Republican Study Committee Reintroduces Health Reform Bill

The RSC has re-introduced its American Health Care Reform Act, previously introduced in September 2013.

Most importantly, it eliminates the current exclusion from taxable income of employer-based benefits as well as Obamacare’s tax credits paid through exchanges. Instead, it offers a standard deduction of $7,500 for individuals or $20,500 for a family that buys qualifying health insurance.

The best feature of this is that people who get employer benefits and those who buy health insurance on their own are treated the same by the IRS. In this respect only, it has an advantage over the tax credits proposed by Dr. Price, which are only available to people who get coverage in the individual market, and leave the tax treatment of employer-based benefits untouched.

Dr. Price’s proposal introduces an arbitrage that I left unchallenged in my analysis of his bill, but discussed in a previous blog entry. Nevertheless, a tax deduction means that higher income people get a bigger benefit. Of course, that is a major problem with the status quo, which a standard deduction reduces.

What these Republicans need to do is get together and take the best of both plans: A universal tax credit applicable to everyone, whether they buy coverage individually or through their employer!

NCPA was lukewarm about the RSC’s 2013 bill and my concerns remain. The plan still contains red herrings such as buying health insurance across state lines and association health plans and guaranteeing HIPAA-portability in the individual market. My criticisms of these measures are described in my analysis of the Ryan-Kline-Upton plan.

One place where the plan has improved is with respect to medical malpractice. The 2013 version all but federalized medical malpractice. This version exercises more restraint, granting a right of federal action when Medicare or Medicaid is in the mix.

Comments (19)

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  1. Jimbino says:

    What we need instead is equalization of tax benefits between those who are insured and those who pay for their own medical care.

    Both Medicare and Obamacare virtually force every Amerikan to refrain from seeking medical care in Hungary, Czech Republic, Cuba, Mexico and other cheaper places. Tax breaks for carrying insurance only exacerbate the problem, unless medical tourists could also get benefits for cash spent on medical care overseas.

    Fidel Castro recently got medical care in Spain, something a fully insured Amerikan couldn’t do, signifying that Cuban commies are freer than most Amerikans.

  2. Barry Carol says:

    I’m not impressed by this proposal.

    The proposed tax deduction further erodes the tax base. The deduction is worth more to high income taxpayers than to middle income taxpayers and may be worth little or nothing to taxpayers who don’t owe any federal income taxes because their income is sufficiently low. It also makes no distinction based on the age of the taxpayer. We should be trying to move toward a broader tax base with lower marginal income tax rates across the income distribution spectrum.

    The funding to supplement high risk pools is woefully inadequate. These pools have never worked very well. In the 35 states that had them, premiums covered only about 35%-40% of medical claims on average with the rest covered by general state tax revenues and surcharges on insurance policies.

    Allowing for purchase of insurance policies across state lines will not accomplish much except to encourage a race to the bottom to see which state is willing to offer the fewest and least costly benefit mandates. There shouldn’t be much difference among states in the inherent medical claims risk of their population. To the extent that medical input costs are lower in some states than others and physician practice patterns are more conservative in some states than others as well, out-of-state buyers could arbitrage those differences away over time.

    To conclude on a positive note, the tort reform proposal is basically sound, especially the idea of safe harbor protection from failure to diagnose lawsuits for doctors who follow evidence based guidelines and protocols where they exist.

  3. Erik says:

    Your GOP, working for a better yesterday…

  4. Bob Hertz says:

    Buying insurance across state lines was a big deal when New York had guaranteed issue and Arizona had tight underwriting. Back then, a healthy young man could be charged $500 a month in NYC or $75 a month in AZ for the same coverage. Not the case today.
    I work for a health insurance brokerage. We find that sometimes today you cannot even buy insurance across county lines, much less state lines. In some counties, the providers are hard bargainers and some insurance companies just avoid the counties altogether.
    I have always wondered how the big tax deductions would work in practice.
    Take a family with an income of $50,000 and no employer coverage. Their federal taxes total $7500 today.
    If they can scrape together $12,000 and buy family coverage, what happens? Does their taxable income fall to $30,000 and now they owe no federal taxes?
    If that is the case, we have gone through a lot of effort to do what the ACA is already doing as far as subsidizing this family, and maybe increased the federal deficit as well.

    • Bart I. says:

      If the combined marginal tax rate including federal and payroll for a $50,000 income is around 40 percent, then the $20,500 deduction is worth around $4000.

      So the family’s hypothetical $12,000 insurance bill is really $8000. Is this still too high?

      I dislike the proposal, but for other reasons.

    • Well, okay, but do you think Congress should override New York’s sovereignty over health insurance? Why not building codes and school districts and state income tax rates too?

      Or should New Yorkers not change their politicians?

  5. Barry Carol says:

    If I were starting with a clean sheet of paper, everyone would buy health insurance with after tax dollars and there would be subsidies to help people buy coverage once they spent some reasonable percentage, perhaps 10%, of pretax income to pay the premium with a lower threshold for those with income below 250% of the FPL or thereabouts. Marginal income tax rates would be lowered to offset the loss of the employer health insurance tax preference.

    Unfortunately, the political reality is that the tax preference that has been available for employer coverage since World War II probably isn’t going anywhere. If we’re going to use the tax system to help those without employer coverage by health insurance, I would prefer an age based tax credit because a tax deduction is worth more to higher income people than to lower income people. The tax credit would be, in effect, a voucher to help pay for health insurance. The downside is that comparable health insurance plans can vary in cost by 100% or more from one state or region to another.

