Morning in America: Obamacare Repealed

It’s January 2013. A new president is sworn into office and calls upon Congress to enact an emergency repeal of Obamacare. In both the House and Senate there is a strong consensus for repeal, but confusion regarding a replacement.

Although the previous administration’s “Patient Protection and Affordable Care Act” is widely recognized as a disaster, the status quo in America’s broken health care market is almost equally indefensible. Dozens of new federal health care “reform” schemes are circulating, but neither the public nor lawmakers have any confidence they won’t create more problems than they fix. What to do?

Thanks to the genius of America’s founding fathers, a solution is at hand: a multi-state health care compact. Indeed, by the summer of 2011 it had already been passed into law in four states, and was pending in 11 others. (In Michigan, the solution was first embodied as House Bill 4693, introduced by Rep. Tom McMillin, R-Rochester).

This health care compact shifts choices and resources from Washington to 50 state capitols. The measure turns over to states primary responsibility for regulation of all nonmilitary health care goods and services, plus health-related social welfare programs. Importantly, it also turns over the resources, converting each state’s federal Medicaid and Medicare spending into a few-strings-attached block grant.

How will 50 states exercise this new authority? That’s up to them. Once Congress approves the compact, a grand experiment will begin in these 50 laboratories of democracy. Some may botch it (Vermont is already moving toward a single-payer, government-run health care system like Britain or Canada), and residents there could pay a price in terms of lower employment and living standards.

Elsewhere, some states might replace both Medicare and Medicaid restrictions and price controls with a means-tested, voucher-like insurance subsidy similar to that proposed for Medicare back in 2011 by Rep. Paul Ryan. Economic competition between the states will create strong incentives to adopt successful innovations that are working elsewhere.

One thing won’t happen: With the same amount of federal Medicare and Medicaid money flowing in (plus increases for inflation and population growth), states will not abandon the health care “safety net” that currently exists for the poor and elderly: Americans won’t accept a “race to the bottom” that forces them to step over the ailing bodies of individuals who could be cured if only they could afford health care.

Instead, with the freedom to reform these programs in ways that best serve the needs of a particular state, the safety net will become stronger, with fewer inefficiencies and unintended negative consequences.

Congress’s work will only be half-done, however. The “original sin” responsible for America’s dysfunctional health care market is a federal tax code that allows businesses to deduct the cost of unlimited employee health insurance benefits, but refuses to let individuals deduct a nickel if they buy their own coverage. Solutions for that range from eliminating all the deductions, capping them, replacing them with means-tested subsidies in the form of individual tax credits, or simply giving individuals the same tax deductions as employers. Any of these would be superior to the current system.

Importantly, while central planners in the federal government are incapable of designing and operating a health care system that consumes 17 percent of the nation’s gross national product, Congress is eminently capable of reforming the tax code in a way that eliminates the skewed and perverse incentives created by its current provisions.