What Is to Be Done with Health-Insurance Exchanges, Post-Obamacare?

Any time a Republican politician suggests that there is anything positive in Obamacare, the media are eager to declare that this means the Republican establishment is backing away from repealing the Affordable Care Act and wants to “fix” it instead.

This, of course, is what most businesses and their lobbyists would prefer take place. They would agree with what the Kaiser Family Foundation insists in its consistent drumbeat of monthly polls, including its latest finding that “over half the public has an unfavorable view of the Affordable Care Act (ACA) in July, up eight percentage points since last month,” but that a “majority continues to prefer Congress improve ACA rather than repeal and replace.”

The latest exhibit is a report in the Wall Street Journal that U.S. Senator Bob Corker (R-TN) thinks that “we could build on the exchange concept.” What? Build on a legacy of bloated and broken IT contracts, which swallowed up billions of dollars (including $655 million on three state-based exchanges that shut down after a few months of operation) and failed in so many different ways to enroll people properly?

“Building” on those failures would be a strange way to “fix” Obamacare. Fortunately, a member of Senator Corker’s staff has told me privately that the senator meant nothing of the sort.

Instead, what he meant was expressed in a rhetorical question reported below the lede in the Wall Street Journal:

“Don’t we really want individuals in our country to have their own health insurance?” Mr. Corker said, backing the ability of individuals to take their health insurance with them as they change jobs and “move away from being dependent on employers where people feel locked in.”

“Job lock” is not nearly as prevalent as many think. Nevertheless, any politician who incurs the risk of being charged with attacking employer-based benefits deserves credit.

Congress can free people from employer-based benefits by repealing Obamacare and replacing the current exclusion of employer-based benefits from taxable income with a universal, refundable tax credit.

No exchange is needed to execute this. Pre-Obamacare, Utah and Governor Romney’s Massachusetts had health-insurance exchanges, but they were designed to partially overcome Congress’s discrimination against individually owned health insurance via the income-tax code. Once Congress gets rid of this discrimination, it is hard to see what value a state-based health-insurance exchange offers.

After all, we don’t have exchanges to facilitate the mortgage-interest tax deduction, the Earned-Income Tax Credit, or any other adjustment to an individual’s personal income tax. They are all done through IRS Form 1040. There is no reason that a health-insurance tax credit could not be added as a line on the 1040.

What, then, will happen to state-based health-insurance exchanges? Congress should be utterly indifferent to their fate. Under the ACA, state-based exchanges must be self-financing by 2015. I expect that most states will lose interest in funding them, unless IT vendors are extremely persistent in lobbying for their continued existence. States that wish to continue to operate exchanges, post-Obamacare, should be free to do so, as long as they do not get any more federal dollars for that purpose.

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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.

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