For more than a decade, Republicans have agreed on one thing with remarkable consistency: they do not like Obamacare. What they have not agreed on — despite countless vows, hearings, and white papers — is what should replace it.
Now, as Congress debates extending enhanced subsidies for Affordable Care Act (ACA) plans, Republicans are once again floating an alternative. U.S. Senators Bill Cassidy (R-LA) and Rick Scott (R-FL), drawing on their experience as a physician and a former health-care executive, have sketched concepts to lower what they say are excessive insurer profits and give consumers more choices than the exchanges now provide.
But turning criticism into a practical alternative is harder than it sounds. That is because the core design of Obamacare — tying the cost of premiums and the richness of coverage to a person’s income — was not a Democratic invention at all. It originated with Republican thinkers, including me and my colleagues in the George H.W. Bush administration and at the Heritage Foundation.
The GOP has spent years trying to improve its own blueprint, and the ideas now resurfacing largely return to a familiar tool: Health Savings Account–style vouchers meant to make consumers more disciplined and encourage shopping. Whether this creates a viable system or destabilizes the current one turns on subtle design choices that determine who stays in the ACA risk pool and who flees it.
The Republican roots of the ACA structure
Obamacare’s architecture — income-based subsidies linked to prescribed insurance plans — began as a conservative approach to expanding coverage without creating a single-payer system. Republicans proposed it repeatedly in the early 1990s and implemented it in Massachusetts under then-Governor Mitt Romney. This makes the search for a “dramatically different” GOP alternative challenging: the central mechanism of the ACA is already a Republican idea.
So, Republicans, facing the subsidies’ disappearance by year’s end, have defaulted to an old favorite: defined-contribution health spending accounts, where the contribution is set, but not the final benefit. These accounts would empower consumers to shop among plans — including potentially cheaper, less regulated ones — and encourage competition.
Some Republicans want to compromise with Democrats to keep the status quo. Here what’s wrong with that.
A fully formed Republican voucher plan must resolve two critical questions: how much to restrict off-exchange coverage and how openly to subsidize higher-risk individuals.
Centrist Republicans and all Democrats want to extend the Obamacare tax credits to prevent large premium increases for people who buy insurance on the exchanges. But extending these subsidies will require new funding — about $30-$35 billion per year — which can come only from higher taxes, spending cuts, or adding to the federal deficit. Also, the subsidies mainly benefit a limited group including lower-middle-income enrollees who pay very low premiums and about 1.5 million older individuals with incomes above 400 percent of poverty who face a steep “subsidy cliff.”
Critics argue that extending subsidies shifts the financial burden onto others and fails to make coverage affordable for most Americans. In short, the plan helps a specific group but ignores the core problem that no sustainable funding source exists to pay for it.
What is Sen. Cassidy proposing? ACA subsidies now go to insurance firms. Cassidy would redirect that money into tax-free Health Savings Accounts (HSAs) for individuals, letting them buy cheaper plans with higher deductibles, reflecting ideas favored by Donald Trump. People could use that money to buy the same coverage as before, keeping the status quo. Or they could also choose to buy different or skimpier coverage or just use the money to pay bills if they thought the insurance wasn’t worth buying. The subsidy cost would remain the same, but medical care spending might fall a little.
Cassidy’s proposal — and the compromise bill described above — both failed last week but could be revived.
The ACA’s delicate risk pool
Any alternative must contend with the ACA’s fragile risk pool. Younger and healthier enrollees get charged premiums above their expected claims to subsidize older, sicker buyers (up to age 64). The ACA keeps the healthier participants in the pool primarily through large subsidies; nearly half of exchange enrollees pay only a few dollars per month.
The danger is the ACA’s cross-subsidy structure — where young people subsidize older ones — could unravel if lower-risk folks flee the exchanges for cheaper risk-rated plans.
Today, risk-rated “off-exchange” plans — sometimes maligned as “junk” insurance — exist but remain a small market because the ACA subsidies make exchange plans a much better deal If new universal health-spending accounts can be used outside the exchanges, the financial incentive anchoring healthy people in ACA coverage weakens.
A new system must solve critical issues
A fully formed Republican voucher plan must resolve two critical questions: how much to restrict off-exchange coverage and how openly to subsidize higher-risk individuals.
It is entirely possible that such a system could expand coverage overall, offering consumers customized plans while directly targeting taxpayer support to those who truly need it. But it is also possible that the cost of adequate subsidies will exceed what fiscal conservatives want to support.
Here are three suggestions to make a Republican alternative work:
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- Instead of relying on implicit cross-subsidies from young and healthy exchange enrollees, policymakers should directly support older and sicker individuals — particularly those aged 60 to 64. This would make subsidies more efficient, more visible, and less dependent on forcing low-risk buyers to overpay. Subsidies could be delivered through enhanced savings accounts or premium credits.
- Allow low-risk individuals to buy off-exchange or short-term plans. This will likely not trigger a death spiral if these plans contain a minimum requirement for catastrophic coverage. While mandates are politically toxic for Republicans, some form of baseline protection could keep the insurance pool healthier and prevent sudden coverage gaps when people get sick.
- Be honest about the cost. No serious alternative will avoid the fiscal reality that meaningful help for high-risk or low-income individuals requires substantial taxpayer funding. “Finding waste,” chasing “ghost buyers,” or requiring nominal premiums may trim around the edges but cannot replace real dollars.
A credible plan must own the cost of its commitments rather than assume efficiency alone will balance the books. Republicans can end up with a better plan if they follow these suggestions.
Mark Pauly is the former Executive Director of the Leonard Davis Institute of Health Economics and Bendheim Professor Emeritus at The Wharton School at the University of Pennsylvania.
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