Ryan Ellis from Americans for Tax Reform yesterday criticized a memo Stuart Butler and I wrote about the promises President-elect Barack Obama made about health care reform. The point of our memo was to keep Obama honest to key campaign promises he made on health that appealed to Republican and conservative voters.
Obama is already hoping these voters will forget the promises he made to win them over. We want to hold Obama to account, and make sure he crafts health care reform that abides by popular principles of choice, affordability, stability and freedom — not a standardized system imposed from Washington.
Ellis outlines what he considers the “good,” “not-so-good,” and “ugly” ideas in our memo. He’s entitled to his opinion, of course, but it’s unfortunate he chose to distort our views and our record. I stand by Heritage’s work in the area of health care reform. Here’s why:
1. Tax treatment. The current tax treatment of health insurance is inequitable, distorts the market, encourages overspending, and drives up overall costs. As Ellis agrees, it needs to be reformed. Contrary to his assertion, we do not want to raise taxes. That’s why we worked with ATR last year to craft tax reform language in the SCHIP debate that met the ATR criteria. We agree that tax reform and tax relief should apply only to taxpayers, not to those who pay no income tax. The purpose of trying to help low-income families with a refundable credit or voucher is to keep them off Medicaid, the entitlement program for the poor, which is the default solution pushed by the left. But we want that refundable credit/voucher to be paid for with reductions in spending, not taxes on other Americans.
2. Portability. Heritage has not proposed limiting tax relief for those who buy in the exchange. Ellis is simply wrong about that. We argue that tax breaks should apply to such coverage, not be limited to it. An exchange is a place for people to shop for coverage (like a farmers market). Our version of an exchange was developed to respond in part to existing tax limitations in the tax code, which penalizes individual, portable ownership of health insurance. It would enable employers to transition from a defined benefit to a defined contribution in health care as they have in retirement, enabling individuals to own and keep their health insurance regardless of job or job status. We do not support using exchanges to regulate insurance.
3. Federalism. Broad national goals were also a key component in welfare reform, remember? Ronald Reagan supported a work requirement on those asking for welfare. Bill Clinton argued, to his credit, that states had to reduce their welfare roles and that welfare must no longer be a permanent way of life. We think state health bureaucracies ought to be held to account as well. We also think that, just as in welfare reform, states should be given wide flexibility in achieving health goals.
4. Federal Employee Health Benefits Plan. Heritage does not support the community rating rules in FEBHP. We have consistently criticized those rules. What we highlight is that FEHBP hinges on choice and competition, not on public plans or standardized benefits. If Obama touts the FEHBP as his model, we don’t apologize for reminding him how it actually works, rather than allow him to make up his own version to sneak in Medicare-for-all. Yes, the government set it up as a generous plan for the feds — hardly a surprise. But competition and choice has meant that the FEHBP has historically had lower cost trends compared to other large employer group plans with equivalent demographics.
5. Bipartisanship. We think Obama should listen to Republicans and conservatives. Heritage fought vigorously against Hillarycare in 1993 and remains committed to free-market principles on healthcare reform. The legislation we helped design for Sen. Don Nickles (R-OK) at that time, which gained strong support in the Senate as well as the House, became the bulwark against the Clinton bill and assured its defeat. Ellis should get his history right. Don’t worry. We won’t support an Obama plan that violates conservative principles. When the Obama administration puts forth a health care reform plan, we will hold him accountable for his campaign commitment to choice of plan and doctor and an insurance system that assures portability.
Moe Lane
Steve Maley
KnightsofMalta
Dan Spencer
Dan McLaughlin
ATR's Response
Brian M. Johnson (Diary) Friday, December 12th at 6:46PM EST (link)Nina:
Thanks for the thoughtful response on this. I think this is a very healthy debate we should be having on this. Conservatives don’t talk enough about health care.
