(Bloomberg View) — Tom Price, the chairman of the House Budget Committee, is the latest Republican to unveil a conservative health care plan to replace Obamacare. It’s a good plan, although it could be made better — and it helps to clarify some of the trade-offs involved in health policy.
Price’s plan would give people tax credits to buy health insurance. The credits would be based on age but not on income. Everyone between 35 and 50 would get $2,100 a year, for example. Both the Patient Protection and Affordable Care Act (PPACA) and some other conservative health care bills, such as the one proposed by Sen. Orrin Hatch and colleagues, instead phase out tax credits with income. The credits could be used to buy insurance in a much less regulated market than Obamacare creates: No longer would insurance policies have to cover a federally approved list of essential health benefits, for example.
The plan has already elicited some reasonable criticism over the choices Price made. If you offer the same tax credit regardless of income, you send money to people who don’t need it. On the other hand, you relieve the administrative difficulty and unpredictability of an income-based credit. A lot of people don’t know how much help they can count on from Obamacare; they would have more certainty with Price’s plan.
Price also avoids a potentially serious problem with Obamacare. A credit that phases out with income raises effective marginal tax rates: People don’t get the full benefits when they start working longer hours or get raises. That’s one reason the Congressional Budget Office (CBO) found that Obamacare would lead people to work fewer hours.
Other criticisms of Price’s bill would apply to almost all conservative alternatives to Obamacare. Those alternatives generally loosen the PPACA prohibition on discriminating against customers with pre-existing health conditions. This protection is popular, but it necessitated the law’s least popular provision: the fine on people who don’t buy insurance. Insurers demanded the fine because otherwise people might wait until they got sick to buy a policy, at which point they couldn’t be turned down or charged a higher rate.
Price would instead forbid insurers from discriminating against people based on health status if they’ve maintained continuous coverage. That way there’s no incentive for them to wait until they’re sick to buy a policy, and no need for a fine for not buying one. Those with pre-existing conditions would have stronger legal protection than they had before PPACA. And people who got insurance through Obamacare could continue to buy policies in the future on the same terms as everyone else.