Coburn II
ObamaCare is widely perceived as a Rube Goldberg contraption that treats people in arbitrary and unfair ways. A Republican alternative, therefore, needs to be clear, easy to understand and based on principles that starkly contrast with ObamaCare. It must not be “ObamaCare light.” The first Coburn health reform proposal (the Coburn/Burr/Ryan/Nunes bill) fits this need to a tee.
Using updated numbers, the bill would offer a $2,500 tax credit to every adult and $8,000 to every family of four for the purchase of private health insurance. Since this is roughly what it costs to insure new Medicaid enrollees, if people had the option to use their credit to buy into Medicaid, this would insure universal coverage — something ObamaCare doesn’t come close to doing. Under this approach:
- The CEO and the worker on the assembly line would get exactly the same help from government.
- Everyone would get the same help, regardless of where health insurance is obtained — at work, in the market place or in an exchange.
- Everyone would get the same help — whether you work full-time or part-time, whether you work for a small firm or a big firm, whether you are in a labor union or not.
Plus the bill is an economist’s dream — getting rid of all kinds of perverse incentives in the current system and in ObamaCare. Even Jason Furman, the president’s chief economist, has endorsed this approach.
Now there is a new proposal from Senator Coburn. Here are the main differences:
- A refundable tax credit is offered — not to everyone, but mainly to people who purchase their own insurance.
- Unlike Coburn I, the credit rises with age and falls with income.
- Because it phases out very quickly, an individual earning only $35,000 gets no tax relief at all. None? None. There is no penalty for being uninsured and no reward for being insured for people who are solidly middle class. Yet this same individual would lose the subsidy he now gets under ObamaCare.
- Because of the phase out of the credit, a 50-year-old head of household would see his implicit marginal tax rate increase by 37 percentage points. (I think this is two to three times what it is under ObamaCare.)
- The tax exclusion for employer-provided insurance remains, but is capped at 65 percent of the average cost of employer plans. Although this does create better incentives, it does so in a strange way.
- Under Coburn I, the vast majority of employees would pay less in taxes and this would be true for virtually everyone with below-average wages. Under Coburn II, taxes will go up for almost everyone with an employer plan, even someone earning the minimum wage.
Will this plan help the Republicans win the Senate in November? I report. You decide.
Is it an improvement? You decide.
“Everyone would get the same help — whether you work full-time or part-time, whether you work for a small firm or a big firm, whether you are in a labor union or not.”
This would be as close to universal coverage as we could get, while also seeming like a smart solution.
But that was Coburn I. Coburn II is…different.
I think “worse” is the word you’re looking for.
Maybe we can finish the trilogy with a Coburn III and have a viable, workable solution.
Agree. What happened in Coburn II? It looks like they didn’t want to present a viable solution to the issue. Coburn II looks as complicated and ineffective as Obamacare.
They saw the vague language of ObamaCare and decided two could play that game.
“Even Jason Furman, the president’s chief economist, has endorsed this approach.”
So why hasn’t this approach been given more thought in the White House?
The Coburn I is a clear, easily understandable option for health care reform. Even with support by the president’s chief economist, it is a shame this never got any more traction.
I think it is obvious that ObamaCare got pushed through as more of a political move rather than what was best for the country.
One of Obamacare biggest criticism is the fact that people find it complicated, hard to understand everything that is included in the legislature. ACA is filled with exceptions and clauses that confuse people. In addition to that, healthcare.gov is filled with bugs and it is almost impossible for one to enroll in the program. A simpler program that offers similar coverage would be much better than what we have now.
“Because it phases out very quickly, an individual earning only $35,000 gets no tax relief at all. None? None.”
We can’t leave the middle class out of luck again. Giving them no tax relief at all to buy health insurance is not a good plan.
Coburn I sounded good, though. Can we just have it back? Equality for all?
“The tax exclusion for employer-provided insurance remains, but is capped at 65 percent of the average cost of employer plans. Although this does create better incentives, it does so in a strange way.”
We don’t need any more “strange ways” or hard to understand legislation.
Coburn I leads to lower taxes, while Coburn II increases them. I don’t know what happened, since when Republicans are in favor of raising taxes?
Well, but you have to realize that the U.S. has a large deficit and Coburn I (I think) would cause this deficit to increase. To decrease a deficit you either decrease spending or increase taxes. You cannot expect to eliminate the deficit while decreasing taxes and increase government spending.
Coburn’s a doctor AND a policymaker. He’s exactly the kind of person we should be listening to on topics like this.
