A Conservative Alternative to Obamacare

President Barack Obama claims that Republicans have no alternative to Obamacare. Has he really forgotten that his presidential campaign spent millions of dollars attacking the health plan of Sen. John McCain? What follows is an update of McCain’s approach, coupled with the more recent thinking of many Republicans in Congress. This approach would take us from where we are now to a health care system that empowers patients, allows real competition and minimizes the role of government in the medical marketplace.

Choice. People should be able to choose a health plan that fits individual and family needs, rather than a plan designed by bureaucrats in Washington. This means no mandate. Men shouldn’t have to buy maternity coverage; women shouldn’t have to buy coverage for prostate cancer tests; teetotalers shouldn’t have to buy substance abuse insurance, etc. And no one should have to buy coverage for preventive procedures that health researchers have known for years are not cost-effective.

Had we accepted the principle of choice in designing health reform, we would not have the prospect of up to 10 million individual policyholders losing insurance that they were promised they could keep, and millions more in fear of losing their employer plans.

Fairness. If government subsidizes health insurance through refundable tax credits, the credit should be the same for everyone at the same income level. For example, suppose we offer every adult an annual tax credit worth $2,500 and every child a credit worth $1,500. People would get this subsidy so long as they obtain credible private health insurance, no matter where they obtain it—at work, in the marketplace or in an exchange.

Universality. There will always be some people who turn down the offer of a tax credit. But instead of the Treasury keeping those unclaimed credits, the money should be sent to safety net institutions in the communities where the uninsured live to pay for “uncompensated care.”

Note: The dollar amounts used above are the CBO estimates of the cost of enrolling new people in Medicaid. So another way of ensuring universal coverage would be to allow people to use their tax credit to buy into Medicaid as an insurer of last resort.

Portability. In most states today, it is illegal for employers to buy for their employees what they most want and need—insurance that travels with them from job to job and in and out of the labor market. Employers can buy group insurance with pre-tax dollars. But they can’t buy individually owned insurance. That means people lose their insurance when they leave their employer, and that is the primary reason why pre-existing conditions are a problem in this country.

Patient power. Health savings accounts and health reimbursement arrangements are effective ways to eliminate waste and control costs. That’s why 30 million people now have these accounts. Still, we are not taking full advantage of the opportunities here.

Instead of the rigid restrictions of the current law, HSAs need to be completely flexible—wrapping around any third-party insurance plan. Then let the market determine the appropriate division between third-party insurance and individual self-insurance by means of a designated savings account.

Real insurance. The prime motive behind health reform was to give everyone access to care. Yet millions of people are losing insurance with very reasonable access to providers and are being forced into an exchange where the typical health plan avoids the best doctors and the best hospitals. In some areas these plans are dubbed “Medicaid Plus.” In Massachusetts, it appears that patients with subsidized private insurance have worse access to care than people on Medicaid.

How could things be different? Let people insure against the costs of getting a pre-existing condition.

Under this approach, no insurer would be allowed to dump its most costly enrollees onto another insurer without paying the full cost of the transfer. So if an expensive-to-treat patient moves from Plan A to Plan B, the former has to compensate the latter for any above-average expected costs.