GOP Senators offer 'repeal and replace' legislation for Obamacare

Avik Roy, Forbes health care guru, scores the GOP plan announced yesterday that would be a substitute for Obamacare if Republicans are ever able to repeal it.

Roy thinks it's "the most credible plan yet" to replace Obamacare. Indeed, the plan - offered by Senators Coburn, Burr, and Hatch - keeps a few popular parts of Obamacare, including keeping the ban on lifetime limits on insurer payouts, and the requirement that insurers cover adult children younger than 27. Meanwhile, it would ditch the invididual mandate and repeal the requirement that insurers offer products to those with pre-existing conditions.

Roy has no illusions about how this, and any other "repeal and replace" plan would go over with Tea Party conservatives. But the GOP largely market-based solutions would be much cheaper to implement and wouldn't require the government taking over 1/6 of the economy.

CBH would repeal Obamacare, and replace it with a set of more market-oriented reforms. One key point right at the start: the authors "believe our proposal is roughly budget neutral over a decade." That is to say, for all the reconfiguring it does to the health-care system, it doesn't substantially reduce the deficit. It may modestly reduce the amount of federal spending and taxation. The Senate trio aims to have their proposal fiscally scored by an outside group of economists, most likely Doug Holtz-Eakin's Center for Health and Economy.

While the plan would repeal Obamacare, it would preserve some of the law's most popular features, such as its ban on lifetime limits on insurer payouts, and its requirement that insurers cover adult children younger than 27. It would replace Obamacare's premium hike on young people, known as age-based community rating, with a more traditional 5:1 rating band.

It wouldn't maintain Obamacare's individual mandate, nor its requirement that insurers offer coverage to everyone regardless of pre-existing health conditions. Instead, the plan would require insurers to make offers to everyone who has maintained "continuous coverage," while aiding states in restoring the high-risk pools that served those who insurers won't otherwise cover. Subsidy-eligible individuals who failed to sign up for a plan would be auto-enrolled in one priced at the same level as the subsidy for which they qualified.

The proposal would do some things highly popular on the right. It would encourage medical malpractice reform by "adopting or incentivizing states to adopt a range of solutions to tackle the problem of junk lawsuits and defensive medicine." It would strive to expand price transparency and the supply of physicians.

Most importantly, the CBH plan would make substantial changes to the tax exclusion for employer-sponsored coverage, in order to fund subsidies for the uninsured. "Our proposal caps the tax exclusion for employee's health coverage at 65 percent of an average plan's cost" today, and then grows the cap at the rate of the Consumer Price Index-a common measure of inflation-plus one percent (CPI+1%).

The revenues gained from this change would then be used to offer tax credits for the uninsured, so long as their incomes were below 300 percent of the federal poverty level (FPL). Importantly, the subsidies are structured on a sliding scale so that those at 300% FPL get a smaller subsidy than those below 200% FPL. In addition, the subsidies increase as you get older; an individual aged 18-34 would get a subsidy of $1,560, whereas one aged 50-64 would get $3,720: 2.4 times what the young'uns get. The size of the subsidies would grow, again, at CPI+1%. (Obamacare offers subsidies to those below 400% of FPL.)

Roy has been one of the harshest, and most intelligent critics of Obamacare for years. He correctly predicted many of the problems with the law and prior to its passage, was advocating many of the reforms contained in this latest GOP proposal.

Obviously, the GOP is going to need control of both Houses of Congress as well as the presidency to effect these changes. If Republicans can go to the voters in 2014 and 2016 with a plan to repeal Obamacare without throwing the insurance industry into chaos, and accomplishing many of Obamacare's goals, it could very well serve as a strong electoral selling point for the party.

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