Repealing and Replacing Obamacare with Patient Power

Published December 12, 2014

Editor’s note: Republican control of Congress is likely to bring a serious effort to repeal and replace the Affordable Care Act. This article is the first of a series designed to explain some of the ideas, policies, and proposals Republicans are likely to consider, starting with the proposal of Peter Ferrara, senior fellow in entitlement and budget policy at The Heartland Institute, which publishes Health Care News. Ferrara recently wrote Power to the People: Repealing and Replacing Obamacare with Patient Power, published by Heartland in December 2014.

Obamacare can be repealed and replaced by free-market, Patient Power health care reforms based on sharply expanding individuals’ power, control, and choice over their own health care, while ensuring health care for all, but with no employer mandate, no individual mandate, and sharply reduced taxes, federal spending, and regulation.

Unlike Obamacare, such reforms would actually reduce the growth of health care costs, through proven free-market incentives and competition, and would promote job creation, rising wages, economic growth, and general prosperity for working people.

Obamacare was sold under the promise of universal health coverage for all, but the Congressional Budget Office projects Obamacare will still leave 30 million uninsured 10 years after full implementation. Moreover, millions of people actually lost insurance upon implementation of the individual mandate, and many millions more will probably lose coverage upon the delayed implementation of the employer mandate, which even the Obama administration unilaterally pushed back, fearing the political effects before the 2014 elections.

Tax Credits for All

The centerpiece of Patient Power reforms to replace Obamacare would be to extend to everyone the same tax preference as employer-provided health insurance now receives. This should take the form of a refundable, universal, health insurance tax credit of roughly $2,500 per person per year, or $8,000 for a family of four. That $2,500 would not be meant to pay for the entire cost of such insurance, but only to help pay for it, just as the tax preference for employer-provided insurance does not pay the entire cost of such insurance, but only helps pay for it.

The second component of the Patient Power reforms would be to transfer control over Medicaid to the states, with the federal financing of the program provided through fixed, finite, block grants to each state, similar to the successful 1996 welfare reform.

Under the fixed, finite, block grant formula, the state knows that if its redesigned state Medicaid program costs more, it is going to pay 100 percent of the difference. And if the program costs less, it will keep 100 percent of the savings. Preferably, each state would use its power under the Medicaid block grants to provide assistance to the poor through health insurance vouchers the beneficiaries could use to supplement the universal health insurance tax credit to help them obtain the private health insurance of their choice. Such Medicaid reform would be enormously beneficial for the poor.

States would each be free to use part of the Medicaid block grants to set up their own Uninsurable Risk Pools to provide coverage to those uninsured who become too sick and costly to obtain insurance in the market. Those insured by the pools would pay premiums based on their ability to pay, so the pools would serve as a safety net. The state would finance the remaining costs. This would ensure health insurance for everyone with costly preexisting conditions.

Consumer Choice and Markets

Through these reforms, the choice of Health Savings Accounts (HSAs) would be extended throughout the whole health care marketplace. Those on Medicare would enjoy the freedom to choose HSAs for their Medicare coverage through Medicare Part C. The poor on Medicaid would enjoy the freedom to choose HSAs for their Medicaid coverage. Workers with employer-provided coverage would enjoy the freedom to choose HSAs through the universal health insurance tax credit.

Consumer choice, market incentives, and competition resulting from the universal health insurance tax credit would further reduce costs as consumers choose among varying marketplace options. The reforms would greatly increase such competition, choice, and market incentives by allowing nationwide competition among insurers across state lines. Including medical malpractice reform as well would complete a highly effective reform package to control health care costs.

Peter Ferrara ([email protected]) is senior fellow in entitlement and budget policy at The Heartland Institute.