A Third-Party Tax Reconciliation Approach to Health Care
Seven Pillars for a Modern, Market-Oriented American Safety Net
This blog is on a mission to create a comprehensive third-party tax reconciliation bill that will address the structural economic problems that the two-party duopoly has ignored for decades.
This is not just a platform of ideals; it is a pragmatic legislative strategy. By securing a “kingmaker” block of 20 to 30 House seats, we can force Congress to select a consensus Speaker and bypass partisan gridlock to pass meaningful reform with a simple majority.
Our work begins with healthcare. We have developed a rigorous draft of a new program that replaces inefficient subsidies with federal catastrophic protection, universal portability through the merger of employer and marketplace insurance, and a national pediatric foundation through universal CHIP. The plan further expands Medicaid to 200% FPL while introducing fiscally optimized Premium Tax Credits designed to eliminate the “subsidy cliff” and protect taxpayers from over-spending. Finally, it ensures equal tax treatment via above-the-line deductions for the individual market and the modernization of flexible savings accounts.
This proposal will be less expensive than many realize because these new subsidies and reforms are fundamentally more efficient than the legacy systems they replace. Comprehensive reform is a structural necessity; it addresses not only the immediate hardships of the uninsured and underinsured but also the systemic impact of medical debt. By depleting household liquidity, medical debt prevents families from building the private savings required for retirement. Solving this crisis is a prerequisite for stabilizing and reforming Social Security, which currently faces an insolvency crisis.
This is the first of several modules in a total tax code overhaul aimed at addressing student debt, retirement adequacy, energy supply, and environmental sustainability while stabilizing the national debt.
A Third-Party Tax Reconciliation Approach to Health Care
Introduction
Democrats and Republicans have long been divided by fundamentally different economic philosophies, leaving the American family caught in the crossfire. Republican policymaking has traditionally centered on tax cuts and a smaller federal government, often prioritizing market-based solutions even when they impose significant financial risk on households. Conversely, Democratic policymakers have focused on expanded federal spending, with a progressive wing often unwilling to consider trade-offs and a centrist wing struggling to craft permanent reforms that survive changes in administration.
The result is a “one step forward, two steps back” cycle. The Trump Administration and Republican Congress dismantled Biden-era expansions, while progressives continue to champion an economically unrealistic “Medicare-for-All” model.
The current political situation does not address major market imperfections impacting health care and insurance.
Insurance is tied to a specific employer resulting in either loss of all insurance or loss of access to current medical provider with every job transition.
The employer-based tax subsidy is more generous for more affluent individuals.
People with state exchange coverage lose all subsidies if income exceeds 400 percent FPL.
Private markets are distorted by the “catastrophic risk” of the most expensive 1% of cases.
Family plan premiums are extremely high and could be reduced through increased use of the Children’s Health Insurance Program (CHIP)
Restrictions on the use of Medicaid increase the number of the uninsured and costs to both low-income households and taxpayers subsidizing private insurance.
Health care subsidies are too low for self-employed and gig workers.
Many people with comprehensive health insurance coverage still have high out-of-pocket health care costs.
The following seven provisions establish a fiscally responsible, market-oriented framework to modernize American health care. By utilizing the tax reconciliation process, we can integrate these reforms into a single, cohesive “Health Care Clearinghouse” model.
This shift represents a fundamental pivot in federal policy: we are systematically reducing our reliance on opaque, tax-code-based employer subsidies—which disproportionately benefit the affluent—and replacing them with a suite of more efficient, direct programs. By stripping away the market imperfections that drive up costs, these provisions incentivize superior market outcomes, rewarding consumer agency and fiscal transparency while ensuring a robust safety net for all Americans.
Seven Features of the third-party health care proposal:
1. A Federal Catastrophic Healthcare Subsidy
The Concept: A permanent federal program designed to absorb the “tail risk” of high-cost medical cases. While the ultimate goal is a broad-based subsidy (e.g., paying 50% of costs over $50,000), this framework is designed for a gradual phase-in. Initial versions could be more targeted—starting with a smaller reinsurance pool or a reinsurance scheme focusing specifically on high-cost chronic diseases —to ensure fiscal stability while the market adjusts.
Crucially, this benefit is applied exclusively to state exchange health insurance plans. By providing this federal “backstop” only within the exchange market, we create a powerful market incentive for employers to shift toward the new employer subsidy of state exchange insurance and away from the firm-specific employer subsidy as described in Pillar 2.
