How the GOP made a royal mess of its good ideas

I am in favor of cutting taxes and scrapping ObamaCare's individual mandate. The tax reform bill that just passed the Senate does both. So I should love it, right?

Wrong. Only congressional Republicans could combine two noble ideas and produce such a royal mess.

Liberals are slamming the bill as a corporate boondoggle because it slashes federal corporate income taxes from the current 35 percent to 20 percent. That's baloney. America's corporate taxes are the highest on the planet. They discourage investment and encourage tax evasion, none of which grows the economy or helps the U.S. Treasury. We ought to applaud the rolling back of these taxes.

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It's just too bad the rest of the bill is such a trainwreck.

Let's focus on the scrapping of ObamaCare's mandate that all Americans obtain health insurance or pay a fine. This has always been unjust. It represents Uncle Sam crossing a hitherto unviolated — and inviolate — line, forcing Americans to buy something against their own wishes and better judgment.

Many libertarians and conservatives had long hoped that the Supreme Court would throw out the mandate and tell Congress that its power to regulate interstate commerce did not extend to requiring Americans to actually engage in it. But Chief Justice John Roberts had other ideas. He was loath to kill a core piece of President Obama's signature legislation, lest his court be accused of partisanship. So he argued that the penalty wasn't a fine, but instead a tax on people who refused to buy coverage and therefore within "Congress' power to tax."

Roberts' reasoning was a remarkable exercise in judicial casuistry. And now, years later, it has given Republicans solid legal grounds to scrap the penalty — and effectively repeal the mandate — as part of their tax bill.

The Congressional Budget Office estimates that without the mandate, about 13 million Americans would drop their coverage. This would mean a $45 billion loss in penalty revenue — but a $340 billion net gain over a decade in subsidies that Uncle Sam wouldn't have to pay. These savings are important to prevent the GOP's tax cuts from adding more than $1.5 trillion to the deficit over 10 years. If that were to happen, the GOP wouldn't have been able to use a budgetary process called reconciliation and pass the tax cuts with only a simple majority in the Senate.

The problem is that most of the 13 million Americans who quit their coverage will be young and/or healthy. This will leave a sicker population on the exchanges facing premium increases of an additional 10 percent annually, the CBO estimates. This will almost certainly put the exchanges in a death spiral of adverse selection.

There are two remedies for this: one good, one bad.

The good one: Deregulate the exchanges and eliminate ObamaCare's Essential Health Benefits (EHB) requirements along with community rating and guaranteed issue mandates. EHB is intended to force insurers to provide bedrock care (something many insurers were already doing), but it also includes all kinds of unnecessary bells and whistles — such as in vitro fertilization for 55-year-old women — that jacks up costs. The Department of Health and Human Services has the authority to get rid of many of these administratively. But it is an open question whether it has the competence, especially since President Trump has yet to find a permanent replacement for former Secretary Tom Price, who was forced to quit for using private jets for routine travel, at taxpayers' expense.

The community rating mandate (which limits the ability of insurers to price plans according to the age and health status of a patient) and guaranteed issue (which requires them to sell coverage to patients even after they fall sick) are admittedly more tricky. Scaling them back and replacing them with alternatives requires congressional action that would be hard without Democratic cooperation, as the multiple failed Republican efforts to repeal and replace ObamaCare demonstrate.

And so, Republicans are going for the bad option: namely, throwing more money at insurance companies to induce them to stay in the exchanges and keep premiums low. They are working on a bipartisan stabilization bill drafted by Sen. Lamar Alexander (R-Tenn.) and Sen. Patty Murray (D-Wash.) that would restore for the next two years billions of dollars in subsidies to insurance companies that President Trump stopped in September. But given that most companies have already priced next year's products without the subsidies, as University of Michigan law professor Nicholas Bagley notes, handing them this money now is pure corporate gravy.

Worse, it's exactly the wrong direction for health care. The reason medical inflation in this country is so out of control is that patients don't control their health-care dollars, third parties do. Hence they have little opportunity or incentive to price shop for affordable care.

So what should Republicans do?

At a minimum, instead of handing the stabilization funds to insurance companies, they should put them in the pockets of exchange patients facing higher premiums. Some health-care experts believe that tax cuts will destabilize ObamaCare so much that Republicans will have no choice but to take up health-care reform again. Should that happen, Republicans would be well advised to focus on expanding health-care savings accounts in which patients can set aside pre-tax dollars to buy high-deductible plans and pay for co-pays and deductibles. Money that's left at the end of the year rolls over into the next. Having to compete for patient dollars would encourage insurers to keep premiums in check.

If Republicans need more funds to stabilize the exchanges and transition ObamaCare to a more sustainable consumer-driven system, they should drop their cockamamie child credit expansion schemes and use that money to straighten out the health-care mess. These credits are a pure middle-class entitlement that add to the deficit without generating any new economic growth.

Making the repeal of the individual mandate part of the tax cut bill was a good idea in principle. But Republicans are in the process of making a hash of things with their confused and half-baked implementation.