This proposal has some good ideas, like allowing Medicaid eligibles to buy private coverage and a guaranteed renewal provision, but a lot of horrible ones, like the failure to equalize tax treatment for people who buy their own and people who get it from their employer, assigning the uninsured to an insurance company, and really nothing on interstate purchasing unless the states enter “interstate compacts.”
To the extent that the program maintains the bias to insurance vis a vis self-pay and the bias toward employer-provided insurance, it is no improvement over Obamacare.
I want to see a system that does not subsidize either insurance or health care, except for the poor or indigent, and that promotes spending on health care where it is cheapest, like in Mexico.
I want a system that forces healthcare providers to publish all prices, offer all comers MFN status. Just as Walmart and Amazon do.
I thought that Coburn One also would have made employer premiums into taxable income for the employee.
You do need a lot of tax revenue if you are going to pass out $8000 tax credits to at least 75 million families, plus the individual tax credits.
Now for the great majority of taxpayers, the credit would have neutralized the rather large tax liability that comes from taking $15,000 a year in premiums or more into ordinary income.
If I am right, and I may not be, then this might be the elephant in the room that led to Coburn Two.
I’m not sure I buy the argument that ultra-simplicity is a necessary, or even valuable, criterion in a replace plan. Our existing system is extremely complex; therefore, any politically viable approach which seeks to improve the old system will also have to be complex on some level. Giving everyone the same subsidy, for example, means that some people will be massively oversubsidized.
Better than Obamacare? That is such a low bar we don’t even need to ask the question.
Coburn II seems to have given up some ground from Coburn I. Specifically, it looks like only employees of firms with fewer than 100 employees get the tax credit instead of exclusively employer-based health care (although, it looks like there may be a typo in the summary).
Sec. 2020 (“continuous coverage” protection) comes very close to health-status insurance but not quite. Nevertheless, any move in that direction is positive. The disadvantage of the provision as written in the summary is that insurers who attract sicker people will not be paid for doing so, which means they will still design plans to shun sick people.
Capping the tax exclusion at 65% could really sink this proposed legislation in a hurry.
Picture a senior employee at a large corporation, or a goverment employee virtually anywhere, or a full professor…….
They now receive employer paid health care, and the employer’s share of family premiums is currently $15,000.
As I read Coburn Two, the new law would bring $5,250 into ordinary income for such a family. If their marginal bracket with 40% counting federal, state, local and FICA taxes, this is a tax increase of about $2,000 a year.
The ACA was severely damaged because about 500,000 individual policyholders have to pay higher premiums.
But the tax increase described above would hit millions of families.
And when they asked, why are we paying more in taxes, what will the Repubs tell them? Beats me.
With respect to sheer politics, giving a tax credit to workers to small firms and capping the exclusion is likely to shed many more Republican voters than add Democratic or Independent voters. But maybe I am wrong.
If they scored the bill to show how it would cut Medicaid spending (by giving more people means to buy private insurance through tax credits) or repealed Obamacare’s Medicare surtax of 0.9% (which goes without saying), then it might swing.
I have been reminded that there are two cosponsors of this legislation: Sens. Hatch and Burr. Burr was a co-sponsor of what I called Coburn I.
@ Avik Roy
Do you regard the $1,000 child tax credit as massively over-subsidizing some and under-subsidizing others? How about the standard deduction?
One thing is for sure. If Republicans want to run against ObamaCare, they need to be able to discuss the health care issue in the same simple way Obama discusses it. So far, they aren’t even close.
“One thing is for sure. If Republicans want to run against ObamaCare, they need to be able to discuss the health care issue in the same simple way Obama discusses it. So far, they aren’t even close.”
I completely agree – this is a massive problem. If the GOP thinks it can run by simply saying ObamaCare doesn’t work, they’re in for a rude awakening.
Avik Roy is correct that our current system is complex — especially considering the changes the Affordable Care Act foisted on the health care landscape. I can see how any proposal that’s not as complex and convoluted as the PPACA will be perceived as too simplistic. On the other hand, unless a proposal contains tangible benefits that are easily explained to non-policy wonks, it will be an uphill battle to implement reforms. A tax credit, that redirects the $300 billion employee health benefit tax expenditures to individuals regardless of where they get their coverage, would solve many of the problems that plague our health care system.
Here is Sarah Kliff on the plan:
http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/27/republicans-have-an-obamacare-replacement-economists-will-love-it-real-people-wont/
It’s a pretty good summary, except that she doesn’t seem to know how the exclusion works.