Ezekiel J. Emanuel is chair of the Department of Medical Ethics and Health Policy at the University of Pennsylvania and a senior fellow at the Center for American Progress.
Yawn. That is the proper response to the latest health-care reform proposals from Sen. Marco Rubio (Fla.) and Gov. Scott Walker (Wis.). They are retreads of the Burr-Coburn-Hatch proposal of 2014 and the John McCain plan in the 2008 election. All have the same fatal flaw — for average Americans, the price of health insurance jumps thousands of dollars.
The Republican plans rest on three pillars. First, limit and ultimately eliminate the tax exclusion that allows employers’ contributions to workers’ health insurance not to be subject to income or payroll taxes. Second, subsidize people to buy health insurance individually. Third, allow the interstate sale of insurance. That is, preempt state health insurance regulation to allow insurers to sell plans approved in one state in other states.
The vast majority of health economists and health policy experts agree that the tax exclusion is a bad policy. It represents the single largest tax deduction in the United States, valued at more than $250 billion a year — more than three times the value of the mortgage deduction. The tax exclusion also incentivizes the over-purchase of health insurance. Because a dollar in health insurance is worth more than a dollar in added wages — the insurance is tax-free — Americans, and especially unions, have opted to have their employers give them more and more insurance, while wages have stagnated. The exclusion also contributes to higher health-care inflation.
But if the tax exclusion is eliminated, then many employers will terminate their health coverage for workers and many Americans will have to buy their own insurance. Here is the rub: Most Americans cannot afford to buy their own health insurance. Hence, they need government subsidies.
Two fundamental details about the subsidies inevitably torpedo the Republican plans.
One, Republican subsidies are too meager. Years ago, Stanford economist Vic Fuchs and I proposed eliminating the tax exclusion and combining all health-care spending to give Americans a voucher equivalent to the premium for a basic health package.
But Republicans give far less. In 2008, McCain proposed subsidizing each family $5,000 toward the purchase of health insurance. A few days ago, Walker proposed that subsidies be age-based, as opposed to the Affordable Care Act’s income-based subsidies. For a family of four with parents ages 35 to 49 and two children under 18, the subsidies would be $6,000. (Rubio’s plan did not disclose his level of subsidies.)
Last year, the average cost of employer-based health insurance in the United States was about $16,800. This means with $6,000 in subsidies, an average family would have to come up with $10,800 to afford their old insurance. A less generous silver plan in the exchanges cost $10,776 in Philadelphia, meaning a family would contribute nearly $5,000. With the median U.S. income at $52,000 per year, these premiums constitute up to 20 percent of a family’s pre-tax income. With deductibles and co-pays on top of that, soon a family is paying 25 percent of its income on health care. Unlike the ACA, Walker’s plan does not include annual limits on out-of-pocket expenses and provides no subsidies for co-pays. It doesn’t take an economist to figure out that this is a bad deal for the average American.
The second important detail is: How do the subsidies grow over time? Traditionally, Republicans have tied the increase to the consumer price index (CPI). Because health-care costs and insurance premiums have grown faster than the CPI, over time the subsidies would cover less and less, pushing more and more costs onto Americans. This makes a bad deal even worse.
Finally, it is worth noting that the ACA does permit insurance companies to offer plans across state lines, as long as such states create a joint compact with common regulatory standards to avoid a “race to the bottom” that would allow them to undermine other states’ insurance laws. There has been no significant take-up. Health insurance, like malpractice insurance, remains largely state-regulated and states — as Republicans often emphasize — are closer to their citizens and better able to determine what is good for them than a state insurance agency thousands of miles away with no accountability. Hence, states jealously guard their regulatory prerogatives and rarely are willing to delegate them to other states. This may be one reason that there has not been one multi-state exchange formed.
Republican thinking on health-care reform has hardly advanced since 2008. The deals proposed then were bad and were defeated at the ballot box. And they remain bad deals for average Americans. This may be why few are willing to trust the “replace” part of the Republican pledge to “repeal and replace” the ACA.