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How To Save The ACA

I just want to get this idea down where I can refer to it as needed.

Recall that SCOTUS blessed the individual mandate under the ACA on the grounds that it imposed a tax. I agreed with that argument, even before it was advanced. But the argument is not just a technical one; it tells us something about how to fix the program.

All taxes fall initially on a taxpayer. In the case of the ACA, the tax is paid by healthy citizens who pay for insurance they don't want, or pay more for insurance they do want than they would have to pay if the insurer could charge different premia for different levels of risk and/or deny coverage for pre-existing conditions. The extra money these healthy people pay funds the deficit created by accepting/undercharging sicker people.

The acceptance and undercharging of higher risk participants is a form of welfare paid to them, funded by a group of taxpayers who have no more reason than anyone else to pay for that entitlement. That's why a tax subsidy is offered to some of those participants. Still, the real driver of policy here is the attempt to make the tax increase borne by unsubsidized, healthy participants look like something other than a tax. But, as Justice Roberts told us, it is a tax. So, the way to solve the ACA problem is to repeal and replace that tax.

The pre-existing condition problem can be solved by requiring insurers to honor continuous coverage, with a surcharge for people who fail to obtain coverage while healthy and a subsidy for members of that group who qualify under some welfaresque notion of need. Some mechanism would have to be provided for sick people who transfer from one carrier to another - single payer, anyone? - but I suspect a pooling device could be created for that purpose.

Or, the ACA could prescribe a minimum level of insurance that a "qualified" insurance plan must provide and then allow anyone who has such a plan to join Medicare with their private insurance as primary. The private insurer would be allowed to exclude pre-existing condition coverage, and Medicare could step in and pay the difference. There are network coverage issues there - nothing is easy in this area - but, again, if there is a will, I think there will be a way.

To replace the money lost by not overcharging the healthy, some tax revenues will likely be needed. I would raise the payroll tax cap. Raising the tax rate is regressive, raising the payroll tax cap is progressive. I use these terms in their technical sense only, not to evoke their connotations, but I do think that progressive taxes are the best way to add to the current tax burden if add to it we must.

I recognize that the Medicare portion of the payroll tax is already unlimited, i.e., that the cap on that tax cannot be raised, but we got into this mess by pretending that there needs to be a nexus between the program being subsidized and the taxpayers contributing to the subsidy. We are not talking about a user fee. We are talking about a tax to fund a welfare benefit - coverage for pre-existing conditions. We can raise that money wherever a tax increase can best be imposed, just as if we were paying for defense or infrastructure or the Senate's salary.

Raising the tax base on the non-Medicare portion of the payroll tax seems to me a reasonable step. Alternatively, it might make good political sense to reduce the non-medicare part of the payroll tax and increase the Medicare portion by the same percentage to cover the healthcare subsidy. That would keep the payroll tax rate the same but remove the cap from a larger portion of the payroll tax. Same money, but with maybe less squealing.

Any tax change affecting the Social Security or Medicare funds should probably be joined with an effort to make those funds appear less dangerous to our fiscal health. I don't want to wander into the weeds of retirement funding, but suffice it to say that ideas like allowing Medicare to negotiate drug prices could help permit the Medicare fund to pay for pre-existing condition treatments.

I would also be ok with a general tariff on all imports, something large enough to raise real money but not large enough to start a trade war. Our trading partners already pay for the privilege of reaching our customers by accepting dollars and lending them back to us. I'm suggesting that we make that "rent" explicit by imposing a tariff just because we can. Of course, that's something to be negotiated with our trading partners, not simply decreed.

The individual mandate was a bad idea, but it was the only way to make the insurance program work without a straight subsidy to the insurance companies forced to take unacceptable risks. Now that the mandate has failed, some other way to get money to the payers needs to be found. Much gnashing of teeth will be involved, but we need to hear Justice Roberts as he channels Gertrude Stein: a tax is a tax is a tax is a tax.