The Supreme Court case King v. Burwell will determine whether the IRS overstepped in saying (Obamacare) subsidies are available for health insurance bought through the federal exchange.If the administration loses the case, more than half the states will lose an estimated $65 million in subsidies and an estimated 4 million people will probably lose their health insurance coverage.
How should Congress respond?
Yuval Levin and James Capretta have an editorial in yesterday’s Wall Street Journal with a suggested way forward. Because I was critical of a previous reform plan of theirs, let me say how much I really like the current version.
Under the plan, every state would have the option to opt out of Obamacare and establish a different kind of health reform. In particular:
There would be no federal mandates – either for individuals or for employers.
People could buy insurance inside an exchange or outside of it, with the states choosing their own regulations.
Everyone in the individual market would get a fixed sum tax credit for the purchase of health insurance. The credit would increase by age, but would not vary by income.
People who have continuous insurance coverage could not be discriminated against because of pre-existing conditions, but this protection is lost for those who try to game the system by remaining uninsured while they are healthy and buying insurance only after they get sick.
People on Medicaid would be free to leave the program, claim the subsidy and buy private insurance instead.
The repeal of the mandates is huge. All of the anti-job parts of ObamaCare go away once you abolish the employer mandate. And with the abolition of the individual mandate, we can ensure President Obama’s promise: if you like your health insurance you can keep it.
Letting the states regulate insurance markets may seem inadvisable, given all the mandated benefits the states have piled on commercial insurers in the past. But Obamacare didn’t get rid of any of these. As Austin Frakt has pointed out, Obamacare doesn’t mandate a nationwide benefits package. There are fifty different packages – each one reflecting the mandates in the state where it is offered.
Obamacare then piles on with additional cost-increasing mandates – such as the requirement that questionable preventive procedures be offered without any out-of-pocket payment. Under Obamacare, healthy women are entitled to mammograms free of charge, but a woman with symptoms (who really needs a mammogram) can be forced to pay the full cost. With the Levin/Capretta plan, the states would be free to avoid such nonsense.
The third item is also huge. Because Obamacare conditions its subsidies on income, it raises the marginal tax rate for middle income families by six percentage points and in some cases far more. At 400 percent of poverty, a family can lose more than $10,000 in subsidies if it earns one additional dollar. At other “cliff” points, families can be subjected to thousands of dollars of additional exposure (higher deductibles and copayments) as a result of earning one more dollar. All these perversions vanish if everyone gets the same subsidy regardless of income.
And there is more. If the subsidy doesn’t vary by income, all kinds of technical problems with healthcare.gov would vanish in a heartbeat. If every one of the same age gets the same subsidy, the exchange doesn’t have to check with the IRS to verify income. And next April 15th, there won’t be a plethora of additional taxes and refunds because almost everyone wrongly predicted his income for the previous year. (See “Can Obamacare be Fixed?”)