The Best Alternative to Obamacare | | 07.09.12

“Repeal and replace” has become the GOP slogan for how to deal with President Barack Obama’s Affordable Care Act, now that the Supreme Court has declined to declare unconstitutional the unprecedented U.S. government takeover of one-sixth of the economy. But replace it with what?

In fact a plan has been circulating on Capitol Hill for months. GOP leaders and members of Congress have taken numerous briefings on it. The details have been laid out in a recently published book that carries an endorsing forward from iconic supply-side economist Arthur Laffer. Other endorsements have come from conservative magazine publisher and former presidential candidate Steve Forbes, as well as former Office of Management and the Budget director and presidential prospect, Indiana Governor Mitch Daniels.

The Pipes Plan is the work of Sally Pipes, president of the San Francisco-based Pacific Research Institute (of which I am chairman). From the day the president announced his health entitlement plans, Pipes has been a leading critic of Obamacare. For years before that, she was an advocate for a free market alternative to the government-dominated system that had emerged from Second World War price controls, Great Society subsidies, and decades of ever-increasing federal and state regulations.

Here are some of the Pipes Plan’s details:

  • Give Us Control of Picking the Insurance that Covers Us To get around World War II wage controls, employers competing for workers to staff wartime factories began offering uncontrolled healthcare benefits. The IRS subsequently ruled that neither the employer nor the worker had to pay taxes on the benefit. But if the worker went outside for health insurance, the purchase was made in after-tax dollars. Predictably, all workers soon expected coverage at the factory or office, meaning they had less and less control over their healthcare decisions. Studies have found that this arrangement has been a major factor, perhaps the major factor, driving healthcare inflation. The Pipes Plan calls for giving us all the same tax break when we buy health insurance ourselves as when our employers buy it for us. It would also open the door to widespread use of health savings accounts and other consumer-friendly tools.
  • Stop Government from Deciding for Us What is Covered and What is Not: We have heard much about Obamacare requiring single young men and postmenopausal women to be covered for pregnancy services—and that devout Catholics and other believer groups must receive abortion service coverage. These mandates reflect state-level mandates that have been driving up health insurance costs around the nation for decades. The Pipes Plan would end mandates, letting each of us determine for ourselves the coverage we need and don’t need. Citing the Office of the Actuary at the government’s Center for Medicare and Medicaid Services, Pipes writes, “the growth of the net cost of health services will be 10 percentage points more in 2014 than it would have been if Obamacare hadn’t passed—a 14 percent increase, versus 3.5 percent without the law.” Mandates are a major reason why.
  • Open Up a National Health Insurance Market for Us: I am not talking about the kind of government-administered and controlled exchange Mr. Obama favors. I am talking about a regular free market, nationwide. We don’t have one now. Instead we have 50 state markets, defined by the mandates and other regulations and restrictions that state insurance commissions impose. In 1987, thanks to persistent ridicule from Reagan Federal Trade Commission chairman Daniel Oliver (now a senior director at the White House Writers Group) and the intervention of a federal court, the state of New York dropped its 50-year ban on selling New Jersey milk in New York City. Milk prices in Manhattan dropped 17 percent. Competition produces better products at lower costs. Regulations have made the health insurance markets of our states no different from the New York City milk market before Chairman Oliver came along. Who but an ideologue can doubt lifting those restrictive regulations can produce the Oliver Effect in health insurance costs, too?

Note, these reforms open health insurance to the same constructive forces that shape much of the rest of our economy—forces of competition and personal choice that consistently bring us better products and services for less in terms of inflation adjusted dollars. No federal or state funds are required. That would leave money to make block grants to the states for their high-risk insurance pools—without unleashing Obamacare’s swarm of new taxes.

The Pipes Plan is the kind of health reform legislation that should have been passed to begin with. Let’s hope the nation gets another chance—and that we get it right the second time around.

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