(A version of this Health Alert was published by Forbes.)
Earlier this month, Speaker Paul Ryan announced six task forces, each comprised of House Committee Chairmen, to develop a “bold, pro-growth agenda.” What was remarkable was that one of the task forces was on health care reform. Many had thought Congressional Republicans were investing too much time and energy grandstanding Obamacare repeal, and not enough developing a credible alternative.
That may have changed with the selection of four Committee Chairman to the Health Care Reform Task Force. They are: Budget Committee Chairman Tom Price (R-GA), Education & the Workforce Committee Chairman John Kline (R-MN), Energy & Commerce Committee Chairman Fred Upton (R-MI), and Ways & Means Committee Chairman Kevin Brady (R-TX).
With respect to private health insurance, the composition of the task force indicates the emerging House Republican plan will improve the post-Obamacare health system not only versus Obamacare, but versus the pre-Obamacare system. One of the reforms will almost certainly be refundable tax credits to finance health care for those of us who do not have employer-based benefits. Importantly, these tax credits will likely be much simpler to calculate than Obamacare’s tax credits, which impose high marginal income taxes at certain incomes, and reduce people’s incentives to work.
Both these reforms feature in bills already put forward by two of the task force’ members, Rep. Price and Rep. Upton. Price, a physician, introduced his first post-Obamacare health reform bill as early as 2009 and has reintroduced an updated version in every Congress since. The latest Empowering Patients First Act (H.R. 2300), introduced last May is the fourth iteration. Upton has joined Senators Richard Burr (R-NC) and Orrin Hatch (R-UT) to launch the latest version of the Patient CARE Act. This bill also has its origins in a 2009 proposal from Senator Burr, former Senator Tom Coburn (R-OK), Rep. Paul Ryan and Rep. Devin Nunes (R-CA).
Both bills feature refundable tax credits. Price’s version is superior, both in administrative simplicity and economic effects. Price’s bill offers a universal tax credit, adjusted by age, to every American who chooses to buy individual health insurance: $1,200 for those aged 18 through 34, $2,100 for those 35 through 49, $3,000 for those 50 through 54, and $900 per child. Price would allow people to decline employer-based benefits and claim their tax credit in the individual market.
Upton would offer higher tax credits: $1,970 for those aged 18 to 34, $3,190 for those 35 through 49, $4,690 for those 50 through 64. Upton does not describe a tax credit for children, but does offer a family-size tax credit of a little more than twice the amount of the individual credit.
Looking at the dollar figures, it appears Upton’s version would cost the federal Treasury more than Price’s would. However, Upton would limit the availability of tax credits to people in companies with up to 100 employees, which do not offer health benefits. Further, he would restrict tax credits to individuals with incomes up to 300 percent of the Federal Poverty Level ($72,900 for a family of four this year). The tax credit would phase out between 200 percent and 300 percent of the FPL.
This presents administrative complexity similar to Obamacare: If a beneficiary does not estimate his income accurately, he might have to refund some of this tax credit to the IRS when he submits his tax return. Perhaps worse, phasing out (or means testing) the tax credit poses the same challenge as Obamacare’s tax credits: It imposes a high marginal income tax rate which reduces the incentive to earn more income. This harm can be minimized by reducing the tax credit at a flat rate along a straight line (as I have proposed).
Both Price’s and Upton’s proposals would get rid of Obamacare’s poorly functioning exchanges and federal over regulation of health insurance. However, it is important to understand that Obamacare’s poorly designed tax credits can be reformed along the lines Price or Upton propose without complete repeal of Obamacare.
Nobody anticipates a Republican super-majority in the Senate in 2017, which means compromises will be necessary. The House Republican Health Reform Task Force would be well advised to consider Dr. Price’s tax credits as a primary position, and Mr. Upton’s as a fallback.