The Vision Thing

Ramesh Ponnuru and Yuval Levin proposed a Republican health reform plan in National Review. This led to petty carping by Matt Yglesias, a response by Levin, clarification by Ben Domenech and more petty carping by Ezra Klein.

Here’s the problem. The Republican reformers are talking mechanics and not principles. They propose a list of changes they would like to make, but are unclear on why they would like to make them. Therefore, they open the door to the critics — who are more than happy to divert everyone’s attention away from the huge problems with ObamaCare.

There are two central questions to be asked about any health care system:

  1. What help will people get from government to make insurance affordable?
  2. Will the insurance be portable and, if not, what will be done about the pre-existing condition problem?

Answers below the fold.

The help ObamaCare offers is arbitrary, unfair, and in some case extremely regressive. People at the same income level will get subsidies that can differ by $10,000 a year or more. Far from making health insurance affordable for everyone, the ObamaCare mandate is about to impose a huge financial burden on low-wage workers and their employers without any additional help at all.

An alternative approach was proposed by presidential candidate John McCain. The legislative version was the Coburn/Burr/Ryan/Nunes bill. In contrast to ObamaCare, this proposal would treat everyone the same. Whether you are Bill Gates or a filling station attendant, whether you work for a small company or a large one, whether you work full time or part time, whether you get insurance at work, in an exchange or in the marketplace — the McCain plan promised the same amount of federal government help in the form of a fixed sum, refundable tax credit.

If we replace the current system of tax subsidies and make certain tax preferences conditional on proof of health insurance, I believe we can offer every adult individual a tax subsidy of $2,500 and every family of four a subsidy of $8,000 without any increase in the size of government. This would subsidize the core insurance that we want everyone to have, leaving them free to purchase additional insurance on their own.

BTW, no one with any sense would turn this offer down. What family would say “no” to $8,000 of free health insurance? But if they did, the $8,000 should be sent to a local safety net institution in case the family incurs medical expenses they cannot pay for from their own resources. (This is universal coverage folks — without mandates!)

On the second question, portable health insurance should be encouraged, but not required. Subsidizing all insurance the same way, regardless of where it is purchased, would encourage individually owned, personal and portable insurance. But to anticipate changes in insurance plans, there should be change of health status insurance, effectively allowing individuals to insure against the future cost of experiencing a pre-existing condition.

With narrow networks and managed care, I believe health insurers could offer comprehensive coverage for these amounts — especially if combined with Health Savings Accounts. People could add to their tax credit with after-tax dollars and have more options if they chose to do so.

Comments (13)

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  1. Harley says:

    The principle / mechanics difference is important but generally dismissed in terms of legislation. Most normative economists have found that what people want and are willing to pay for are two very different things.

  2. Jessup says:

    *Sigh.. me and my tax dollars are moving to a country with big beaches and small government.

  3. Benedict Popplewell says:

    Harley is right. In general, people are frequently not rational actors as economics has long assumed. The Coburn/Burr/Ryan/Nunes bill would create a much more equitable system than Obamacare. Good post John!

  4. Moose Lawson says:

    I moved from Canada to the United States to avoid socialized health care. Now, as a naturalized citizen, I am being forced into a similar, but far less efficient system. Honestly, I think the U.S. should just raise taxes and go all the way with socialized medicine. That’s more likely than eliminating this behemoth of a health system called Obamacare.

  5. Ryan Hall says:

    I like this post because I like the idea of people receiving a fixed subsidized amount enough to cover basic insurance. If the individual or family afterwards want to buy added insurance, they have the option of doing so. This way, the individual will have the option of choosing which insurance is best for them and therefore will end up forcing people to be more responsible over their choices and have more jurisdiction over their own health.

  6. Linda Gorman says:

    And to add another principle, how about a comprehensive reform of government that eliminates every single thing that various levels of government do to increase the cost of providing medical care?

  7. Antonio Servantes says:

    I enjoy reading your posts, John. I believe your ideas regarding portable insurance make absolute sense and I hope the Republican Party takes strong notice of this and stops disagreeing so much.

  8. Allison Howard says:

    I really like the concept of universal coverage without mandates briefly explained here. Sending the money to a safety net to be used for the families when they don’t have enough resources to pay for care from their own pockets makes sense. If only this approach could be implemented nationwide..

  9. Alex K. says:

    “In contrast to ObamaCare, this proposal would treat everyone the same” —->> KEY WORDS! Something this administration urgently needs to learn a whole lot more about…

  10. William Hallman says:


    You are making some very valid points here. Not only is your approach of replacing tax subsidies giving EVERYONE the opportunity to receive basic coverage but it’s also giving them the choice to purchase extra coverage IF THEY WANT TO. This is not only very viable, but also gives people the freedom to make their own decisions. Fantastic post! Thanks.

  11. Jenny says:

    I agree with Linda. All these principles that Dr. Goodman proposes here are very appealing and certainly needed in order to move forward with a more efficient system. However, very little will be accomplished in the long run if government intervention in prices control is not limited. Government intervention has been a key factor in our health care system getting out of control, simply because no one dares to limit their participation in the decision-making process. They need to back off. Period.

  12. Lloyd says:

    Maybe if Republicans worked on their messaging, they could get the principles of their legislation across to the American people.

  13. Andrew says:

    Wouldn’t expanding the subsidies and preferential tax treatment of health insurance exacerbate our over-utilization of insurance that’s causing the rapid cost increases?