Obamacare replacement's three most outrageous flaws that must go

surgeon in operating room
Morsa Images | Getty Images

The GOP Obamacare replacement plan, now getting the moniker "Ryancare" in the news media, has come under fire from all sides since it was rolled out earlier this week.

Over the last 24 hours or so, the response from the Republican leadership to conservative critics has basically been a slight variation or two on the following pitch: "Just go along guys. This is just the opening offer."

Okay, I'll play. If Ryancare as we know it now is indeed just a work in progress, let's talk about the three things that absolutely, positively must come out of it or it's no dice:

Essential Benefits

It's hard to overstate just how harmful the Obamacare-imposed minimum requirements on all health insurance plans really are. And that's why it's so shocking that even this first draft, (if that what it is), of the GOP plan keeps them in place.

The first problem is that the essential benefits, "one-size-fits-all," rule shoves so much into every plan that it necessarily forces insurers to raise prices. Think about it like buying a car with a ton of options everyone has to buy. You can't save money by going for the plastic seats and the manual transmission in this health care model.

It seems like both Republicans and Democrats in Washington are dead set against letting Americans decide for themselves what kind of insurance to buy and what liabilities they'd like to take on based on that choice. When both parties work in unison to restrict liberty, you see the political class at its ugliest.

But that's nothing compared to the absurdity of some of those essential benefits when put under a microscope. They include a lot of services for women that men have to pay for. And the list of silliness like that goes on and on.

And then there's the nefarious monopolistic result of essential benefits to the market. Shoving all these minimum requirements into every approved plan keeps smaller competitors out of the market, which is just what the big insurers want. In that sense, essential benefits reeks of "regulatory capture" when Big Business and Big Government get together to do what's best for them and not the people. The result is less choice, higher prices, and less innovation.

Any revised Republican plan that doesn't either nix the essential benefits rules or scale them down considerably is a total nonstarter.

Subsidies to the upper middle class and rich

You often hear liberals attack Republicans and conservatives with the argument that they're against welfare and other government handouts to the poor and middle class, but okay with subsidies that go to big corporations and the rich.

It's a bogus argument most of the time, and even this GOP health plan proves it wrong in part since it does give $100 billion to the states to maintain risk pools for the poorest and sickest people. But those left wing critics have a point about subsidies for the upper middle class and the rich in this plan.

First off, the refundable tax credit subsidy for families has a pretty high cut off level that means a lot of families making more than $200,000 per year will get some form of aid. $200K per year may not seem like that much in New York or San Francisco, but there are no geographic parameters on this provision. That means someone who could be the richest guy in a rural town could be getting a subsidy paid for in part by his less fortunate neighbors down the road.

Second, there's a sweet deal for wealthy CEOs in this Ryancare plan as explained Wednesday by CNBC.com's Dan Mangan:

The proposed tax break, buried in cryptic language in the Republican plan, would allow health insurers to more fully deduct the value of their executives' compensation on their taxes. That compensation can be as high as tens of millions of dollars, in the case of CEOs of insurers.

Those deductions currently are sharply limited by the Affordable Care Act, which caps at a maximum of $500,000 the amount of an individual executive's compensation that an insurer could deduct as a business expense. The cap applies to any executive, not just to CEOs.

But it doesn't matter who's getting the subsidies to pay for insurance. The real problem is that if the government is going to be using subsidies at all in this area, why use them to get people insurance? Wouldn't that money go further in the cause of health care if it were used to simply pay for care instead of insurance? And yes, if any taxpayer money is spent at all it should be spent to care for the poorest and sickest among us instead of a backdoor payment to insurance companies.

Maybe conservatives should adopt a new slogan: "Stop the subsidies, save the bill."

Community Rating

Getting back to those sickest patients, remember that the sickest 10 percent of Americans account for a whopping 66 percent of our nation's annual health costs. So those folks, when they're able, should be forced to pay at least a little more than the rest of us for their insurance premiums... right? Wrong.

Under a rule called "community rating," premiums for even those sickest people are capped based on median or average costs in a given geographic area. That may sound great for poorer folks, but it also provides undue financial aid to someone who might be able to foot a little more of a bill for his or her own coverage. Worse, the community rating rule simply makes insurance premiums more costly for everybody in the same way that essential benefits do.

There are probably about a dozen other major problems with the Ryancare plan, including the fact that the helpful health savings account funds aren't allowed to roll over from year to year, and there's nothing in it to address the need for more doctors and nurses in much of the country to treat all these newly insured people.

But conservatives and anyone who wants to see American health care and access to it improve can't even begin to consider this bill unless the above three parts of it are taken out or defanged in some considerable way. And no, this is not just an "opening offer," it's a line in the sand.

Commentary by Jake Novak, CNBC.com senior columnist. Follow him on Twitter @jakejakeny.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.