Eakinomics: The 2020 Health Contest

To date the Democratic presidential primary has featured a health care battle on the left, led by the Medicare for All (M4A) proposal of Bernie Sanders, also endorsed by Elizabeth Warren. That plan has been endorsed as a good objective by Pete Buttigieg and Robert Francis O’Rourke. Kamala Harris meanwhile believes in an oxymoron, a single-payer with a role for the private sector. In this setting, the proposals by Joe Biden — a public option, reducing the cutoff for “affordable insurance” in the Affordable Care Act (ACA) to 8.5 percent of income, pegging the subsidy to more expensive Gold plans rather than Silver, and allowing people to receive subsidies no matter how much money they make — are perceived as narrow and unprovocative. As AAF's Christopher Holt points out, this is hardly the case. As he puts it, “Whatever one thinks of Biden’s proposal on the merits, it is hardly a narrow, moderate approach. The Biden plan is a dramatic expansion of the ACA’s health insurance subsidies, and such a shift could have a significant impact on ESI (employer-sponsored insurance) while moving away from the ACA’s few attempts to bend the health care cost curve.”

But it is interesting to look past the Democratic primary to the general election. The old saying is that you can’t beat something with nothing. What can Republicans offer in the face of the massive coverage expansions/M4As?

It is useful to remind oneself of the current subsidy arrangements. The average family plan in ESI cost $19,565 in 2018, let’s call that a round $20,000. But because this compensation is non-taxed, the worker receives an implicit subsidy (exemption from taxation) of $2,000 for someone in the 10 percent bracket up to $7,400 for someone in the 37 percent bracket. For a single person in ESI, the average was roughly $7,000, so the tax subsidies range from $700 to $2,590.  Meanwhile, the average premium tax credit, i.e. subsidy, in the ACA individual markets was $6,168. Finally, those in Medicaid receive their coverage essentially free. Obviously, the degree of subsidization varies widely across the ESI, individual, and Medicaid worlds. And in some cases, the structure is perverse. In ESI, for example, the amount of tax-subsidy goes up with the amount of insurance bought and the income of the insured.

Over a decade ago, then-Senator John McCain’s presidential campaign proposed a conservative version of universal coverage: a universal refundable tax credit for those with health insurance. The basic idea is to have a cash credit of, say, $6,000 for family coverage and $2,500 for individual coverage. The political problems were twofold: first, the tax credit was financed by eliminating the exclusion of insurance from tax. This threatened to unravel the ESI market. Anything that threatens ESI is politically problematic (as the M4A crowd is learning). Second, it created winners (those currently uninsured) and losers (high-tax individuals, ACA individual market subsidy receivers, etc.). Anything that creates losers on this scale becomes problematic fast.

That is the conundrum facing Republicans. What can they favor in the way of additional coverage that does not simultaneously create its own opposition?