Why the GOP needs an alternative to the Obamacare repeal strategy

Any member of Congress who ran in 2014 pledging to vote for the repeal of the Affordable Care Act (ACA or Obamacare) should of course do so. That was a campaign pledge. But having done that, and seen it lead to nothing, opponents of the ACA need to move on to a more productive and realistic strategy to achieve the core elements of a more conservative vision of health care reform. That approach could well meet with a measure of bipartisan support, given the enormous practical challenges facing the ACA.

Why the Repeal Strategy is Failing

The repeal strategy is getting nowhere, despite the switch in the Senate and the popularity of repeal among Republican and conservative voters. For one thing, there is simply no prospect of a regular repeal bill passing the Senate with the 60 votes needed. Even if repeal passed the Senate using budget reconciliation (a device requiring only 51 votes), it would be vetoed and an override would undoubtedly fail. Further, Republican leaders interested in using reconciliation for other measures that might gain the President’s signature, such as tax reform, seem increasingly reluctant to “waste” reconciliation on a no-hope repeal effort.

As the months roll by, moreover, maintaining a broad and determined coalition for reform is getting increasingly difficult. Despite their deep concerns about the ACA, for instance, business organizations such as the US Chamber of Commerce are quietly abandoning the quest for repeal and seeking narrower “fixes” to address particular ACA features that trouble business owners. Meanwhile, as the enormous US health industry reorganizes itself and invests billions of dollars to comply with the law, there is less and less enthusiasm about the idea of reversing course and effectively abandoning part of that large investment.

As Republicans line up to vote for targeted relief from elements of the law, such as eliminating the tax on medical devices or adjustments to the ACA’s definition of “full-time” employees, it seems that more and more political air is leaking from the repeal balloon. Indeed, as Republicans edge towards a combination of “messaging” repeal votes with efforts to fix small elements of the ACA to make it more palatable for constituents, that strategy is increasingly likely to assure their own worst nightmare. It would leave the basic structure of the ACA intact, with just a few minor Republican improvements that make it work a little better. And the fixes would soften opposition to the ACA.

Gambling on the Supreme Court striking down subsidies to enrollees in federal exchanges in King v. Burwell is also a risky and doubtful strategy. Even though the decision desired by ACA opponents would be a severe body blow it’s not clear it would be a fatal one. According to some experts, many states are likely to take steps to adopt a state exchange in the wake of such a decision, with the Court probably encouraging that remedy. With perhaps half of the states soon adopting some form of Medicaid expansion, and a similar, overlapping number deciding to create a state exchange, time would be on the side of the ACA.

Moving the ACA in a Different Direction

The original case against the ACA vision of health care reform remains strong. So too is the wisdom of alternative ways to achieve the same broad goals of the ACA – adequate health care coverage and services for Americans that is affordable for both patients and taxpayers, now and in the future. But the best strategy for Republicans and conservatives to achieve those goals, given the likely continued existence of the ACA, is to use parts of the law, and feasible strategic amendments to it, to cause the ACA to evolve in a different direction.

Key Elements of an Alternative Strategy

Three key elements should rank high on the “Plan B” strategic agenda:

State-Led Design. A central feature of the alternative vision of health care is a state-led system. That element has been proposed by conservatives and others for many years and is again being advocated. If the US health care system were a separate economy, it would be the sixth largest in the world – bigger than the entire economy of Britain, or of France. To spur innovation and to accommodate diversity in a huge, complex system of that size, America needs to allow states the greatest opportunity to explore alternative ways of achieving broadly agreed goals of coverage and affordability. To be sure, both the ACA and the Administration has made important concessions to that vision by granting some flexibility in both statute and through waivers. In particular, thanks to Section 1332 of the ACA, starting in 2017 states may obtain waivers to pursue the Act’s goals in radically different ways, including exemptions from employer and individual mandates, and abandoning exchanges for some better approach.

Without even changing the law, 1332 could change the ACA almost beyond recognition. So states should be urged to make full use of the Section. Building on this, the legislative strategy now should be to advance the start date of the Section to 2016 and to limit the power of the Administration to nix state proposals.

Medicaid Reform. Expanding Medicaid up the income scale is a battlefield issue in the debate over the ACA. Critics of Medicaid have long pressed for transforming the program (at least for able-bodied individuals) into a cash contribution to eligible households and allowing beneficiaries to enroll in private coverage. Several states have been granted waivers to take steps in that direction. Under the ACA, the Obama Administration has even been negotiating with states interested in a “private option”, which would allow states opposed to Medicaid expansion to use the same funds in other ways to provide private coverage. Some states, such as Arkansas, and Utah, have been pushing to include such provisions as work incentives and savings accounts in their waivers. But the waiver process is onerous and uncertain. So, in keeping with the vision of state-led design, critics should press for legislation to make the Medicaid private option with some key elements a statutory option.

Tax Reform and Health Care. Health economists of almost all political stripes, from conservatives to some current Administration officials, have for decades criticized the tax treatment of employer-based health insurance (ESI) – in particular the “tax exclusion” that allows employee compensation earmarked by their employers for health insurance to be free of tax for the employees. The exclusion is highly regressive, giving most help to the highly paid. Its heavy cost in terms of foregone taxes also makes it tougher from a budget perspective to provide adequate tax credits to those who really need help to afford coverage. Moreover by hiding the true cost of coverage and many health services for employees it has boosted less necessary spending. These characteristics of the tax treatment bother both liberal and conservative health experts.

Proponents of the ACA did not confront this perverse tax treatment in the legislation, and opted instead for the clumsy “Cadillac Tax” on higher-cost plans, due to be imposed in 2018. Meanwhile the ACA, in trying to construct income-based subsidies for exchange plans while leaving the regressive tax treatment of ESI in place, imposed unpopular penalties on those employers who seek to move workers into the subsidized exchanges. Most recently, there is the growing worry that the law’s complex tax credits and subsidies will mean nasty surprises for millions of families at tax time.

But there may be an opportunity to address this while changing the nature of the ACA. There is rekindled interest within Congress in fundamental tax reform. So there is an opening to push for a structural tax reform of employer-sponsored insurance – one that would help achieve the goals of both ACA critics and supporters through a complete overhaul of the tax treatment of health care. Such a reform would transform the role of employers in the health system and boost consumer control of health insurance.

Unlike measures increasingly advocated by Republicans, these three elements are not “fixes” to the ACA, even though they address concerns about the ACA. They could attract the support of many anxious proponents of the law. But each would instead make a qualitative change to the future evolution of the ACA, and begin to take the law down a path towards the workable reformed health system favored by advocates of federalism and consumer-based health care.