charged in the private market. Obamacare's high risk pools, which are relatively similar, have enrolled just over 100,000 people over the past three years.

Alongside those high risk pools, the RSC plan would allow people with continuous coverage to transfer between large group, small group and individual plans without any chance of being denied. The phrase "continuous coverage" is crucial here: Many Americans do have gaps in coverage that would preclude them from participating in the portability provisions. The Commonwealth Fund estimated in one recent report that, between 2004 and 2007, 89 million Americans had at least a one month break in insurance coverage.