The Rand Paul Bill Is Worse Than Obamacare

By Doug Badger and Grace-Marie Turner

House Republicans are expected to roll out their highly anticipated bill to repeal and replace Obamacare this week, but a more obscure measure introduced by Rand Paul (R-KY) is gaining attention and should not escape notice.

Paul, who has positioned himself as a leading conservative critic of the forthcoming GOP proposal, has sponsored a measure that would leave untouched both Obamacare’s $1 trillion in taxes and its Medicaid expansion.

Stranger still, though Paul has characterized Republican plans for an age-related refundable tax credit as “Obamacare Lite,” his bill does the unthinkable: It retains the Obamacare income-related refundable tax credits.

The 149-page Paul bill is replete with changes to federal health care policy. It greatly expands health savings accounts (HSAs), allows for various pooling arrangements (association health plans and independent health pools), and permits the sale of insurance across state lines. It also repeals a host of federal insurance regulations. Under its terms, the federal government no longer would prohibit insurers from denying, rescinding or refusing to renew coverage. Nor would it require insurers to cover pre-existing medical conditions of new enrollees. State regulators would be free to draw up their own rules governing individual and small group markets.

Paul’s measure would for the first time allow people who buy individual health insurance policies to deduct premium payments from their federal income taxes. This new above-the-line deduction would help level the playing field between people with job-based coverage, which is tax-favored, and people who buy insurance on their own, who receive no tax benefits.

The Paul bill also would create a health insurance tax credit against payroll taxes. The new credit is complicated, but its general effect is straightforward. It offsets payroll tax liability, while the new deduction reduces income tax liability. The credit is thus especially valuable to workers with modest wages, since they often pay more in FICA taxes than in income taxes.

If the bill stopped there, it would consist largely of conservative staple. But there’s a twist: These new tax provisions do not replace the Obamacare refundable credits. Paul’s tax breaks would exist side-by-side with Obamacare’s.

That is plain from the text of the bill, which includes a provision to prevent households that take the new deduction from claiming the Obamacare tax credit as well. It reads:

“PREMIUM ASSISTANCE CREDIT.—Subsection (a) shall not apply with respect to so much of any premium for which a credit has been allowed under section 36B.”

“Subsection (a)” refers to Paul’s new deduction. “Section 36B” of the Internal Revenue Code authorizes the Obamacare “premium assistance credit.” The Paul bill thus prevents double-dipping. It offers a choice between the Obamacare tax credit and the new tax deduction. You can’t deduct a premium dollar for which you’ve claimed an Obamacare credit.

What makes this odd is that Paul and other conservatives have blasted House GOP leaders for pushing a refundable tax credit, which varies by age, as a replacement for the Obamacare refundable tax credits, which vary with income. Whether or not that is good policy, House leaders at least agree that the Obamacare tax credits need to go. The Paul bill preserves them.

Some have suggested that Paul assumed his bill didn’t need to revoke the Obamacare tax credits, since some other measure would repeal them. That just doesn’t add up. Not only does the bill fail to repeal the Obamacare credits, it actually makes what it characterizes as a “conforming and technical amendment” to them. It would be pointless to amend a provision you’d assumed was destined for the landfill.

Then there’s the new tax credit against payroll taxes described above. The Paul bill includes a “conforming amendment” instructing federal scribes to add that new credit as section 36C of the Internal Revenue Code and to insert it after section 36B (the Obamacare tax credit). Again, if Senator Paul assumed that section 36B were repealed, this provision would be nonsensical.

Finally, there is the underlying structure of the bill. It assumes that the Obamacare refundable credits will coexist with the new tax breaks and, consequently, establishes a rule for coordinating the two. Each taxpayer would choose between the new deduction and the Obamacare refundable tax credit.

In fairness, Senator Paul and his followers may not have been aware that his bill preserved Obamacare’s tax credits, as well as its Medicaid expansion and taxes on medicines, devices, investment income, tanning beds and health insurance premiums. Members generally don’t read bills (even ones they “write”) and conservatives who are talking up the measure probably never imagined that it would leave Obamacare’s pillars standing.

And if they or their staffs browsed the bill, they may have drawn false comfort from Title V, which is entitled, “Medicaid Reform.” That title, it turns out, consists of a single sentence that broadens the HHS Secretary’s authority to grant waivers to states. The Paul bill consequently leaves undisturbed Obamacare’s Medicaid expansion, which puts the federal government on the hook for 90-95 percent of the cost of insuring nondisabled, non-pregnant adults.

Small wonder that Paul may soon crab-walk away from his own bill. There are reports that he plans to introduce a new one, perhaps as soon as this week. If so, it may indicate that he has had second thoughts about the measure he offered just six weeks ago.

Paul is entitled to a do-over. But he and his followers, who appear locked and loaded to attack any Republican alternative that includes refundable tax credits, might consider toning down their rhetoric.

The GOP has a once-in-a-generation opportunity to roll back a massive government intrusion into health care. They are opposed by every major national institution, from the Democratic party to health industry lobbyists to corporate news organizations to a highly energized anti-Trump Left. All it will take to doom repeal and replace efforts is for a handful of Congressional Republicans to join their Democrat colleagues in opposing the measure.

Branding the House GOP bill “Obamacare Lite” makes failure more likely. The charge is especially inappropriate coming from the sponsor of a bill that can fairly be labeled Obamacare Plus.

– Doug Badger is senior fellow at the Galen Institute and  previously served as a senior White House and  Senate advisor.

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About the author

Doug Badger

Galen Institute Senior Fellow
Doug Badger’s career in public policy spans more than three decades and includes stints as a policy adviser to the White House, the U.S. Senate, the Department of Health and Human Services and the Social Security Administration…. Full Biography