Why This is a Fairer, Smarter Way to Fund Healthcare
Employers are currently trapped in expensive, rigid, firm-specific policies. By offering a federal catastrophic subsidy only for exchange-based plans, we provide a massive financial incentive for firms to subsidize their employees’ portable state exchange coverage (created in pillar two of this proposal) instead of continuing to offer health insurance tied to the firm.
Currently, the tax break for employer-based insurance is worth more to high-income earners in high tax brackets and less to lower-income workers. This proposal provides the same level of protection to a janitor as it does to a CEO, effectively giving lower-wage workers a much-needed boost in the value of their coverage.
The state exchange premium tax credit is not applied to people with income over 400 percent FPL (around $60,000 for a single person). The catastrophic reinsurance benefit provides some support, in the form of lower premiums, to all households and reduces the need for enhanced credits.
The reinsurance subsidy by reducing premiums reduces the premium tax credit. The reduced premium tax credit offsets part of the cost of the new subsidy.
The reinsurance subsidy, because government is sharing in the cost of the riskiest cases, reduces incentives for firms to cherry pick health customers, to narrow networks, and to create high prior authorization hurdles.
The risk sharing creates incentives for more insurance firms to enter state exchange markets and to lower premiums.
A gradual increase in the reinsurance share of health insurance premiums could lead to a transition towards a single-payer system.
2. Universal Portability: Merging Employer and Marketplace Insurance
The Concept: This reform merges the “Work Insurance” and “State Exchange” worlds into a single unified market, allowing employer contributions for premiums, maintaining an employer mandate but tying health insurance to the individual or family not the job.
The Framework
The tax code is modified to allow for tax free contributions to state exchange health insurance rather than firm-specific policies.
Large employers (50+ workers) are required to pay at least 60 or 70 percent of premiums but they don’t have to manage the plan. (This is a revised employer mandate.)
People without an employer subsidy or people who could not afford state exchange insurance would have access to a modified premium tax credit.
Why This is Fairer and Better
People maintain access to the same insurance policy regardless of their employment status as long as they maintain premium payments. (Subsidies in the form of an increased premium tax credit kick in for people who lose employer-based subsidies)
The maintenance of continuous coverage allows people to keep their insurance providers if they change jobs, ends job lock (a situation where people don’t switch jobs to maintain insurance coverage) and prevents immediate loss of insurance from layoffs.
The use of employer subsides for state exchange health coverage increases options for many employees who often have only one option from their employer plan.
The reliance on state exchanges reduces costs and paperwork and may incentivize smaller firms to offer health subsidies. The approach also creates a predictable benchmark premium for small employers.
3. Universal CHIP: A National Pediatric Foundation
The Concept: We expand the Children’s Health Insurance Program (CHIP) to act as the primary insurer for all children, in households with state exchange health insurance regardless of their parents’ employment. For affluent families, CHIP becomes a high-quality, “buy-in” option. They pay an income-adjusted premium that is often lower than private insurance but higher than what lower-income families pay, ensuring the program is self-sustaining and fair across all tax brackets.
Why This is Fairer and Better
It is significantly cheaper for the government to cover a child through CHIP than to subsidize that same child on a private Marketplace plan. By moving dependents into CHIP, we drastically reduce the total cost of Premium Tax Credits (PTC), making the entire healthcare system more fiscally sustainable.
CHIP is designed specifically for kids, covering essential developmental screenings, dental, and vision that private plans often skimp on. This ensures a “CEO’s child” and a “janitor’s child” both have access to the same gold-standard pediatric network.
Appropriate regulations would guarantee that the CHIP network is very broad. (Regulations could in fact mandate that all doctors accept CHIP coverage.)
4. Expanding Medicaid for more lower income households throughout the country.
The Concept: Expand Medicaid coverage to 200 percent FPL and provide a permanent more generous federal match in all states. Have the reinsurance program pay costs for a percent of all Medicaid costs above the threshold.
Why This is Fairer and Better
In economics, a Pareto improvement makes at least one person better off without making anyone worse off. This proposed reform is potentially Pareto improving.
The government could save money because the cost of Medicaid is lower than the cost of the premium tax credit for state exchange health insurance.
The expansion of the Medicaid program would allow for a new higher floor on the state exchange health insurance premium tax credit equal to the current reimbursement rate for people at 200 percent FPL.
