"The Affordable Care Act is here to stay," gloated President Obama after the King vs. Burwell Supreme Court decision was announced on Thursday. "Anyone seeking to lead our country should stand up and support this decision," said Hillary Clinton. Not so fast. Today, June 26, is the first day on the path to the eventual rewriting of the so-called Affordable Care Act.
Regardless of what the Supreme Court says about the constitutionality of the insurance subsidies in the 34 federal exchanges, the Act has been an economic policy failure. It is unsustainable and unpopular. American businesses have been contorted into inefficient postures, slowing the hiring of American workers, all in an effort to comply with the absurdities of the law. Young Americans are being punished with higher premiums to subsidize older, wealthier people.
While a few million vocal individuals benefit from the Act, tens of millions are worse off as a result, paying higher premiums yet unwilling to see doctors because of high deductibles--the amount they need to pay before accessing benefits. For the cheapest Bronze plans, the average deductible for individuals is $5,181, and for families is $10,545.
The dramatic failures of Obamacare were documented by a new Congressional Budget Office reportreleased last week. The report showed that repealing the Affordable Care Act while keeping the Medicare cuts in place would reduce deficits over the 2016--2025 period. The Act is costing America $216 billion over 10 years due to reduced labor supply, and repealing it "would boost employment and taxable income." The Act's provisions "reduce the supply of labor by decreasing some people's incentives to work," states the report. In addition, "repealing the ACA would increase the capital stock over the 2021-- 2025 period." In 2014, CBO estimated that the Act will lower the size of the labor force by 2.5 million full-time-equivalent workers by 2024.
Similarly, University of Chicago economics professor Casey Mulligan concluded that total employment hours will fall by about three percent due to the ACA. More employees will be working 29 hours a week when they would prefer full-time jobs, a group he calls "29ers." The term "29ers" refers to those who will have their weekly work hours cut to 29 so their employers can avoid paying penalties.
Here are six proposals for Congress as it begins the work of ending the disaster that is the Affordable Care Act and crafting a law that will benefit Americans and increase economic growth. Space constraints prevent me from adding more. Americans need to choose a president who will sign these changes into law.
Give everyone a tax-free subsidy to purchase health insurance. Health insurance is in its current mess because for decades it has been the responsibility of employers. Employers were allowed to offer health insurance as a tax-free benefit after World War II when wage increases were forbidden. This destroyed the market for health insurance, no rational person would pay for health insurance out of after-tax income when their employer would provide it out of pre-tax income. That is why people hear ads on the radio saying "Call Geico for a 15-minute quote and lower your auto insurance costs," but they never hear "Call Blue Cross-Blue Shield for a 15-minute quote and lower your health insurance bill."
This tax preference for health insurance costs Uncle Sam $250 billion in lost revenue annually. Moving the tax preference from the employer to the individual purchaser, with the purchaser selecting the insurance company, would lead to a multiple companies offering health insurance plans, just as many companies offer auto, home, and life insurance. If Americans were permitted to purchase health insurance over state lines, their insurance options would be even greater.
Develop risk-pools for those with severe pre-existing conditions. In order for markets to function properly, the state should insure those with severe pre-existing conditions to prevent these individuals from causing price increases for everyone else. AEI scholars James Capretta and Thomas Miller have written extensively on the design of risk pools. They write in National Affairs, "If an insurer believes that an applicant's health status argues for charging him a premium higher than, say, 1.5 times the standard rate, the insurer should be allowed to direct the customer to the high-risk pool program in his state. The job of determining eligibility for the subsidy should be contracted out by the state to a neutral third party with experience in medical-insurance underwriting, with private insurers collaborating to determine in advance the criteria for high-risk selection."
Repeal the Employer Mandate. ACA reform should include reducing disincentives to hiring. This means repealing the requirement that employers must offer health insurance or pay a fine. Employers with 100 workers or more now face a substantial penalty for not offering the right kind of health insurance. In January 2016, the penalty will apply to employers with more than 49 employees. This encourages firms to keep hiring down, or hire part-time employees to avoid the penalty.
President Obama is fully aware that the employer penalty is burdensome and interferes with hiring, because he has already postponed it twice. In the statutory language of the Act, which does not appear to matter much these days, the employer penalty was supposed to take effect for all companies in 2014. In July, 2013, it was postponed for all companies until 2015. Then, in February, 2014, it was postponed again for small companies until 2016.
The employer penalty is estimated to bring in $167 billion over 10 years to the U.S. Treasury, according to last week's CBO study. But the damage the penalty is doing in the long run is far greater in terms of lower employment and reduced incomes, which result in lower tax revenues. By ending the employer mandate to provide health insurance, employers would be free to hire more full-time employees.
Allow any state-approved plan to be offered on the exchanges. Currently, all plans offered have to contain free preventive care, drug abuse coverage, mental health coverage, free contraceptives, and even free pediatric dental care--even for those without children. People should have the option of buying a basic plan without bells and whistles.
Catastrophic health insurance, which offers protection for major illnesses, but not for routine care, should be available for sale. Under the Affordable Care Act, only people under 30 are allowed to buy a form of such insurance, and the cost is not substantially lower. Many Americans would like to purchase catastrophic insurance at lower cost, just as they can purchase collision auto insurance instead of comprehensive.
Eliminate the Independent Payment Advisory Board. IPAB has the power to decide which drugs and devices are cost-effective and therefore permitted, and which are not. This stymies innovation by sending a message to companies that innovative treatments will not be covered. An expensive drug or device one year can fall in price and become routine the following decade, just as with smartphones, computers, and laser eye surgery, as well as spawning other pharmaceutical and biomedical inventions.
Eliminate mandatory electronic medical records. As Charles Krauthammer, columnist and physician, has documented in two successive columns, both called "Why Doctors Quit," found here andhere, electronic medical records are wreaking havoc in physicians' offices. Doctors have to look at computers and write notes instead of looking at their patients. The electronic system takes longer so doctors can see fewer patients. It should be up to doctors to choose their own system of record-keeping. It is far harder for the Chinese to hack into paper records than into electronic systems.
President Obama and Hillary Clinton say that Obamacare is here to stay. Most Americans hope they're wrong. With the judicial drama over, it is up to Congress to move forward on reform.
Diana Furchtgott-Roth, director of Economics21 at the Manhattan Institute, is the coauthor of"Disinherited: How Washington Is Betraying America's Young." Follow her on Twitter here.
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