A simple fix: The same subsidy for everyone

Virtually all the software problems the health insurance exchanges are experiencing are for one reason: The healthcare reform law makes radically different government subsidies available to people—depending on their income, where they live, what kind of insurance their employer offers, whether they work 30 hours a week, whether they have 49 co-workers, etc.

All this complexity could be reduced to easy-to-manage simplicity by adopting a very simple idea: Give everyone the same subsidy regardless of income, age, geography or any other factor.

For the sake of argument, I'm going to assume that amount is $2,500 for an adult and $8,000 for a family of four. That's the Congressional Budget Office estimate of the cost of enrolling new people in Medicaid.

Under this proposal, when an individual enters the exchange, there would be no need to look to the Internal Revenue Service, the Social Security Administration or to ask what insurance is available at the place of work. Why? Because everyone would know from the get-go what the subsidy is.

The tax subsidy for employer-provided insurance would be exactly the same as it would be in the exchanges. Since every individual and every family would receive the same help from government, those subsidies would be the same regardless of whether people obtain the insurance at work, in an exchange or in the marketplace. It wouldn't matter whether they work less than 30 hours a week or more; whether their workplace has fewer than 50 employees or more; and whether they are in a union or not.

This approach would not encourage employers to avoid hiring new workers. Nor would it encourage employers to drop health coverage for current employees or for their retirees. It also would not favor small business over large business, or vice versa.

Here is another idea that would make the transition to a new system even smoother: Allow people participating in Medicaid to claim the credit so they can buy private insurance and let anyone in the private sector buy into Medicaid.

Those “eligible” for Medicaid could enroll. If people are not “eligible,” they could use the tax credit and out-of-pocket funds to pay an actuarially fair price.

Had the administration implemented the idea of a fixed-sum refundable tax credit with the same amount for all taxpayers, the Obamacare exchanges at this point might be working like a charm.

John C. Goodman is president of the National Center for Policy Analysis, a research fellow with the Independent Institute and author of Priceless: Curing the Healthcare Crisis.