Ed Gillespie Offers a Credible Obamacare Alternative

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To a person, the GOP candidates running against incumbent Democratic Senators are strong on the reasons for repealing the Affordable Care Act (ACA) -- i.e. Obamacare. Much of their focus has been on the law's implicit taxes on hiring. The Congressional Budget Office estimates the ACA will induce 2.5 million workers to leave the labor force by 2024. The last thing the U.S. economy needs is another barrier to getting out-of-work or underemployed Americans back in the workforce.

As a general rule, the GOP candidates have been less clear on what they would favor to replace the ACA. There are, however, a couple of notable exceptions.

Mike McFadden, the Republican candidate challenging Al Franken in Minnesota, has issued a fairly detailed and credible blueprint of the plan he would support if elected to the Senate. Among other things, he proposes to give to the states the authority to design coverage expansion schemes and ways to improve access to care for lower income households. He would also ensure everyone with a pre-existing condition could get affordable insurance by adequately funding high-risk pools and by changing regulations to prohibit insurers from charging higher premiums based on health status for those who have stayed continuously insured. McFadden deserves credit for embracing reforms that would solve the pre-existing condition problem without the massive regulatory baggage of the ACA.

Ed Gillespie, the Republican candidate for Senate in Virginia, stands out the most among the GOP candidates for offering a detailed alternative to the ACA that he can credibly argue would outperform the ACA in several important ways.

The Gillespie plan, which is modeled on the reform proposal developed by the 2017 Project (a group dedicated to advancing a new conservative reform agenda), has several key features. First, it would not disrupt job-based insurance. This is important because there are about 160 million people in employer-sponsored plans, and most workers like their current coverage. They favor reform, but only if it does not upend what they already have and want to keep. The only change Gillespie recommends for employer plans is a new upper limit on the federal tax preference for such plans. Under current law, employer-paid premiums are fully exempt from the income and payroll taxes owed by workers, no matter how expensive the insurance plan. The Gillespie plan would set a new limit on this tax preference at about $20,000 for family coverage. Premiums paid by an employer in excess of this upper limit would be counted as taxable compensation to the employee. Restraining the tax break in this way would inject more cost discipline into employer coverage.

The Gillespie plan would expand enrollment in health insurance by offering a new, age-adjusted tax credit for all households without access to job-based insurance. This new tax credit would ensure that every American would have access to affordable insurance coverage. The tax credits would be set initially at $1,200 per year for those under age 35, $2,100 for those between ages 35 and 49, and $3,000 for those age 50 and older. Families would get an additional $900 for every dependent child.

Beyond this base tax credit, the Gillespie plan would give every household with a Health Savings Account (HSA) a one-time credit of $1,000. This would encourage much more take-up of HSAs, and thus provide a foundation for strong, consumer-directed health care.

Gillespie addresses pre-existing conditions with reforms similar to those proposed by McFadden. He would prohibit insurers from charging more to consumers with pre-existing conditions so long as they stay continuously enrolled in coverage. And he would provide substantial new federal funding for high-risk pools to ensure those with expensive conditions can get affordable insurance.

What's unique about the Gillespie plan is that it has been independently evaluated, and thus can be compared to the ACA in terms of its effects on federal spending, insurance coverage, and premiums. The Center for Health and Economy, a nonpartisan research organization, issued an analysis of the proposal (as originally articulated by the 2017 Project) in September, and the findings are impressive. The plan would cost about $1.1 trillion less than the ACA over ten years and result in lower premiums across-the-board. It would improve access to physicians and other providers by deregulating the insurance market, and it would intensify competition with greater consumer control and choice, and thus lower health care costs. The plan would not cover as many people with insurance as the ACA, but even that could be addressed with minor modifications to the plan.

Polling consistently shows a majority of voters are uneasy with the ACA, mainly because they see it as a massive federal power grab. The Gillespie plan demonstrates that it is possible to fix the problems in the pre-ACA health system without the government-centric baggage of the ACA. The plan would replace the ACA's punitive taxes, obstacles to hiring, and regulatory red tape with a decentralized, market-based approach that provides access to secure, private insurance for all Americans.

Earlier this month, the Washington Post gave Gillespie credit for proposing a real, tangible alternative to the ACA, but also attacked the plan for what it claimed were glaring shortcomings. The paper asserted that the plan would leave people vulnerable to abuses by insurance companies by removing the many federal mandates included in the ACA and by providing inadequate subsidies for lower income households. But states would still regulate health insurance, and consumers would have the ability to move easily from an insurance plan with glaring loopholes to one with sensible, mainstream coverage rules. Moreover, so long as they remained insured, they could not be charged more based on their health status. And lower income households would get private insurance, not Medicaid, which would allow them to see many physicians who refuse to take Medicaid patients today because of low reimbursement rates. The states would be free to pursue creative Medicaid reforms to supplement the federal tax credits and thus lower premiums even more for the poorest families.

The Post also argued that the Gillespie plan would increase the federal budget deficit, but this is wrong. The Center on Health and Economy only evaluated the cost of the main coverage provisions of the 2017 Project proposal (and thus also the Gillespie plan). It found that the plan would cost far less than the ACA, and thus allow a massive tax cut relative to the ACA too. It is a simple matter to impose small additional spending cuts to ensure the entire plan is far more fiscally responsible that the ACA.

Earlier this year, Senators Richard Burr, Tom Coburn, and Orrin Hatch proposed a full replacement plan for the ACA. The senators' plan shares many similarities to the 2017 Project/Gillespie proposal. It would broaden insurance coverage and provide secure insurance to those with pre-existing conditions through market-based reforms and without the ACA's massive expense and regulation.

Together, these plans demonstrate that the country does not have to settle for the ACA, with all of its problems and shortcomings. There is a better way. What's needed is for more ACA opponents to follow Gillespie's lead and embrace a real and credible alternative to the current law.

The mid-term election next week will be a referendum of sorts on the ACA, and the verdict is likely to be harsh. The defeat of many ACA supporters could precipitate some serious changes in the law. But even so, the law will almost certainly remain largely in place through President Obama's term in office. That means the 2016 election could be pivotal for the future of health care in the United States. It will therefore be very important for ACA opponents to articulate a clear alternative vision to the ACA over the next two years. Ed Gillespie's plan would be a fine place to start that discussion.

James Capretta is a resident fellow at the American Enterprise Institute. He was an associate director at the Office of Management and Budget from 2001 to 2004.  

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