Manhattan Institute: Improving Health Insurance Without Inflating Premiums

Targeted News Service (Press Releases)

NEW YORK, July 22 (TNSres) -- The Manhattan Institute issued the following news release:

Congressional Democrats are racing against the clock to extend Covid-era Obamacare subsidies before premium price hikes kick in before November elections. Meanwhile, the Biden Administration is working with the Internal Revenue Service to expand the number of Americans covered by the plan the president's former boss signed into law back in 2010. But with inflation soaring, perhaps lawmakers should rethink their approach to healthcare at large.

A new report from Manhattan Institute senior fellow Chris Pope proposes restructuring tax subsidies so that the most cost-effective insurance plans can compete, ultimately improving insurance offerings without inflating premiums. While the employee-sponsored insurance (ESI) tax exclusion and Affordable Care Act (ACA) subsidies should remain as safety nets to ensure broad coverage, those who sign up for coverage before they get sick should be allowed to receive 70 percent of ESI or ACA tax subsidies to purchase plans that are priced in proportion to their healthcare risks.

The objective of tax subsidies for health insurance should be to achieve the greatest increase in coverage, while imposing the lowest additional tax burden on work, Pope writes. The tax exemption for ESI coverage has succeeded in nudging firms to provide coverage for most workers and their dependents, and the tax credits for insurance from the ACA's exchange provides a safety net for those who lack ESI. But neither source is appropriately responsive to policyholders' needs for cost-effective care. ESI costs are bloated by the need to simultaneously satisfy all employees with loose networks and broad benefit packages, while the cost of ACA plans is inflated by the requirement that all enrollees pay the same premiums as those who only sign up after they get sick.

After letting the Covid-era American Rescue Plan expire, Congress should establish a new Continuous Renewable Insurance market, where Americans could buy guaranteed renewable insurance priced in proportion to their medical risks. Congress should support this market with tax advantages that would allow it to compete with ESI and ACA plans.

Further, to support those without ACA subsidies, lawmakers should give individuals at all income levels the option of deducting 70 percent of the cost of health insurance purchases (from either ACA or CRI markets) from their taxable income. This would remedy the inequity against those falling on the wrong side of the subsidy cliff and revive incentives for price competition among insurers, while avoiding the inflationary and fiscally costly consequences of an open-ended commitment to automatically absorb a dollar of premium increases for higher earners with a dollar of additional subsidies.