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Marco Rubio's Obamacare replacement plan, explained

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1) Presidential contender Sen. Marco Rubio (R-FL) released a plan on Monday to replace Obamacare — one that would make employer-sponsored health insurance more expensive and likely slash benefits for Americans on Medicare and Medicaid.

2) Under Rubio's plan, pretty much everyone — workers, seniors, the poor — will pay more for the health coverage they currently receive.

This isn't just to be cruel: The theory of the Rubio plan is that a world in which beneficiaries foot a bigger chunk of their bill is one in which they make smarter and cheaper decisions about their own health care. They might choose less robust coverage and cut down on unnecessary care, becoming savvier consumers of health care. And that could be good for everyone: If the government devotes less money to health care, it has more resources to pay for other things, like schools or roads or (perhaps more realistically in a Republican administration) downsizing the federal government.

When people have less insurance, we know they do tend to use less health care. But there's also a risk: that people won't just cut out unnecessary care — they'll lose access to medical care that they do really need and could potentially die without.

3) The crux of the plan is to slowly wind down what is known as the tax exclusion for employer-sponsored health insurance. This standard makes it a lot easier for an employer to buy insurance than an individual, driving up the demand for really robust health insurance packages that may be well beyond what workers need. But since health insurance is tax-preferenced, it's a cheaper way to pay employees. The federal government loses more than $100 billion in revenue each year by not taxing health plans. Economists love the idea of reducing — or even eliminating — tax preferences for health insurance at work.

Here are the most important lines from the Politico article in which Rubio presented his plan:

I will work with Congress to create an advanceable, refundable tax credit that all Americans can use to purchase health insurance. The value of these credits should increase every year, and we should set the tax preference for employer-sponsored insurance on a glide path to ensure that it will equal the level of the credits within a decade.

4) Voters hate the idea of ending health insurance tax exclusion because it means the same exact health benefits package they get right now could get a whole lot more expensive. The 56 percent of Americans under 65 who get their insurance through their employer hate this the most. And, to be clear, that is what Rubio is proposing: His plan would make employer-sponsored health insurance cost more than it does right now. This is why politicians tend to get brutalized for proposals like Rubio's, no matter how much economists like it (see: John McCain in 2008, Obamacare's Cadillac Tax).

5) How, exactly, the Rubio plan would work isn't clear. The Politico story, which is only 10 paragraphs long, says Rubio would want to equalize the size of the tax exclusion for health insurance with the size of tax credits. This could, theoretically, mean that half of the $100 billion tax break for employer-sponsored plans would become tax credits for individuals. I've asked the Rubio campaign whether this interpretation is right, and will update this post if I hear back.

The outcome of this type of plan, however, is pretty clear: The cost of health insurance for workers would go up. It's harder to project how costs would change for people who buy their own insurance because the Rubio plan does not give numbers on the size of the new tax credits and how they compare with the tax credits in Obamacare.

6) There's another big proposal in Rubio's plan: converting Medicaid to a "block grant" program and moving Medicare to a premium support model.

You can read more about Medicaid block grants here and premium support here. In their simplest form, turning Medicaid into a block grant program or Medicare over to premium support simply means handing control over to the states or beneficiaries, respectively. Instead of paying a set percentage of each enrollee's bill, specific amounts would be handed out to a state (for Medicaid) or an enrollee (for Medicare). It would then be up to those states and enrollees to figure out how to best spend those funds.

But there's usually another policy goal to these proposals: saving money. Previous Republican plans for block grants and premium support would significantly reduce the benefits that Medicare beneficiaries receive, or throw millions of Medicaid enrollees off the rolls.

The block grant proposal in the House Republicans’ 2012 budget, for example, was estimated to cut $800 billion in Medicaid spending over a decade (about a third of the overall budget). The premium support proposal in that same budget would raise Medicare costs for about 60 percent of seniors, one study estimated.

7) Four in five Americans get health insurance through Medicare, Medicaid, or their workplace. And when you look at the Rubio plan in total, you start to realize it envisions a similar future for those 245 million people.

Namely, the world in which Rubio's health-care plan is enacted is one in which they get less help from the government buying the coverage they get right now — and where consumers, bearing a larger financial burden, are skimpier consumers of health care.

Could that actually work? It's pretty well-established that people with more health insurance tend to use more medical services, and vice versa. Rising deductibles, for example, have helped contain the growth of health-care costs in recent years. But there's a risk here of putting necessary care out of Americans' reach. Many now report they can't afford the bills for their own medical care — care they feel they actually need. The Rubio plan would likely reduce health-care spending, but at the risk of exacerbating this trend.