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Mitt Romney Outlines His Plan to Replace Obamacare

June 20, 2012

By Avik Roy

Last week, Mitt Romney gave a speech in Orlando, where he outlined his plan to replace Obamacare, whether or not the law is overturned by the Supreme Court. The Romney plan would dramatically improve the private insurance market, by ending the tax-code discrimination against those who buy insurance for themselves, rather than through their employers. Romney also described how his Medicaid reforms would help the uninsured, and those with pre-existing conditions.

In March, in the wake of Obamacare’s two-year anniversary, Mitt Romney described his vision for market-oriented health reform. "Everyone can agree that health care is broken," he said in a speech in Metairie, Louisiana. "So the last thing we should do is allow Obamacare to freeze the current system in place. Instead, we need to encourage innovation at every level. States should have the flexibility to pursue new policy approaches. Insurers and providers should have the opportunity to compete in a genuine market. Most importantly, patients should have the information and control they need to make choices about what they actually want."

In Orlando, Romney reiterated his desire to level the playing field between those who buy insurance for themselves, and those who get it through their employers: something that I have long discussed as a linchpin of market-oriented health reform. "If you’re a very small-business person�let’s say a one-person business�you don’t get a tax deduction for buying insurance," said Romney. "And if you’re an individual that’s not employed, you don’t get a tax deduction for buying your own insurance. What I would do is level the playing field and say, ’Insurers can buy insurance on the same tax-advantaged basis that businesses can.’"

How to end the tax discrimination for health insurance

There are a number of ways to equalize the tax treatment of health insurance. One would be to do what George W. Bush proposed, and create a standard deduction that any taxpayer can take advantage of. Another would be the approach championed by Paul Ryan and John McCain, among others, in which every American would get a fixed tax credit, or subsidy, with which to buy insurance for himself. A third approach would be a hybrid system, in which taxpayers could choose between either the deduction or the credit, or in which those falling below an income threshold would get the credit.

Wonks and pundits have been speculating as to which of these approaches Romney favors. While I can’t contribute to the speculation�I am an adviser to the Romney campaign on health reform�I can say that any of these approaches would be a vast improvement to the status quo. By moving to an individual market for health insurance, Americans would be able to keep their plans when they change jobs. In addition, they would drive premiums downward by shopping for value, and not overpaying for unneeded benefits.

Addressing those with pre-existing conditions

Moving to a system where individuals own their own insurance plans is the best way to prevent the problem of pre-existing conditions. If you keep your insurance, no matter your other life changes, you’ll remain covered. While liberals exploit this problem as a rationale for more government intervention, they neglect to mention that it is the tax discrimination with employer-sponsored insurance that is the primary cause of the problem.

Nonetheless, Romney wants to "make sure that people can’t get dropped if they have a pre-existing condition." As regular readers of this blog know, simply mandating that insurers accept everybody is a recipe for disaster, because it incentivizes people to only sign up for insurance when they are sick, and canceling their policies afterwards. Instead, Romney proposes a conservative solution: "We’re going to have to make sure that�people who have a pre-existing condition�who’ve been insured in the past�are able to get insurance in the future, and don’t have to worry about that condition keeping them from getting the kind of health care they deserve."

Freeing states to address the uninsured

A big part of the Romney plan�one that would unleash tremendous health-policy innovation�is to give Medicaid back to the states in the form of block grants. This would free states from the mountain of red tape in Washington, and allow them to address their uninsured population in the way that makes sense for them. I’ve highlighted in the past how federal bureaucrats have thwarted modest and successful reforms in Illinois and Indiana. Contrast their experience to that of Rhode Island, where Medicaid reformers made significant headway due to a block grant-like waiver from the feds.

Another notable idea from Gov. Romney echoes something that President Bush proposed in 2007: block-granting federal DSH payments to the states. The federal government makes these Disproportionate Share Hospital payments to hospitals that treat a disproportionate number of uninsured patients, to the tune of $11.3 billion in 2011. States could use that money to improve their Medicaid programs, or cover the uninsured using consumer-driven health plans.

"I believe in the Tenth Amendment," Romney said in Orlando. "I believe the states have responsibility to care for their people in the way they feel best. But to help states care for their own uninsured, I would take the Medicaid dollars that comes with all sorts of strings attached today, send them back to the states along with something known as the DSH money, and let states care for their own people in the way they think best. That�in my view�is the best way to care for the uninsured."

Is Romney’s plan too vague?

Not everyone is impressed with Romney’s proposals. "There aren’t enough details to go into," writes Ezra Klein. But Ezra notes that John McCain "got flayed" by then-candidate Obama for proposing universal coverage via a $2,500 tax credit for individuals and a $5,000 credit for families, despite the fact that McCain’s plan would have achieved universal coverage, unlike Obama’s plan.

Paradoxically, Ezra then argues that Romney’s plan "means those folks won’t get health insurance," whereas Obamacare "is expected to insure about 30 million Americans." (The latest Congressional Budget Office estimate is 33 million.) First of all, we might want to wait until the Supreme Court rules before using that 30-33 million figure. The CBO projects that the law’s coverage expansion would decrease by 16 million if the individual mandate is overturned.

Meanwhile, Obamacare will massively drive up the cost of insurance, which will exacerbate the problem of the uninsured. If you want to increase the number of people with health insurance, you have to get the government out of the way, so that premiums can go lower. That’s what Romney aims to do, and what Obamacare manifestly does not.

Original Source: http://www.forbes.com/sites/aroy/2012/06/20/mitt-romney-outlines-his-plan-to-replace-obamacare/

 

 
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