The Affordable Care Act, aka Obamacare, has dramatically expanded access to healthcare in the United States. But it has done nothing to lower the cost of healthcare  which now exceeds 18% of GDP and is steadily increasing.

Warren Buffett, the Oracle of Omaha, refers to medical costs as “the tapeworm of American economic competiveness.”
An excellent plan for improving the ACA, “Transforming Obamacare” has been put forward by the medical economist, Avik Roy.  It has five main features:

• Repeals the individual mandate and proposes universal tax credits for acquiring catastrophic insurance and setting up health savings accounts.
• Repeals the employer mandate and sets up a capped standard deduction for employer sponsored coverage.
• Reforms Medicaid by migrating the current system into the above universal (and refundable) tax credit plan
• Reforms Medicare by migrating the current program into the same universal system.
• Other reforms for veterans, medical innovation, hospital monopolies, drug pricing and malpractice litigation.

According to Mr. Roy, the American Health Care Act, recently passed by the House of Representatives, does a good job in relaxing many of the ACA’s onerous regulations.  However it falls down badly by including a flat tax credit rather than a means-tested credit based on income. Such an approach means that millions of low-income Americans, either near retirement or just above the Medicaid cutoff, will be priced out of the insurance market.  This is what the Senate bill needs to fix.

Conclusion. Mr. Roy’s plan will not only expand overall healthcare access beyond the level achieved by the ACA but will also dramatically cut the cost of healthcare in the U.S. and even goes a long way towards achieving a balanced budget. Let’s hope that the Senate gets the AHCA proposal back on track.

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