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(Aslan Alphan/Getty Images)
(Aslan Alphan/Getty Images)

How Republicans Can Avoid Being Blamed for High Premiums

Jeffrey H. Anderson

When it comes to trying to decide what the worst part of Obamacare is, there’s no shortage of contenders. From a constitutional standpoint, the worst part is its unprecedented individual mandate. From the standpoint of the republic’s overall well-being, the worst part is its consolidation and centralization of power. From the standpoint of preserving the high quality of American medicine, the worst part is its determination to move doctors out of private practice and make them hospital employees (the better to control them). And from a cost standpoint, the worst part is its effective ban on the traditional idea of insurance—for since at least the Renaissance, insurance has been something that one must buy before the thing happens that one is protecting against.

Obamacare outlaws this traditional understanding of insurance, requiring instead that insurers cover all comers at essentially any time, at no additional cost. Those who wait until they’re already sick or injured to buy “insurance” can’t be charged any more than those who have maintained insurance all along. Imagine if one could wait to buy homeowners insurance until one’s house is on fire, or could wait to buy life insurance from one’s deathbed, paying the same price as someone who’s the picture of good health. Think prices would rise? That’s what Obamacare does with health insurance.

There should be commonsense protections for those with preexisting conditions. For example, those who have had insurance through their job but then leave that job and buy insurance on their own, shouldn’t be charged more for a condition that was already covered under their prior insurance. But protections for preexisting conditions shouldn’t ruin the whole idea of insurance, like they do under Obamacare.

Indeed, more than half of the premium increases under Obamacare have likely been caused by its outlawing of the traditional notion of insurance. Obamacare decrees that a policy of “community rating“—under which everyone of the same age who lives in the same county pays the same premium, regardless of how much they’ll likely cost to cover—must prevail from coast to coast.

The result is the whopping 40 percent increase in premiums that we’ve seen on the Obamacare exchanges over the past two years, as “community rating” has played the lead role in sending the individual insurance market into a slow-motion death spiral. On average, for every $100 that an Obamacare plan cost in 2015, it cost $112 in 2016 and costs $140 in 2017. If a plan cost $3,750 in 2015, on average it costs $5,250 in 2017. And that was after premiums had already gone up dramatically in previous years under Obamacare. And it’s despite the fact that Obamacare’s doctor networks keep narrowing.

Here’s the kicker: This worst part of Obamacare—at least from a cost standpoint—likely cannot be repealed without 60 votes in the Senate. If so, the initial “repeal” bill that Republicans plan to pass through the budget reconciliation process (which only requires 51 votes) won’t be able to repeal Obamacare’s #1 cost-driver. In other words, premiums aren’t going to drop dramatically. Indeed, they will likely keep going up.

So what can Republicans do about this? They must understand that, however long it takes to get rid of it, “community rating” must be repealed. Until it is, health insurance costs will remain grossly inflated (which in turn will reduce the number of people with coverage). Yet the Democrats—despite having already lost the House, Senate, and presidency thanks to President Obama’s signature legislation—don’t yet look ready to abandon the sinking U.S.S. Obamacare and swim for the life rafts. This means that “community rating” is likely to stay on the books in the short-term.

That makes it even more crucial that Republicans pass replacement legislation—an alternative to Obamacare—probably via reconciliation. Such legislation presumably cannot get rid of “community rating” (which would apparently require 60 votes), but it can achieve two other important things:

1. A replacement would keep continually skyrocketing premiums, caused by Obamacare, somewhat in check—by encouraging people to shop for value. A plan like Tom Price’s (which is based on the alternative I first released at the 2017 Project and have since advanced at Hudson Institute) would give people a flat (aside from three simple age-bands) tax credit. If they found insurance for less than the value of their tax credit, they could put any savings into a health savings account. This would encourage people to shop for value. A flat tax credit would also encourage people to buy genuine insurance (catastrophic coverage), not prepaid health care (in which a middleman pays for routine bills and hence gets a cut of all the action). Such catastrophic plans, paired with HSAs, would give people more control over their own health-care dollars. This likely wouldn’t be enough to get health insurance premiums to drop—repealing Obamacare’s “community rating” is necessary for that to happen—but it would keep them from rising as quickly.

2. A replacement would provide overdue tax relief for millions of middle-class Americans who buy their own insurance. For about 70 years, those who have gotten health insurance through their job have gotten a tax break while most of those who have bought their own insurance have not. That’s unfair, and it has undermined the individual market. The Price plan would preserve the longstanding tax break for employer-based insurance (while closing a tax loophole at the high end), while providing tax credits—in the amounts of $1,200 for adults under 35 years of age, $2,100 for those between 35 and 50, and $3,000 for those 50 and over; plus $900 per child—for those who buy health insurance on their own. (Based on the cost of premiums right before Obamacare went into effect, according to the federal government’s own tallies, healthy people in all but five (liberal) states could afford to buy health insurance using these tax credits even if they paid no more than $15 a month of their own money.)

The typical 36-year-old making $43,000 gets $0 worth of Obamacare’s direct subsidies to insurance companies funneled his or her way. (Obamacare’s direct subsidies to insurers are falsely labeled as “tax credits,” hiding some $104 billion in federal spending in the process.) Under the Price plan, this person would get a $2,100 tax cut to use to buy health insurance of his or her choice.

The Price plan would also offer a one-time, $1,000 per-person tax credit for those who have, or who open, an HSA.

Amazingly, the nonpartisan Center for Health and Economy finds that a plan that’s very similar to the Price plan would reduce federal spending by $1.1 trillion over eight years versus Obamacare, while resulting in 6 million more people having private health insurance.

Such a plan would be highly popular with middle-class Americans. Thus, if Republicans were to pass a plan like this into law, they would likely reap political rewards for doing so. After that, maybe the Democrats would finally be willing to stop defending Obamacare and help repeal the part of it that, at least from a cost standpoint, is its worst.

But if Republicans fail to pass a replacement, they’ll be left with continually rising premiums—courtesy of Obamacare’s “community rating“—and won’t be able to offer the American people anything in return.

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