If you think that the Patient Protection and Affordable Care Act (ACA, also known as Obamacare) is bad because of its expense, the distortions it causes in the labor market, its failure to provide people what they really want, and its highly unequal treatment of people in similar situations, wait until you read John C. Goodman’s A Better Choice: Healthcare Solutions for America. You will likely conclude that the ACA is even worse than you thought.

That’s the bad news. The good news is that Goodman, a health economist and senior fellow with the Independent Institute, proposes reforms that would do more for the uninsured than the ACA does, and at lower cost, and also would make things better for the currently insured. And it would do all this while avoiding mandates, creating more real competition among insurers, and making the health care sector more responsive to consumers. Not all of his proposals are problem-free, but many of them are a step in the right direction.

Solving ‘the problem’ / I can’t do justice to the many problems with the ACA that Goodman points out, but a number of them are encapsulated in a story that he tells about 136 fast-food restaurants he studied. The restaurants, he explains, “initially employed close to 3,500 workers, about half of whom were full time (30 hours or more a week).” The potential cost of providing health insurance to the full-time staff “was about $7 million a year.” But the employers took advantage of legal loopholes in the ACA to reduce that cost “to less than 1 percent” of $7 million.

How did they do that? They started by making all hourly workers part-time workers. Goodman points out that that’s not as easy as it sounds because if one worker fails to show up, another worker must fill in, and then that worker’s hours can jump above the 30-hour threshold. By the end of the year, that had happened to only 58 employees, who were then eligible for mandated health insurance the next year.

So the employers, to comply with the law, offered those 58 employees “Obamacare-compliant health insurance (Bronze plans).” Under the law, employers could require employees to pay 9.5 percent of their annual pre-tax wage for health coverage. A $9‑an-hour employee working 30 hours a week would then pay $111 a month in premiums. But because such a plan has a high deductible and copayments, it’s not very attractive to a low-wage, low-income worker. So of those 58 employees, only one opted for the Bronze plan. The rest chose a Minimum Essential Coverage (MEC) plan, paid for entirely by the employers. That way, the employees escaped the ACA fine for being uninsured. And employers escaped the fine for not offering ACA-compliant health insurance: they had offered it, but only one employee had taken up the offer.

Problem solved, except for one thing: that “problem” was finding the lowest-cost way for the employers to deal with the law. For the employees, there are all sorts of problems: Many of them went without insurance because they worked under 30 hours a week, and many had insurance before the ACA. Moreover, many of them are working fewer hours than before and therefore earning less than they would if the ACA had not been implemented. Does anyone think that those unintended consequences, which are the opposite of the goals that President Obama and congressional Democrats claimed to want—and probably did want, are good?

Principles of reform / Goodman points out the unequal treatment that the ACA gives to modest-income families. In many states, he explains, a family with income up to 138 percent of the poverty level would qualify for Medicaid. Medicaid spends an average of $8,000 per year for a family of four. But if someone in the family earned a few extra dollars and suddenly the family was just over 138 percent, they would lose eligibility for Medicaid and have to buy insurance in a health exchange. Goodman argues that the subsidy that the family would get in the health exchange, on a $12,000 annual health insurance policy, would be $11,100. That’s pretty unequal treatment.

Goodman lays out six principles of health insurance reform and then proposes policy changes based on those principles. The principles are choice, fairness, universal coverage, portability, patient power, and real insurance. Briefly, here’s what he means: Choice means that people “should be free to choose a health plan that fits individual and family needs, rather than one designed by bureaucrats in Washington.” Fairness means that “if the government subsidizes health insurance, then the subsidy should be the same for everyone at the same income level.” “Universal coverage” means that everyone has health insurance or that the few who don’t, under his tax credit proposal (more on that below), would get health care from “safety-net institutions” in the communities in which the uninsured live. “Portability” means that people who leave jobs can take their health insurance with them. “Patient power” means that patients make choices between spending on health care and spending on other things. “Real insurance” means that people buy insurance that reflects their risk, just as with auto insurance or life insurance.