Medicaid is more suitable than private insurance for most lower-income households, who cannot afford high deductibles and who frequently lose eligibility for Medicaid due to changes in income.
Opposing this expansion is fiscally irrational. Using private tax credits to cover this income group is like using a luxury sedan to haul gravel—it’s the wrong tool for the job. Medicaid is built for this specific demographic, offering the comprehensive benefits and low cost-sharing they need to stay in the workforce.
5. Right-Sizing the Premium Tax Credit (PTC)
The Concept: The Premium Tax Credit is redesigned to account for the new subsidies -- the new reinsurance program, the expanded CHIP program, and expanded Medicaid. The new subsidy is a sliding scale of income for households between 200 % FPL and 600 % FPL.
Why This is Fairer and Better
Households under 200% FPL transition to Medicaid. The expensive “cost-sharing reductions” and high PTCs currently spent on this group are redirected toward the more efficient Medicaid expansion.
Because the Federal Catastrophic Subsidy (Pillar 1) lowers the underlying cost of insurance for the entire market, the “gap” the PTC needs to fill is much smaller for every household.
The current 400% FPL subsidy cliff is moved to 600% FPL. This provides a safety net for the “squeezed” middle class while maintaining a clear endpoint for federal assistance. A cliff still exists but it hits at a higher income level and leads to a less drastic fall than the current cliff.
6. Equal Tax Treatment: Above-the-Line Deduction for the Individual Market
The Concept: We introduce a universal Above-the-Line” deduction for all health insurance premiums paid in the individual market to disparities in health insurance subsidies between people with and without employer based subsidies.
Why This is Fairer and Better
Currently, if an employer pays $1,000 for your insurance, it’s tax-free. If a freelancer earns $1,000 and buys the exact same plan, they must pay income and self-employment taxes on that money first. This is a structural bias that punishes entrepreneurship. This reform reduces that inequity.
With over one-third of the American workforce now engaged in independent work, our tax code is stuck in 1950. This deduction is tied to the individual, not a specific business entity, allowing workers with multiple income streams (e.g., a part-time job plus consulting) to easily claim the benefit.
Many independent contractors earn too much for PTC subsidies but are still crushed by high premiums. This deduction provides them with meaningful relief, recognizing that a $15,000 premium is a legitimate “cost of doing business” for a self-employed person.
By making the deduction “Above-the-Line,” we remove the need for complex “S-Corp” workarounds or expensive tax professionals. It makes the “cheapest” way to buy insurance also the “easiest.”
By lowering the “effective cost” of insurance for the self-employed, we encourage more healthy, young entrepreneurs to enter the individual market. This creates a more stable and diverse risk pool, which helps lower premiums for everyone.
Critics of previous proposals (like those seen in early versions of the Tax Cuts and Jobs Act) warned that a deduction could be less valuable than a credit for low-income earners. Our plan solves this by using the deduction as a complement to the PTC, not a replacement.
Deductions naturally offer more value to those in higher tax brackets. However, in our unified framework, lower-income workers are already protected by Medicaid (Pillar 4) and enhanced PTCs (Pillar 5). The deduction serves as the specific “fairness tool” for the middle and upper-middle class who currently receive the least help.
7. Modernizing and Expanding Flexible Savings (FSAs) and Health Savings Accounts (HSAs)
The Concept We transform FSAs and HSAs from passive storage accounts into active, consumer-driven Health Wallets. This includes eliminating use-or-lose rules, allowing accounts to directly pay for insurance premiums and Direct Primary Care (DPC), and introducing a Feldstein-Gruber Major Risk tier. In this tier, higher-income individuals opt for higher deductibles in exchange for significantly expanded tax-free contribution limits, shifting the focus from routine small-claim processing to protection against major financial shocks.
The provision restricting FSAs to employer-based plans is removed from the tax code allowing their use in state-exchange health insurance plans, which will become the new baseline venue for the provision of health insurance to working-age people and their households.
The Framework
Legislative language will establish new regulatory authority allowing HSA and FSA trustees to act as fiduciary agents. These accounts would be empowered to directly shop and pay for health plans that offer the lowest cost for a user’s specific prescriptions or chronic care needs, and to automate monthly Direct Primary Care (DPC) membership fees.
