Believe it or Not, The Republican Obamacare Replacement Plan Might Come Together

health-care-costs(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.

Comments (27)

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  1. Al says:

    After 62 attempts to eliminate Obamacare, Repubs are only ‘now’ serious about coming up with ideas??? Normally, a doctor has a plan to improve a patients looks prior to cutting Off the nose. I also must assume that no formal ideas will emerge prior to the election???

    • Al or Allan based upon what the above individual wishes to call himself. says:

      It seems a similar problem of the past has recurred. If my memory serves me correctly in the past an Al Baum (or Baun) changed from his full name to my name causing confusion so I changed my name.

      To the Al above whether it be the former Al Baum or someone else that is new to the blog let me know below if you will be continuing to use the name Al or not. It would be best for each of us to be identified as to whom we are especially since you seem to have the very Liberal politics of the former Al Baum and I am somewhat libertarian or conservative based upon definitions.

    • I cannot guarantee what the Republican leadership will do. However, I think it unlikely Speaker Ryan would have appointed these task forces unless he meant them to do something substantive.

  2. Margaret Aten says:

    @Al From the article: 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).

  3. Ron Greiner says:

    Al, these ideas have been floating forever. Did the media not tell you? We have been discussing Price’s age-based tax credits here at the NCPA for a while.

    We are passed the point of no return. Employer-based health insurance is dead, plus Obamacare is dying. A majority of Americans will be able to get 100% of their health insurance expense paid by Price’s lower tax credits. This will lift the heavy burden of health insurance off the backs of America’s employers and the economy will soar like never before.

    Plus, Ford can bring their manufacturing plant back to the United States from Mexico.

    I can just hear the CEO of Florida Blue Cross saying – This is like the IRS paying workers not to buy our health insurance at their jobs! I say, live by the sword – die by the sword!

    American don’t want some greedy uninformed employer choosing the health insurance on their children.

  4. Jimbino says:

    To empower patients, it would be advisable to allow spending of healthcare dollars, whether Obamacare, Medicare, Medicaid or VA in Cuba, Mexico and other countries that offer much cheaper and, sometimes, better care. As it is now, there is no excuse to participate in Obamacare or employer-provided insurance when cash dollars buy a far better bargain in Cuba. Of course, you would need to fiddle your tax withholding to avoid the Obamacare penalty and work as a contractor instead of employee (at higher pay!) to avoid employer-provided insurance.

  5. Bob Hertz says:

    I lost track of the Upton proposal with the exclusion of anyone who worked for a firm of more than 100 employees.

    Does this mean that an employee of Pizza Hut who makes $20,000 a year will get no tax credits?

    Does this mean that the spouse of a Miami teacher, who would have to pay $1,200 a month to get onto the school district plan, will get no tax credits?

    Count me out on this one unless the above questions are resolved.

    • Quite right. Plus for a fast-food chain, there will be discrimination between restaurants owned by the corporation and those owned by franchisees, if the latter only own one or a few restaurants (with fewer than 100 employees total).

  6. Al says:

    I’ve been away from this site for a while, only occasionally checking to see if it was still obsessed with eliminating Obamacare … Which it is.

    Al-1: you always get upset when someone else also has the same name. I think readers can distinguish between our positions. Your Libertarian moniker is safe.

    John: thank you for the article and courteous answers.

    Ron: employer based health insurance has been dying for decades; the cause is not Obamacare, but unreasonable profits guarnered be the insurance, healthcare, and pharmaceutical industries. The solution is in my conclusion.

    All: I should rephrase my point. The Republican side of the isle(s) have not put forth any legislation of sufficient value to the nation as to be passed by Congress and approved by the President into law (with the exception of eliminating business 1099 reporting). The ‘Credit’ proposal is already incorporated within Obamacare. In reality, in the unlikely event that the ACA is ‘repealed’, any iterations of healthcare legislation passed into law will include many of the aspects of Obamacare 1 … therefore known to the public as Obamacare 2, IMHO.

    In conclusion, the only way to provide ‘adequate’ healthcare services to all citizens and control costs is to move the healthcare industry into the 21st century and complete the nationalization of it. Unfortunately that hits the pockets of most who read this blog, except Al-1, who is retired and already on government healthcare. 😉

    • Al or Allan based upon what the above individual wishes to call himself. says:

      Al, you went by your full name and knew it when you changed it to Al perhaps for juvenile reasons, perhaps not. No, I don’t think it is fair to the reader to have to spend the effort trying to make sure who is saying what.

      Liberals are very selfish so they only think of their world, not the world of others. Most were used to my use of the name Al and yours as Al Baun. If you desire not to change back to your original name I’ll change mine, but since I have been posting for months and you haven’t it might take time to get people used to such a change.

