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(Jessica Lucia/Flickr)
(Jessica Lucia/Flickr)

An Obamacare Replacement Should Focus on the Median American

Jeffrey H. Anderson

Part of why Obamacare is so unpopular is that it is neglects the typical American. As Republicans deliberate over an alternative to Obamacare, this provides a huge opening.

Obamacare is bad for the typical—or median—American for a wide variety of reasons, including the following: its unprecedented individual mandate; its inept manner of dealing with preexisting conditions, which has sent premiums soaring (by 40 percent over the past two years); its roughly $2 trillion price-tag (over a decade); and its consolidation and centralization of power and money at the expense of Americans’ liberty and their wallets.

And for all of Obamacare’s coercion and costliness, it didn’t even solve the core problem that existed in our private health insurance system pre-Obamacare: the tax inequity that gives open-ended tax breaks to millions of Americans with job-based insurance, while denying tax breaks altogether for millions of Americans who buy health insurance on their own.

Rather than offering overdue tax breaks to everyone who buys his or her own health insurance, Obamacare instead gives direct subsidies to insurance companies (falsely labeled as “tax credits”) on behalf of the select few. Instead of benefitting the median American, Obamacare’s obsession with income-redistribution benefits the near-poor and near-elderly by robbing from the middle class and the young. That’s a large part of why it’s so politically toxic.

Let’s compare Obamacare’s direct subsidies to insurers with the tax credits that typical Americans would receive under a well-designed GOP plan. Because Dr. Tom Price is President Trump’s nominee for secretary of Health and Human Services, and because Price has introduced legislation (which I helped draft) with 84 House cosponsors, let’s assume the GOP plan will feature the tax credit values in Price’s plan. Those tax credits are simple and flat (aside from three age-bands). Those who shop for value and find catastrophic insurance for less than the value of their tax credit could put their full savings into a health savings account. Price’s plan would also offer a 1-time, $1,000-per-person tax credit for having or opening an HSA.

Obamacare’s subsidies to insurers vary by county, so let’s pick a bellwether county as the point of comparison. CNN calls Stark County, Ohio—about an hour outside of Cleveland and the site of the Pro Football Hall of Fame—“a swing county in a swing state.” The median single person in America makes roughly $30,000 a year, the median couple makes roughly $60,000 a year, and the median family of four makes roughly $80,000 a year. Let’s look at how each of them fare under former-President Obama’s namesake and would fare under well-conceived GOP plan.

According to the Kaiser health calculator, none of Obamacare’s subsidies to insurance companies flow to a 30-year-old single woman who makes $30,000 and lives in Stark County. She gets $0. Under a Price-like plan, she’d get a tax cut of $1,200—money in her pocket—for buying insurance of her choice. If she has or opens an HSA, she’d get an addition tax cut of $1,000, for $2,200 in year-one.

A typical 45-year-old couple who lives in the same county and makes $60,000 also gets $0 under Obamacare, even though the 2nd-cheapest Obamacare plan would cost them $5,790 in premiums. Under a Price-like plan, they’d get a tax cut of $4,200—again, money in their pockets—for buying insurance of their choice (and could deposit any unspent portion of that amount into an HSA). If they have or open an HSA, they’d get an additional $2,000, for $6,200 in year-one.

How about a family of four that has 40-year-old parents, lives in Stark County, and makes $80,000? Again, none of Obamacare’s subsidies to insurance companies flow this family’s way. They get $0, even though the 2nd-cheapest Obamacare plan would cost them $7,670 in premiums. Under a Price-like plan, they’d get a tax credit of $6,000 ($2,100 per adult and $900 per child). Unless they itemize their taxes (in which case their tax burden would depend upon their specific itemizations), most of that would come in the form of a tax cut, while part would come as a refundable tax credit (a tax credit in excess of what they pay in income taxes). Add in the Price HSA tax credit, and they could get $10,000 ($6,000 plus $4,000) in year-one.

Do you think these middle-class Americans would prefer tax breaks of $2,200, $6,200, and $10,000, respectively, to the $0 they get under Obamacare?

As for the comparatively small minority of Americans who actually benefit from Obamacare, they would benefit from Price-like tax credits as well. For example, if the family of four listed above made just $35,000 instead of $80,000, they’d get $6,000 under a Price-like plan (and $10,000 in year-one if they had or opened an HSA), versus $6,375 under Obamacare. If they made just $25,000, they’d get the same $6,000 (or $10,000) under a Price-like plan, instead of being dumped into Medicaid under Obamacare.

In other words, they’d be fine—and perhaps even better off. They would be in private insurance—with more choices of plans, and lower premiums, than under Obamacare. Money would go directly to them in the form of a tax credit, not to an insurance company in the form of a subsidy. And if they bought catastrophic insurance for, say, $5,000, they’d get to keep their $1,000 in savings and put it into an HSA, whereas Obamacare’s subsidies are use-them-or-lose-them (to insurers’ delight).

In sum, a Price-like plan would be far better for the median American, while still helping the small number of Americans who actually benefit from Obamacare. And here’s the kicker: According to non-partisan scoring, Price-like plan would save more than $1 trillion in federal spending over a decade versus Obamacare.

Policymakers could do worse than to focus on how their policies would affect the median American. Obamacare’s almost total neglect of the median American has given Republicans a tremendous opportunity. Rather that fearing a political backlash from passing an alternative, Republicans should be eager to pass a plan for which the typical American will reward them.

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