Following the Feldstein-Gruber model, high-income earners can opt into Major Risk plans with higher deductibles and a corresponding 7.5%–10% of AGI contribution cap for their HSA/FSA. This encourages healthy, high-earners to self-insure for routine care while maintaining a robust tax-advantaged backstop for catastrophic events.
A new rule allows people to either keep unused FSA balances forever or rollover funds into a non-deductible conventional IRA, ending the year-end panic spending on unneeded supplies.
Modify IRS rules to allow for the use of FSA/HSA funds for all health insurance premiums, including state exchange plans. Current law largely restricts this to COBRA or unemployment periods.
Lower-to-middle income households receive an annual government seed contribution of $500 to $1,000 to their account to ensure they have liquidity for immediate out-of-pocket needs.
Why This is Fairer and Better
The use-or-lose FSA stipulation currently incentivizes people to buy unneeded procedures at year-end. These changes allow the worker to keep funds for future health or retirement needs, reducing the tradeoff between current health and future security.
The ability to roll over funds into a retirement account makes these plans highly attractive to younger individuals, keeping them in the risk pool and stabilizing premiums for everyone.
As highlighted by recent trends in DIY healthcare, more Americans are finding success by negotiating cash prices and using DPC. This reform legitimizes and scales that model by making those payments tax-free automated, and managed by professional agents employed by FSAs or HSAs.
Current law links FSAs to employer-based plans, making work insurance artificially superior to the individual market. This reform levels that playing field, making state exchange plans more attractive.
The Feldstein-Gruber framework incentivizes higher-income individuals to be more judicious with routine healthcare spending, which exerts downward pressure on prices across the entire system.
Feldstein, Martin, and Jonathan Gruber. “A Major Risk Approach to Health Insurance Reform.” NBER Working Paper No. 4852, September 1994.
Link: nber.org/papers/w4852
Direct PDF: Download Full Text
Conclusion
The current American healthcare landscape is a byproduct of decades of ideological gridlock, leaving families to navigate a fragmented system where coverage is tied to employment, subsidies are inequitably distributed, and catastrophic costs remain a constant threat.
This proposal addresses these systemic failures by solving the “job lock” dilemma through universal portability, eliminating the “subsidy cliff” for the middle class, and providing a robust federal safety net for high-cost medical cases. By integrating employer contributions with state exchanges, expanding the role of CHIP and Medicaid, and modernizing FSAs, we create a market-oriented framework that prioritizes the patient’s needs.
This proposal moves beyond the “one step forward, two steps back” cycle of partisan healthcare debates. By replacing the regressive structure of employer-based tax breaks with a targeted, multi-pillar subsidy model, we eliminate the distortions that have plagued the private market. This transition incentivizes insurers to compete on value rather than risk-avoidance and empowers individuals to navigate their own care, aligning federal spending with health outcomes rather than institutional inertia.
The path to enacting these reforms is more realistic than the current political climate might suggest. These provisions primarily involve adjustments to tax credits, deductions, and federal outlays, which can be enacted through the tax reconciliation process. A third party could force the issue by obtaining 20 or 30 seats in the House of Representatives creating a situation where they could force the election of a consensus Speaker.
Democrats would prefer a third-party Speaker over a Republican, and Republicans would prefer a third-party Speaker over a Democrat. This leverage allows us to bypass partisan obstruction and bring this common-sense legislation to the floor in the House. The Senate could, under its rules, pass a tax reconciliation vote with a simple majority.
However, significant work remains. We must move beyond the conceptual phase to consider various policy alternatives, conduct rigorous cost estimations, and draft the precise legislative language required for a reconciliation bill. Furthermore, this initiative is not limited to healthcare; it is the first step in crafting a comprehensive tax reconciliation bill that addresses the entire tax code.
Our goal is to ensure that federal revenue is adequate to tackle the defining challenges of our era—including student debt relief, retirement security, and environmental protection—while simultaneously reigning in deficit spending to stabilize the national debt trajectory.
To turn this vision into a reality, I need your direct support. Building a movement that can challenge the political duopoly and perform the complex policy work described above requires resources. Your paid annual subscription of $48 (with coupon) is not just a fee for information; it is a strategic investment in the future of your country. It is a far more effective use of your capital than a contribution to any individual candidate, as it funds the structural reform necessary to fix the system itself. Together, we can move past the cycle of “one step forward, two steps back” and build a healthcare system that works for every American.
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