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GOP Health Plan: Good, Bad and Ugly



The House Republican Study Committee has a new health proposal. It would repeal the Affordable Care Act and substitute the following:

The Good

  • In place of the current system of excluding employer health expenses from the employees’ taxable income, the plan would give people a standard health deduction of $7,500 (individual) or $20,000 (family), regardless of how much the insurance actually cost. The incentive effects here are very good. No longer could people lower their taxes by spending more on health insurance or face additional taxes if they find ways to economize.
  • HSA restrictions would be substantially liberalized, including allowing HRA deposits to be withdrawn as taxable income (which would double the number of people who can now do that), letting FSAs roll over (effectively creating 35 million new HSA accounts) and extending the HSA concept to Medicaid.

The Bad

  • Unlike the more familiar idea of a tax credit (with the same subsidy for everyone), this approach gives the largest tax break to the highest income earners. It is probably even more regressive than the current system. [And there is absolutely no defensible reason for structuring it this way!]
  • It solves the pre-existing condition problem by making health insurance guaranteed issue for anyone with continuous coverage. This gives plans incentives to dump their sickest enrollees on other plans and creates other perverse incentives for buyers and sellers of insurance. It’s possible that these perverse incentives may be worse than similar incentives under ObamaCare.

The Ugly

  • The plan takes away the ObamaCare subsidies for an estimated 25 million newly insured and has no provision to help the roughly half of the population that pays no income tax.

For better ideas on reforming the American healthcare system, see my Independent Institute book, Priceless: Curing the Healthcare Crisis.

[Cross-posted at Psychology Today and John Goodman's Health Policy Blog]

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