A health‐insurance tax credit functions exactly like an individual mandate. Under both proposals, if you choose not to buy a government‐designed health plan — even if you want to buy coverage, just less than the government requires — the IRS takes more of your money. Under Walker’s plan, the effective penalty can reach $7,800 for a family of four.
Under a tax credit, Washington would exercise as much control over your health plan as it does under Obamacare’s individual mandate. Just as Congress must define what level of coverage lets you avoid that explicit penalty, it would define what level of coverage lets you avoid a tax credit’s implicit penalty. Special interests would have the same incentive and ability to force you to buy coverage you don’t want, as with Obamacare.
Again like Obamacare, the Walker/Rubio tax credits are “refundable.” So if you have no income‐tax liability, or if it’s just less than the amount of the credit, you get a check from the government. We don’t have numbers on Walker’s or Rubio’s plans, but Obamacare’s “tax credits” are roughly 80 percent government spending. With a Republican imprimatur on such spending, Obamacare supporters could probably increase spending more than they could under Obamacare itself.
How would Walker and Rubio pay for their new spending? Would they keep Obamacare’s tax increases? Raise taxes elsewhere? Would they finance new health care spending by cutting existing health care programs? If so, chalk up yet another way their plans would resemble Obamacare.
Conservatives can offer a better “replace” plan that is politically feasible by expanding a bedrock conservative initiative: health savings accounts, or HSAs, which have already enabled 14.5 million Americans to save more than $28.4 billion for their medical expenses tax‐free.
Expanding HSAs would give workers a $9 trillion effective tax cut, without cutting spending or increasing the deficit, and would drastically reduce government control over Americans’ health decisions. Most important, “large” HSAs would spur innovations that make health care better, cheaper, and more secure — particularly for the most vulnerable.
Because Congress does not tax employer‐paid health insurance premiums, the vast majority of Americans with private coverage get it through an employer. Yet employers finance such coverage with money they would otherwise pay workers — an average of $12,000 per worker with family coverage, for a total of $735 billion this year, and $9.1 trillion over 10 years.
Large HSAs would let workers take that money as a tax‐free HSA contribution, and thereby let taxpayers own and control $9 trillion of their earnings that someone else currently controls. That’s an effective tax cut equal to all of the Reagan and Bush tax cuts combined, and nine times more than taxes would fall by repealing Obamacare. Workers could use those funds to remain in their employer plan, purchase better coverage elsewhere, buy medical care directly, or save for future medical needs. All tax‐free.
Moreover, Large HSAs involve no income redistribution and create no dependence on government. They would bring health care within reach of those with low‐incomes by turning hundreds of millions of other Americans into cost‐conscious consumers who force prices downward.
As with tax credits, government would define which health plans consumers could purchase with tax‐free Large HSA funds. But those rules would be far less restrictive because consumers wouldn’t have to buy coverage to get the tax benefits. Few special interests would demand mandated coverage of their services if they know consumers have the freedom not to buy it. Large HSAs would thus allow innovations that Obamacare and tax credits inhibit, including higher deductibles, health plans with a total‐satisfaction guarantee, and pre‐existing‐conditions insurance.
For decades, prominent conservatives advocated an individual mandate. The left then picked up the idea and gave us Obamacare. Before they once again fall into the same trap, conservatives should drop any support for the implicit mandate of health‐insurance tax credits. Expanding HSAs is more compassionate and provides a direct route toward freedom and better health care.