      We’ll shortly see a demonstration of how caring of other persons the Al Baun Liberal is.

      • Al says:

        Al, you need to focus on the topic being discussed and contribute constructive arguments, not be preoccupied with your ‘handle’.

        • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

          I guess the selfishness of the left comes through. I choose who I wish to associate with so I will change my ‘handle’ so that when you make your outrageous and frequently erroneous claims no one has any doubt who is talking.

          Yes, this is an example of what you have and bring to the table. It appears you have not changed since you last were on the list.

    • Thank you. I wonder why we seldom see other Johns commenting?

      • The big ham says:

        Because there can only be one John. The blog dosent have time to train 2 😄

        • John R. Graham says:

          “Train”?!?! Haven’t you heard the one about a room full of monkeys with typewriters eventually coming up with the complete works of Shakespeare, given enough time?

          • Ron Greiner says:

            No I have not heard that one. Jimmy Buffett sings about monkeys.

            We’ve made it nearly twenty centuries
            A bunch of monkeys with PhD’s.
            Spun a web of communications
            But it’s all still a tangle to me.
            I can’t tell the spiders
            From the dangling flies and moths.
            I fell like some outsider,
            Who seems to have his wires all crossed.

            Desperate for a glimpse of the future.,
            We use crystals and cards and dice.
            And that Donald Trump is coming our way.
            They’re talkin’ ’bout some worldly strife.
            It’s time to think of simpler options.

            The big ham needs to formulate a big plan B.

  7. Erik says:

    Tax Credits are another word for Vouchers. The Voucher System will not work and it will leave a hole between the Voucher and the Premium. It is another tax disguised as a benefit.

    We need single payer to bend the curve.

    Where is the Jobs Program the Republicans have been promising for almost a decade now???

    • The tax credit does leave a gap. Individual have to pay towards their premium, but also directly for health care. Those who cannot go to the safety net.

      • Erik says:

        The Article is about replacing Obamacare which is not a safety net program. Are you suggesting increasing Medicaid nationally?

        So how does someone making 25k a year pay the difference in the premium along with a higher deductibles, out of pocket maximums and copays?

        They can’t. So let’s say they catch Zika and don’t go to the doctor due to costs. How many people do you think they will infect?

    • The big ham says:

      Employers wrote off almost $900 billion for employee health insurance last year. This cost tax payers nearly $360 Billion. The money for tax credits is already being spent. When the tax credits are giving to the individuals then you will see a dramatic decrease in over priced insurance plans. Individuals will not spend $30000 a year on insurance plans like the state of Iowa is doing for it employees now. they will buy plans that meet there needs.

      • John R. Graham says:

        All expenses are tax deductible for corporations. Are you suggesting corporations be taxed on gross revenues?

  8. Barry Carol says:

    The big ham — The cost to taxpayers is nowhere near 40% of the premium even including payroll taxes. The marginal income tax rate for most folks with employer health insurance is 25% of less and, for many, it could be zero after personal exemptions and the standard deduction. I would peg the value of the employer provided health insurance tax preference at closer to $225-$250 billion.

    • Bart I says:

      Don’t forget Social Security and Medicare taxes which are also excluded. And don’t forget state income taxes.

      Although the $250 B is closer to what I’ve seen.

      • John R. Graham says:

        The federal income tax expenditure is $145.5 billion for 2015. See Joint Committee on Taxation JCT-141R-15 (12/7/15) p. 38. Then you have to also consider payroll taxes and state income taxes, as you state.

  9. Bob Hertz says:

    Note to Erik:

    Your comment on Zika is interesting, and what would happen if someone could not afford to see a doctor with that disease.

    Now, a rational health care system would offer free treatments for contagious diseases, and would only apply deductibles toward more discretionary care.

    It does go back to the same philosophical question that I have raised before….namely, do we as citizens have a duty to help other people with their self-contained, chronic illnesses?

    If you have diabetes or high blood pressure, that does not make me any sicker.If you die ten years earlier from untreated chronic illness, that does not make me worse off. (in fact it indirectly makes me better off, because Social Security and Medicare will last longer for me.)

    In countries less wealthy than the USA, that is not absent from the national calculation. The British NHS has always had free health care for children and free ambulances, etc., but dialysis was at one point not provided to anyone over age 65.

    I am not trying to lead a new Ayn Rand movement. All I want to do is to point out that health care rationing is not entirely evil.

    • John R. Graham says:

      There is no zika yet in the U.S. I believe the prophylactic is to kill the mosquitoes. I read that Dallas is going to spray early to ensure minimal risk, and other U.S. jurisdictions are also thinking about doing so.

      This is classic public health action. Few would say it is an inappropriate use of taxpayer dollars.