I like your list method (I use it a bunch myself), so I will keep to that order:
1. Tax treatment. You are correct that Heritage agreed to alter the refundable credit plan in 2007 after it was clear that conservative opposition to the older, tax-increasing version doomed that one. Until that time, Heritage never espoused the principle you state here; namely, that the refundable aspects of a credit should not be paid for with tax increases somewhere else. If Heritage continues to hold the very new position you state here (that reforming the tax treatment of health insurance should never result in a net, aggregate income tax increase), we’re in 100 percent agreement.
2. Portability. If you read my original post, it’s clear that I’m criticizing the new tax benefit for health insurance purchased through an exchange. I never said you would limit the benefit to those purchasing through the exchange. So, this one is just a misunderstanding.
3. Federalism. There’s a balance here. I remember with welfare reform, there was always a debate between a “clean” block grant and one with parameters. The concern I have is that if Democrat politicians in Washington are the ones setting the parameters, they will contain things like benefit mandates, coverage mandates, deductible limits, etc. The parameters could easily doom the reform.
4. FEHBP. Glad to see we (now) agree that community rating is a bad idea. I’m all for choice and competition, but the FEHBP does so in a connector/exchange/sandbox. When the government sets up the sandbox (as we saw in MA), price controls and mandates soon follow. Pursuing an FEHBP model is letting the tail (the exchange) wag the dog (choice and competition).
As far as the lower cost trends, what about the fact that DC’s Carefirst plan has grown 60% in the last six years? Shouldn’t the standard be a bit higher than that?
5. Bipartisanship. The Nickles bill was a mixed bag, to say the least. It’s S. 1743 for those who might want to look it up, and was introduced in 1993. It did create medical savings accounts, cap medical torts, do some incremental changes to Medicare and Medicaid, long-term care insurance incentives, and the principle of reform of the tax treatment of health insurance, on the good side. Now for the bad:
-It contained “guaranteed issue,” which most conservatives now oppose (this provision means that people can wait until they are sick to sign up for health insurance).
-Without seeing a revenue score, this bill probably was a net income tax increase (since it created a refundable income tax credit and paid for it by repealing the employer exclusion of health insurance). Heritage’s assertion that the refundable aspects of a credit must be paid for with spending cuts is, indeed, a new one.
-The bill has a form of community rating, which you now say Heritage opposes. S. 1743 would allow premium variation based only on age, sex, geography, and participation in a wellness program. Notably absent from that list is “health status.”
-It has restrictions on plan design that look very much like the restrictions imposed by the FEHBP. In particular, the out-of-pocket max is a bit onerous (10% of AGI or $5000, whichever is greater)
-There’s an employer mandate–employers must facilitate health insurance coverage or pay a tax (“pay-or-play”). This tax could reach as much as $18,250 per year/per employee. Employers are dictated that they must increase wages by the amount that they are relieved of premium payments.
In short, the Nickles bill is an example of Heritage health policy gone wrong. It has too much in there that’s bad. As a final piece of legislation out of a conference committee, it would still be bad. But as the opening salvo of the right? It’s not good.
And I didn’t get the history wrong. Back in 1994, thirty-seven conservative leaders signed a letter opposing the Nickles bill. These signatories included Cato president Ed Crane, Eagle Forum’s Phyllis Schlafly, Paul Weyrich, and (my boss) ATR’s Grover Norquist. Shortly thereafter, Nickles withdrew his support for his own bill. Reports at the time were that Nickles believed the Heritage draft to be a conservative consensus on health reform, and was disappointed to find that this was very much not the case after getting this joint letter. It was most assuredly not a “bulwark” against Clintoncare, by all accounts I’ve heard outside of Heritage.
Once again, it’s my position that Heritage would be better off walking away from an FEHBP/connector plan. I’m glad to see that Heritage has come around on community rating and opposition to an overall tax hike, but that’s relatively-new.
I’d be interested to see where Heritage is today on some of the other bad aspects of the Heritage/Nickles bill: guaranteed issue, an employer mandate, pay-or-play, and the plan design limits.
Brian M Johnson