Today in New Hampshire, former Florida Gov. Jeb Bush unveiled his plan to repeal and replace Obamacare. In many ways, the plan reflects the mainstream of Republican wonk thinking on health care, and expresses similarities to an earlier plan proposed by Wisconsin Gov. Scott Walker. Like Walker’s plan—but in a different way—Bush’s plan seems likely to increase the deficit.
(DISCLOSURE: I am advising Sen. Marco Rubio, but the opinions in this post are mine, and do not necessarily correspond to those of Sen. Rubio.)
Some conservatives have complained that Bush stayed silent during the Obamacare fights of 2009 and 2010. But in the years since, Bush has regularly expressed his desire to repeal and replace the law. Today’s address gives us some more detail as to how Bush would do so.
An emphasis on innovation
Refreshingly, the first section of the Bush plan is oriented towards promoting innovation. Medical innovation—especially new drugs and medical devices—has done more to improve public health than any insurance scheme. But it now costs an average of $2.6 billion to bring a new drug to market. In his plan, Bush implicitly endorses the 21st Century Cures movement led by Congress and my colleagues at the Manhattan Institute, which would make modest improvements in the FDA’s regulatory process. Furthermore, Bush would “undertake a top-to-bottom review of federal regulations that impede access to higher-quality and lower-cost health innovations,” and increase spending on the National Institutes of Health.
Furthermore, Bush calls attention to a problem that his cousin, Athenahealth CEO Jonathan Bush, has long raised: the regulatory barriers that have prevented the digital revolution from improving health care delivery. “The government spent more than $30 billion on federally-approved health information technology (IT) for physicians and hospitals,” notes Bush, “but one hospital system still cannot share patient information with another to coordinate care. And the IT systems are so complex that physicians spend less time with patients.”
To address this problem, Bush advocates establishing “national standards for electronic health record features and data interoperability,” repealing Obama-era IT adoption mandates known as “meaningful use,” and allowing patients to own their medical data. Furthermore, Bush wants entrepreneurs to have access to “de-identified claims data” that could “allow entrepreneurs to use the biggest clinical data repository in the country” to identify opportunities for private-sector reform.
Refundable tax credits for the uninsured
Bush would fully repeal Obamacare’s coverage expansion, and replace it with an “advanceable, refundable tax credit” that would “be based on the average tax benefit that workers who get coverage through their jobs enjoy.”
Notably, Bush does not explicitly take sides on the key intra-conservative debate on replacing Obamacare: whether or not value of the tax subsidy should be the same for every eligible recipient, or whether it should be means-tested to direct more assistance to lower-income Americans. My Forbes colleague John Goodman has discussed the plan with Bush campaign staff; in his review of the Bush plan, John believes that the credit is meant to be uniform in value, regardless of income. The campaign’s published documents, however, do not make that clear, instead stating that eligibility for a credit will be offered regardless of income.
The plan would adjust the value of tax credit by age, and increase with inflation: a key cost-control measure.
Expansion of health savings accounts
The tax credits could be used to purchase not only comprehensive health insurance but also catastrophic plans, with the remaining value of the tax credit deposited in a health savings account.
Indeed, a core aspect of the Bush plan is a dramatic expansion of health savings accounts. Bush would increase the annual tax-free HSA contribution cap from $3,350 to $6,550. Furthermore, Bush would allow employers to make tax-free contributions to workers’ HSAs, a major change that could turbocharge the individual market for health care and health insurance.
Bush partially offsets these tax changes by replacing Obamacare’s “Cadillac tax” with a cap on the tax break for employer-sponsored health insurance. Beginning in 2018, Obamacare imposes a 40 percent excise tax on the value of employer-sponsored coverage in excess of $10,200 per employee or $27,500 per family. (For more on how the Cadillac tax works, see my detailed backgrounder from 2012.)
Bush would replace the Cadillac tax with a standard deduction that is capped at $12,000 per individual or $30,000 per family: a higher threshold than the Cadillac tax, but one that would grow at inflation, most commonly measured by the Consumer Price Index. (The Cadillac tax grows at CPI plus 1 percent for the first two years, then CPI thereafter.) Hence, relative to Obamacare, Bush’s plan would do less to tackle the profound inefficiencies of employer-sponsored coverage.