Because Goodman believes in choice, he would have no mandates requiring employers to provide insurance or people to get insurance. But if that were the case, why would low-income people get insurance? Most of them would do so, he argues, because of a large tax credit they would receive in order to buy it. He would make the tax credit $2,500 per adult and $1,500 per child. A family with two parents and two children, therefore, would get a tax credit of $8,000 toward health insurance. Even a family with a federal tax liability of less than $8,000 would get the whole tax credit. The euphemism that Goodman and others use for such a credit, which can exceed one’s prior tax liability, is that it is “refundable.” With no mandates requiring specific coverages (e.g., required maternity coverage for families that are going to have no more children), a family could get a lot of health insurance with that $8,000.

Money problem / How would Goodman have the feds fund it? He would end the tax-free treatment of employer-provided health insurance. Doing so, he estimates, would raise $300 billion a year. He would also end the ACA subsidies that he estimates to be $200 billion a year. In addition, he would end government spending on indigent care at all levels of government.

I don’t think that quite gets him there, though. Nowhere in the book could I find an estimate of the cost of tax credits to about 310 million people. But the math is not difficult. With about 240 million adults, the cost of the tax credit for adults would be $600 billion. With about 70 million U.S. residents under age 18, the cost of the tax credit for children would be about $105 billion. That roughly $700 billion total would then require substantial cuts in other government spending. Goodman could get there, without other cuts in government spending, by making the tax credit $2,000 per adult and $1,000 per child, making the overall cost $550 billion. But then, of course, that family of four would get a tax credit of “only” $6,000 toward health insurance.

Allowing local governments to collect unused tax credits is the weakest part of Goodman’s plan. He has far too much faith in the IRS and local governments.

Goodman grants that even with his large proposed tax credit, not everyone would buy insurance. How would he handle that? Local governments could claim the unclaimed tax credits of the residents in their area who do not buy insurance and use them toward subsidized health care. This is the weakest part of his tax credit proposal. I laid out some reasons why in my review of his earlier book, Priceless, in which he made this same proposal (“The Price Is Wrong,” Fall 2012). I wrote:

First, the local government doesn’t have a strong incentive under Goodman’s scheme to use the money well. Second, one can imagine a city government fighting a county government over who gets how much of the block grant.

I think Goodman has far too much faith in both the Internal Revenue Service and local governments.

And it should be noted that subsidizing people’s health insurance is an inefficient way of helping many of them. This is the bottom line of a study of Oregon Medicaid by MIT health economist Amy Finkelstein, Harvard’s Nathaniel Hendren, and Dartmouth’s Erzo F. P. Luttmer. In a recent paper for the National Bureau of Economic Research, titled “The Value of Medicaid,” they found that that value to recipients is only 20 to 40 cents per dollar of spending.

Covering the high-risk / Goodman, as noted above, also believes in “real insurance.” That is, he wants insurers to be allowed to price for risk. He argues that because they are no longer allowed to fully do this under the ACA (which limits how much premiums can differ between low- and high-risk people), insurers will try to avoid insuring the sick and will seek out the healthy. How will they do this? By forming narrow networks of doctors and hospitals that sick people will find less attractive.

One problem, of which Goodman is aware, is that when insurers are allowed to price for risk, people with pre-existing conditions can get insurance but will pay dearly for it. How would he handle this problem? He would have the aforementioned tax credit granted only to people who bought catastrophic insurance and only to people who bought “change of health status insurance.” Under the latter, health insurers “would pay the extra premium needed if a person’s health deteriorated after becoming insured and he or she needed to switch to another health plan.” Of course, that is not much comfort for those who start with poor health. I don’t have a good solution for this problem, but Goodman and Obama don’t either. It’s a tough problem. The good news is that people who start with poor health are a small percent of the population.

Goodman is strongest on the issue on which he has always been strong: patient power. He points out that most insured people would pay their own dollars for health insurance that is priced higher than the tax credit—and most insurance likely would be. As a result, those people would pay more attention to the kind of insurance they get and to how they spend their own health care dollars. He also points out that in two areas of health care where patients spend largely their own money—cosmetic surgery and laser eye surgery—prices are falling and/​or quality is improving. He gives other examples of changes on the supply side—from price competition for drugs over the Internet, to retail clinics, to telephone-based practices—that are making things better and often cheaper for patients. Goodman points out that if patients were spending their own money, other parts of the health care system would respond by making things more consumer-friendly.

Will we see any of the policy changes that Goodman proposes? Time will tell.