A Republican Plan for Health Care Reform that Won’t Break the Bank

The Supreme Court is still mulling over what to do about ObamaCare. Let’s hope they toss it out. Today another study came out showing that the dreadful law will increase the deficit by half a trillion dollars. The Democrats pooh-poohed the study saying it uses “new math.” I don’t care what math you use, ObamaCare stinks.

So, if ObamaCare is tossed, what then? Everyone wants to know what the Republicans will do. They can start by taking a look at Rep. Paul Broun’s (R-GA) OPTION Act. This is a plan for health care reform that probably won’t break the bank, for individuals or the government. We won’t know for sure until it’s scored, but it sounds like sensible reform to me, since it would let market forces work when it comes to health care, without all of the intrusions of the federal government. Avik Roy summarized it in a Forbes piece over the weekend.

So, what does the OPTION Act do, and would it serve as an adequate replacement for Obamacare?

Broun’s bill is divided into five parts: (1) repealing Obamacare; (2) changing the tax treatment of health expenditures; (3) Medicare premium support; (4) reforms of EMTALA, the federal mandate that forces emergency rooms to care for people regardless of their ability to pay; and (5) allowing people to purchase insurance across state lines, and small businesses to band together to purchase lower-cost association health plans (AHPs). “It’s 51 pages,” says Broun. “It’s a very simple bill that lowers costs for everyone. Plus, we cover those who cannot afford it by putting in a policy to help the uninsured get care.”

The bill doesn’t directly address Medicaid, as Broun has co-sponsored another bill, the State Health Flexibility Act, that converts Medicaid into a series of block grants for the states.

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Making all health spending tax-deductible

The OPTION Act’s most significant reforms affect the tax treatment of health expenditures. As I’ve often written, the biggest inefficiency in the American health-care system is that the tax code discriminates against people who seek to buy health insurance for themselves.

Broun’s bill seeks to change this, in several significant ways. First, Broun’s bill makes all health expenditures tax-deductible. That is: under his plan, the tax treatment will be the same whether you get insurance through your employer, you buy it on your own, or you choose not to buy insurance and instead pay directly for your care.

Broun’s plan would revolutionize the insurance market, by incentivizing companies—particularly smaller ones and startups—to pay their workers directly in wages, and let those workers decide how to pay for their own care. It would eliminate the problem of pre-existing conditions, because individuals would be able to stay on their insurance plans when they change or lose their jobs.

Dramatic improvements to health savings accounts

The OPTION Act would also make significant changes to health savings accounts. In 2012, Americans with self-only coverage are allowed to deposit $3,100 tax-free in a health savings account. Individuals with family coverage can deposit $6,250. Broun’s plan increases these limitations to $10,000 and $20,000, respectively. …

Be sure to read the whole thing, it’s a pretty detailed analysis of the proposal. Again, it needs to be scored, but there’s a lot to like. It even has provisions that would end the left’s griping about the high cost of end-of-life care, because patients would be able to leave the balance of their HSAs to their heirs. When people are in charge of their own health spending, they’re likely to spend more wisely. Plus, if people could carry over their HSA balances every year, and let the savings add up, there would be more money to spend on care when their health deteriorates later in life, especially if they carefully watch spending when they’re healthy.

Broun says his plan would contain a provision for helping the uninsured get coverage. Does this take care of the pre-existing condition problem? I don’t know, but it sounds like a good start.

The problem with removing the pre-existing condition barrier to obtaining health insurance is that it removes moral hazard. I know, some people lose their health insurance when they lose their jobs and can’t afford to pay for Cobra, or Cobra runs out before they find a new job. I think a plan that makes insurance more affordable for everyone would do a great deal to reduce the number of uninsured individuals in the first place, so there would be fewer with pre-existing conditions looking for coverage.

I just think of my own situation when I think about the moral hazard. With the exception of a year or two after I graduated from college, I’ve always had jobs that had health insurance benefits. Some of those jobs I hated, but I didn’t dare quit a job I didn’t like and leave myself without insurance. When Mr. LC and I started a family I carried employer-sponsored health insurance for all of us, due to the nature of Mr. LC’s business. It wasn’t until his business got off the ground, and we were able to do without some of my pay as well as meet our monthly premium payments that I reduced my hours to a point where I’m no longer eligible for insurance through my employer. Now I feel like kind of a chump. Why be responsible when politicians say they’ll  pass laws making sure you never have consequences for your decisions? What’s even more maddening is that it’s politicians who put policies into place that make insurance so unaffordable in the first place.

H/T to Smitty at TOM