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% 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.

[Cross-posted at John Goodman’s Health Policy Blog]

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For the pivotal alternative to ObamaCare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.

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