After years of campaigning on the need to repeal and replace Obamacare, Republicans in Congress are in disarray about what to do now that voters have empowered them to do just that. In his address to Congress on February 28, President Donald Trump helpfully exercised some leadership by letting Republicans know what kind of replacement plan he prefers. “We should help Americans purchase their own coverage through the use of tax credits and expanded health savings accounts,” Trump said, “but it must be the plan they want, not the plan forced on them by the government.”
Trump’s remarks were a shot across the bow for any congressional Republicans looking to preserve the fundamentals of Obamacare. And there are some: A few days before Trump’s speech, a draft of a House Republican repeal bill was leaked to Politico. The bill abandoned the long-favored GOP proposal to use tax credits to allow individuals to purchase their own health insurance and instead preserved Obamacare’s mechanisms for doling out direct subsidies to insurers.
Those mechanisms are deliberately deceptive. Under Obamacare, payments are made straight from the Treasury to private insurers, who then discount the cost of coverage to individuals based on the subsidies those individuals qualify for under Obamacare regulations. At no point in this process are any Americans’ taxes offset or reduced. Nor do these insurance subsidies come close to meeting the Government Accountability Office’s formal definition of a “tax credit.”
And yet these direct federal outlays to insurance companies are labeled “tax credits” under Obamacare. It’s a dishonest piece of fiscal legerdemain that allowed the Obama administration to take off the books roughly $100 billion in federal spending over the next decade and call it a “tax cut.”
Now it seems that some in the House GOP find it politically advantageous to tell the same lie. See page 79 of the leaked GOP pseudo-repeal bill: “The program for making payments described in subsection (a) shall, to the greatest extent practicable, use the methods and procedures used to administer the programs created under sections 1411 and 1412 of the Patient Protection and Affordable Care Act.” Which is legislatese for continuing to disguise direct payments to insurance companies as “tax credits.”
As Weekly Standard contributor Jeffrey Anderson has pointed out, if this dishonest accounting becomes accepted bipartisan practice, there’s hardly a single unfunded entitlement liability that can’t be magically relabeled a “tax cut.”
Giving out actual tax credits to purchase insurance is not without political peril. It will require a difficult transition period. But tax credits are the right approach for a number of reasons: They will break the link between employment and insurance, which causes a number of economic distortions; they will create an actual consumer market in health care, which will save money and encourage needed competition and innovation in the insurance industry; and tax credits empower private citizens—as opposed to federal bureaucrats and actuarial mandarins—to make the informed decisions about their health that only they can.
The good news is that some in the GOP see right through this legislative lie about what defines a tax credit. Senator Tom Cotton expertly articulated the difference between Obamacare’s insurance subsidies and true tax credits at a recent town hall and he seems determined to get this issue right. But as for those Republicans looking for ways to avoid actually repealing and replacing Obamacare, they need to be told, loud and clear: Don’t even think about it.
