Message to GOP 2012 hopefuls: Get serious about a tax credit as a replacement strategy for ObamaCare

Ryan Streeter

Sandwiched in the New York Times opinion pages over the weekend was a piece by Ramesh Ponnuru and Yuval Levin on what is needed to replace ObamaCare. It's an important op-ed that every reform-minded Republican should read.

They rightly contend that the "repeal and replace" slogan of congressional Republicans rings hollow (I humbly recall making a similar claim last December here).

They write:

Unlike wages, employer-provided health benefits are untaxed, giving employees an incentive to get the most expensive coverage available through their jobs. This drives up health care costs, but nobody in politics wants to fix the problem by simply taxing benefits.

In his 2008 presidential campaign, Senator John McCain proposed to untangle this knot through an insurance tax credit. Whether they get insurance from their employer or buy it themselves, workers would receive the same credit, creating an incentive to shop around for the cheapest coverage.

The proposal has a lot of virtues. Many without employer coverage would be able to get insurance on their own. With coverage less dependent on employment, people wouldn’t worry about losing coverage if they lost or changed their jobs.

Since going the distance on this proposal hasn't worked so far, Republicans have opted for something more modest. Levin and Ponnuru suggest a middle course that allows people to use a credit to buy insurance if they don't have access to a plan through their employer. It wouldn't go as far as the McCain plan but it would have some virtues:

• It would cut costs and help people the tax code now pushes out of insurance markets.
• It would do so, critically, without threatening the insurance arrangements of the satisfied majority.
• Over time, this reform could help the individual market grow and become more attractive to more Americans.
• Voters might then become receptive to relaxed restrictions on using the tax credit to exit the employer market.

It's time for GOP 2012 hopefuls to start getting serious about this issue. As Levin and Ponnuru say, the GOP "can’t keep ducking through the 2012 elections."