    A reasonable middle ground might be to allow employers to maintain the current system of employer based coverage for their employees who work some agreed upon minimum number of hours per week OR not offer health insurance at all and let their employees make use of the age based tax credit / voucher. Employers that previously offered coverage should increase salaries by an amount equal to what they were previously paying for health insurance. The unemployed and those with very low income but too much to qualify for Medicaid could get the voucher plus a subsidy if needed.

    This way, employees who work for large companies and public sector entities that offer generous health insurance coverage could maintain their employment based health benefits while those who work for smaller employers who offer skimpy coverage or none at all plus the self-employed and unemployed could use the tax credit and, if they qualify, get a subsidy as well.

    One issue that would have to be sorted out is whether or not policies less comprehensive than the ACA’s essential benefits package would be allowed to be sold, and if so, how much less comprehensive could they be? I wouldn’t let people buy mini-med plans or go without health insurance altogether and deposit the voucher into a Health Savings Account and then expect to be able to buy comprehensive insurance after you get sick. That won’t cut it.

    • Thank you. The age-adjusted credit could be reasonable if the age bands were widened from 3:1 (under Obamacare).

    • Bart I. says:

      “The downside is that comparable health insurance plans can vary in cost by 100% or more from one state or region to another.”

      That’s one reason a fixed-percentage (of premium paid) tax credit seems attractive to me. If the purpose of a tax credit is to influence (aka distort) behavior anyway, why not start with the degree of influence desired and go from there? The alternative is to set arbitrary fixed amounts that need to be adjusted for age, region, etc.

      A percentage-based credit is more robust in other ways as well. For example, even if mini-med plans were allowed to qualify for the credit (which I don’t favor), since the premium is small the tax credit would be small as well. Contrast this situation with the fixed-dollar-amount credit.

  6. Barry Carol says:

    I have no problem with using a 5 to 1 age rating band to determine age based tax credits that people could use to purchase health insurance.

    However, I think Republicans and conservatives significantly oversell the appeal of this concept as a replacement for employer sponsored coverage. While the value of the employer health insurance tax preference is estimated to be worth approximately $200 billion per year to employees in the form of income and payroll tax savings, even extending a tax preference of similar value to others who buy their own insurance misses how much healthcare actually costs in America and, in turn, what Americans would have to spend beyond the tax credit to acquire decent coverage if employers were out of the picture.

    Specifically, according to data published in Health Affairs last January, private insurers spent just shy of $1 trillion dollars in 2013 paying for care on top of members’ out-of-pocket costs for deductibles, copays and services not covered by insurance. The numbers don’t include claims paid by private insurers on behalf of Medicare and Medicaid members which are included in the data for those programs instead.

    So, if we provided an age based tax credit ranging from $1,200 for a young person up to $6,000 for an older person and 2.5 times that amount for family coverage, individuals would still have to come up with substantial payments to supplement the value of the voucher which will vary considerably from one state and region to another.

    To provide one real world example of employer coverage, someone I know who works for a federal agency in the Mid-Atlantic region and earns slightly less than $100K per year has family coverage for himself, his wife and young daughter. He pays 25% of the premium cost and the government pays 75%. Total insurance cost per year: $15,440. If I count the government share as part of his income, the total health insurance premium consumes about 14.5% of his adjusted gross income and he’s earning almost twice the national median in base salary. Health insurance doesn’t come cheap and the pretending that it does or can is not helpful.

  7. Bob Hertz says:

    Barry, I think that most tax credit proposals aim to keep persons like your friend absolutely neutral. (after all, they are very likely voters.)

    As I understand the tax credit regime, your friend would add about $12,000 to his income (as paid by his employer), and then he would take a deduction from income of about $15,000 ($6K X 2.5 for family coverage.)

    Big deal, is my first reaction.

    I still have not quite figured out what happens to the self-employed family man.

    He gets a deduction from income of $15,000, which lowers his federal tax liability by about $5,000, and then he has to go out and buy a $15,000 policy with after tax dollars.

    As Kim Novak used to sing, is that all there is?

  8. Barry Carol says:


    I was writing in the context of a flat dollar age based tax credit, not a tax deduction proposal. The tax credit idea, though, could easily cost more than the $200 billion the current employer tax preference is worth even if all eligible employees who work for large companies or government entities stay with the current system.

    Separately, so everyone understands what a 5 to 1 age rating band would mean in practice, over a 40 year adult working lifespan before aging into Medicare, premiums would vary based on an index of 100 for the youngest people to 500 for the oldest. If premiums increased linearly every year, the index value would go up by 12.5 points each year or 100 index points over 8 years. If we only increased the age rating every 8 years, then young folks who started out paying based on the index value of 100 at age 26, would pay based on a 200 index value at 34; 300 at 42; 400 at 50 and 500 at 58 until they age into Medicare. If my friend’s community rated government plan were age rated based on a 5 to 1 band, it would probably cost around $6,000 for the youngest employees for family coverage and $30,000 for the oldest employees. Single coverage would probably be 40% of those amounts.

    • Quite right. There is a significant difference between a deduction and a credit, and it is a cause of disunity among reformers who want an individual tax benefit for health insurance.