Medicare reform: TBD
Bush’s plan, by repealing Obamacare, would by itself repeal Obamacare’s $850 billion in Medicare cuts, resulting in a dramatic increase in entitlement spending. However, Bush promises to “release a separate plan to strengthen and secure Medicare,” one that could, in theory, reallocate Obamacare’s Medicare cuts toward a reformed program in a deficit-neutral fashion.
Dramatic reform of Medicaid
The Bush plan is most ambitious in its effort to reshape Medicaid, which provides government-subsidized health coverage for the poor and disabled. Bush would give states the option to replace Medicaid with “capped federal allotments” that could be used to “offer an affordable, catastrophic plan” to Medicaid enrollees. “States could supplement the new tax credit,” with their own funds, “so that low-income individuals have a fully funded HSA to meet all of their out-of-pocket costs.”
The plan appears to seek to take the refundable tax credits offered to middle-income earners, and offer them also to those on Medicaid, while deploying the dollars from the old Medicaid program to supplement those subsidies. The plan isn’t clear on whether this is meant to dramatically reduce subsidies for coverage for those with lower incomes, or whether the idea is to actually supplement Medicaid spending with additional tax credits.
It’s an important question; if the idea is to substantially reduce federal health subsidies for low-income individuals, the plan is more likely to be deficit-neutral by re-allocating federal dollars from the poor to the middle class. If the idea is to offer the poor the ability to combine Bush’s tax credits with Medicaid’s dollars, the result would be hundreds of billions of dollars in increased federal spending.
Does Jeb’s math add up?
So let’s add up the dollars in Jeb’s plan, using the Congressional Budget Office’s convention of ten-year scoring.
1. Increase NIH funding: Bush doesn’t specify the amount of new spending, but let’s call it $50 billion over ten years.
2. Repeal Obamacare tax hikes: replace with cap on employer tax exclusion: Roughly speaking, this will reduce taxes (and increase the deficit) by about $1.1 trillion over ten years.
3. Repeal Obamacare Medicare cuts: replace with unspecified reforms: Let’s give Bush the benefit of the doubt here and assume that this change will be deficit-neutral.
4. HSA expansion: Bush’s increase of HSA contribution caps, along with allowing employers to make tax-free HSA contributions instead of offering coverage, could reduce taxes (and increase the deficit) by as much as $600 billion over ten years.
5. Repeal Obamacare coverage expansion: replace with smaller tax credits: Bush’s plan doesn’t give hard numbers here, but if Bush is in line with other replacement plans, this approach could reduce federal spending by $1 trillion over ten years.
6. Medicaid reform: Bush’s plan is not clear on whether or not his changes to Medicaid would increase or reduce spending on those eligible for Medicaid prior to Obamacare.
That adds up to $950 billion in spending cuts over ten years, and $1.7 trillion in tax cuts over ten years, for a static deficit increase of $750 billion. (The actual deficit impact could be lower if Bush’s reforms lead to more economic growth.) The two big uncertainties concern Bush’s approach to Medicare (to be determined) and Medicaid (unclear).
Given the importance of proposing an Obamacare replacement that is roughly deficit-neutral, it’s unlikely that Bush would be able to achieve all of what he is proposing here. To make the math work, he’d either have to dramatically reduce Medicaid spending—something that would be unlikely to clear the Senate—or he’d need to scale back his tax cuts, either by junking his HSA reforms or preserving Obamacare’s tax hikes.
A work in progress
All told, Bush’s plan to replace Obamacare is best seen as a work in progress. When it comes to the key fiscal questions of how to reform health care entitlements—Medicaid, Medicare, and tax subsidies—Bush’s plan isn’t fully fleshed out. But benchmarked by the standard of what other Republican candidates have put out, the level of detail is in the top tier.
Bush’s plan shares the virtues and the limitations of those put out by other candidates, and may contain internal contradictions. Importantly, Bush has placed himself squarely in the mainstream of Republican thinking on these issues. Will it help him persuade skeptical Republicans of his conservative bona fides? That remains to be seen.
This piece originally appeared in Forbes.com