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Philip Klein: A challenge for free market health care policy

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Politics,Beltway Confidential,Philip Klein,Politics Digest

For years, a central goal of the free market health care community has been to alter the tax code’s treatment of health insurance so that it no longer gives an unfair advantage to employer-based coverage. But now that President Obama’s national health care law is starting to get implemented in earnest, this has become a much trickier proposition.

Under the current tax regime,  individuals who pay for insurance on their own don’t get to exclude those expenditures from their taxes, whereas those who obtain their health coverage through employers can. Having an employer-based insurance market means that individuals cannot take their insurance with them from job to job in an increasingly mobile workforce and it makes it harder for individuals who work on their own to get insurance. It means that there’s less choice, because people who obtain insurance through their employers are stuck with whatever policies they’re offered by their companies. And also, the perpetuation of a third party buyer system in which individuals are more insulated from the cost of their health care provides them with less incentive to shop for the best deal, thus making it harder to foster a functioning competitive market that controls the growth of costs.

With Obamacare in place, however, the implications of scrapping the employer tax exclusion on health insurance are radically different. Instead of individuals migrating from employer-based insurance to a budding free market, they’d end up in a highly regulated market in which government dictates what type of insurance they must have and would likely flood into the government-run insurance exchanges. This is one of the main reasons Paul Ryan gave for voting against the Simpson-Bowles deficit reduction plan. He argued that because it phased out the employer health insurance exclusion while keeping Obamacare in place, it would merely accelerate the government takeover of health insurance as employers dump their workers on the exchanges.

In the wake of the Supreme Court decision and Obama’s reelection, the window for fully repealing Obamacare has closed, triggering a debate among free market health care policy types. Avik Roy, for one, has been arguing we’re now stuck with Obamacare and pushes a jiu-jitsu strategy of using its structure to help reform Medicare. In contrast, Michael Cannon sees the law as still vulnerable, and urges continued resistance.

Obamacare will have a litany of implementation problems in the coming years, even if ongoing legal challenges to the law fail. I’m doubtful, for instance, the Obama administration is equipped to overcome the technological hurdles and get federal health insurance exchanges ready by October in the growing list of states that have refused to set up their own exchanges (22 states currently have said “no”). I don’t think Americans will take kindly to the longer waits for doctors’ services and higher premiums that they’ll start to see in 2014, or to the flood of new taxes and regulations. At the same time, I do think that at least some Americans will receive government benefits from the law that they won’t want to give up, so that will make it politically difficult to repeal Obamacare entirely.

Health care will be a big issue in the mid-term elections and in the 2016 presidential election. There will be a window to revisit aspects of Obamacare legislatively even if full repeal is unlikely. Republican candidates will have to develop some sort of path forward on health care, because if they miss this window, Democrats will eventually use an opening to expand government’s role even further, with the ultimate goal being a single-payer system. Given all the uncertainty, however, it’s become trickier for free market health care policy types to base their solutions around scrapping the employer tax exclusion.

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Author:

Philip Klein

Commentary Editor
The Washington Examiner