COUNTERPOINT: Repeal the $9 trillion health insurance tax


The American Health Care Act that the House GOP leadership pulled from the floor last month would not have begun to repair the damage done by Obamacare. A more appropriate title would have been the “Obamacare Preservation Act,” because it would have cemented all of Obamacare’s major features in place.

Despite initially hinting they were done with health care, the White House and congressional Republicans have indicated they want to keep working to fulfill their promise to repeal and replace Obamacare. Fortunately, there are reforms that would provide assistance to more Americans than Obamacare, deliver the largest effective tax in history, and even set the stage for fundamental tax reform.

Obamacare is causing premiums to double and health care to disappear. Its Medicaid expansion encourages states to cut care for the disabled in favor of able-bodied adults. It has left 2.8 million Americans to the tender mercies of just one insurance company — if that insurer sticks around. It has driven every insurer from the Exchange in east Tennessee, leaving 43,000 enrollees with no Exchange coverage at all in 2018, with more destruction to come.

The Obamacare Preservation Act inexplicably retained the regulations responsible for that damage, increased premiums 20 percent, and left more people uninsured than a straight repeal. It repealed Obamacare’s Medicaid expansion in name only, while its other Medicaid provisions recreated Obamacare’s incentives to expand Medicaid to able-bodied adults while cutting care to the disabled.

Rather than adopt Obamacare 2.0, Republicans should provide immediate and lasting relief to patients by keeping their promise to repeal Obamacare in full, and then replace it with Medicaid block grants and “large” health savings accounts. Each of these proposals complies with the special Senate rules that allow measures to pass by a simple majority.

The CBO has estimated the ACA’s insurance regulations increase individual-market premiums an average 10 percent to 13 percent. Full repeal would provide immediate relief to consumers by causing premiums to fall for the vast majority in that market. Insurance protection would become affordable even for many current Medicaid enrollees.

There is plenty of money in the Medicaid system to cover many Exchange enrollees who still could not afford coverage. Unlike the House bill, zero-growth block grants would put Medicaid on a budget and give states flexibility to redirect those funds from the fraudsters to the truly needy. Eliminating the House bill’s new entitlement spending would free up resources to get states on board.

Reform must further reduce the number of patients who need subsidies by giving patients immediate and lasting relief from outrageously high health care prices. Falling prices, like we see in other sectors of the economy, are the most important form of assistance we can provide to vulnerable patients.

Unlike Obamacare’s and the House bill’s entitlement spending, Large HSAs would bring down health care prices by completely ending federal tax preferences for third-party payment.

Private-sector experiments show that when consumers spend their own money instead of an employer’s, they cause prices to plummet by as much as 32 percent for lab tests, MRI and CT scans, cataract removal, colonoscopy, shoulder and knee arthroscopy, and hip and knee replacements. These price reductions are just the tip of the iceberg. One experiment reduced the average price for joint replacements at high-cost hospitals by an average 37 percent, or $16,000.

The tax code now penalizes workers who take this compensation as wages. Eliminating that penalty would, over the next decade, let workers control $9 trillion of their earnings that the tax code otherwise would hand to their employers. Repealing this $9 trillion health-insurance tax would be a larger effective tax cut than the Reagan and Bush cuts combined. It would also drive medical prices down, bringing health care within reach for millions.

Michael F. Cannon is director of health policy studies at the libertarian Cato Institute and co-editor of “Replacing ObamaCare” (Cato Institute, 2012). He wrote this for InsideSources.com.



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