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Health360

Ordinary politics: Continuation of the health reform war by other means

Henry J. Aaron

The military strategist, Carl von Clausewitz, famously remarked “war is the continuation of politics by other means.” In the battle over the Affordable Care Act (aka ‘Obamacare’), it now seems possible that politics may become the continuation of war by other means.

For the past six years, Republicans have been waging total war against Obamacare.  First, they used delaying tactics in Congress.  When health reform advocates brought the health reform bill to a vote, Republicans unanimously opposed it.  When the bill became law, they encouraged obstructionist tactics in various states.  When Republicans took control of the House of Representatives in 2010, they voted repeatedly to repeal the law in whole or in part, a futile effort as a majority of the Senate supported the law and the President stood willing to veto any repeal legislation. On a parallel track, Obamacare opponents initiated more than three dozen law suits to invalidate the law in whole or in part, none of which succeeded.

In the wake of their electoral triumph in November 2014, Republicans have repeated their commitment to seek total repeal of Obamacare. For at least for the next two years, such an effort cannot succeed.  Republicans hold 54 Senate seats. But there is a little chance that they can muster sixty votes to force a Senate vote on repeal, and no chance at all that they could amass two-thirds of both houses of Congress to override a certain presidential veto.

Continuing simply to call for repeal, may appeal to some Republicans.  But such a strategy is risky.  Polls show that most Americans support every major element of the Affordable Care Act, save the requirement that individuals carry insurance.  The Congressional Budget Office estimates that by 2017, the earliest time at which a Republican might be sitting in the White House, Obamacare will provide health insurance coverage to roughly 38 million people, 13 million through Medicaid and 25 million through health insurance exchanges.  Snatching away their coverage by repealing Obamacare would likely leave these millions rather grumpy.  Republican leaders may well conclude that the road to the White House will be straighter and smoother if they improve the health reform law rather than continuing, Quixote-like, to tilt fruitlessly with a law that will be deeply entrenched six years after enactment.  For these reasons, one may hope that something approaching normal politics may replace total war, at least as far as health care policy is concerned.

Is it possible to craft changes in the Affordable Care Act that might permit both parties to believe they gained more than they lost?  I think that there is, although the odds against success in passing it are daunting.  Such a law would have to get rid of provisions that Republicans loath but that Democrats do not regard as essential.  It would also have to contain provisions that Democrats believe would strengthen the law in ways that Republicans do not find repellant.  Such legislation would be technical and convoluted, but here are a few of many possible candidates for inclusion.

The Medical Device Tax.  As part of its menu of new taxes to help pay for the cost of health reform, the Affordable Care Act included a tax of 2.3 percent on medical devices.  Critics allege that this tax hampers sales of such devices both in the United States and abroad.  It is unclear whether this tax has any material effect on sales, as insurance insulates most U.S. purchasers from having to pay the tax and the tax is rebated on exports and is imposed on imports  Whatever the merits of the claim that the tax hampers sales, elected officials from states and congressional districts in which device manufacturers are located remain vocal in their opposition to this tax.  Repeal of this tax would not alter the structure of health reform in any important way.  For that reason, supporters of Obamacare can afford to ‘lose’ on this provision.

The Employer Mandate.  Republicans have opposed the Obamacare mandate that employers provide insurance for their employees or face a severe tax penalty.  They point out that the mandate and associated penalties apply only if workers are employed more than 30 hours a week and that this provision encourages employers to keep workers in part-time status.  Some have proposed raising the threshold to 40 hours, a demonstrably bad idea because it would aggravate any anti-work incentives—far more workers clock just over 40 hours than just over 30 hours.  Others have proposed scrapping the mandate altogether.  While some employers might stop sponsoring health insurance for their employees, low- and moderate-income workers in those companies would become eligible for financial support to help them buy insurance through health exchanges.

If Obamacare critics succeed in getting rid of what they see as a major anti-employment provision, they could claim a significant success.  Obamacare supporters would not like this change, but they should be able to live with it.  Studies indicate that even if the mandate were dropped, few employers would actually stop offering insurance.  Other incentives for them to offer insurance would remain and access of many affected workers to coverage through the health insurance exchanges and for tax credits to help make insurance affordable would soften the blow.

The Small Business Exchange.  If the employer mandate were dropped, Obamacare critics could reach farther and demand elimination of one of the two health insurance exchanges established by the Affordable Care Act in each state, the one set up to serve businesses with up to 50 employees (up to 100 employees, starting in 2016).  In 49 states businesses have been free to ignore the small-business health exchanges and buy insurance directly from insurance companies.  Virtually all have done so.  Even in Massachusetts, where a health reform much like Obamacare was enacted in 2006, few businesses have bothered with that state’s small-business exchange.  Not much would change if the small-business exchanges were scrapped.

The Cadillac Tax.  Republicans and most economists of both parties have long argued that implicit subsidy in the tax system for the purchase of health insurance should be curbed.  Cash compensation is subject to both income and payroll taxes, but employer-financed health insurance premiums are exempt.  The result is an incentive to buy more costly coverage than  if such premiums were taxed like cash wages and salaries.  Obamacare included a provision that will eventually impose an excise tax on the most costly employer-sponsored plans—so-called ‘Cadillac’ plans.  But the tax will not be imposed until 2018, and, even then, it will apply only to a few plans, mostly in unionized sectors of the economy.  The tax is as weak as it is because unions threatened to withdraw their support for the Affordable Care Act if it were any stronger, and Obamacare supporters needed every possible vote for final passage.  Because Republicans were opposing Obamacare root and branch, they had no leverage to strengthen this provision.  Many Republicans believe that the current tax is too weak, too slow to take effect, and not well designed, and some Democrats agree with them.  Were Republicans to insist on strengthening, accelerating, and redesigning the Cadillac tax, some Democrats might support them.

The ‘IPAB.’  Republicans—and some Democrats—have been calling for doing away with the Independent Payment Advisory Board (IPAB), an organization authorized by the Affordable Care Act to slow growth of Medicare spending if outlays climbed more than targets specified in the law.  Critics have decried this entity for its alleged capacity to ration care and because they believe that only Congress should have authority to modify Medicare.  The ‘rationing’ charge is far fetched because IPABs powers are tightly circumscribed.  And Congress could replace any change IPAB might propose with one that is equally effective.  But the delegation to an unelected body of power to change Medicare rankles with some members of both parties.

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IPAB supporters hailed it as a long-sought instrument to rein in the growth of Medicare spending.  But five years after enactment of Obamacare, no member of the IPAB has been appointed.  Growth of health care spending has slowed anyway and is below targets set in the Affordable Care Act, leaving the IPAB with nothing to do even if it was appointed.  Repealing IPAB would grant its critics a victory and, at least in the near term, would cost Obamacare supporters little.

In combination, these changes would grant critics of Obamacare several individually modest but cumulatively significant victories.  Supporters of the health reform law would want something in return.

The Family Glitch.  The most important single change that supporters of Obamacare would seek is correction of a flaw known as the ‘family glitch.’  Low and moderate income families are eligible for tax credits to help them buy health insurance through health exchanges but not if their employers offer them ‘affordable’ health insurance coverage.  Obamacare defines employer-sponsored health insurance as affordable if the premium cost to the insured is less than a specified share of income, currently 9.56 percent.  Affordability is based on the premium of individual coverage, even for families whose cost of coverage is often several times higher than for individual coverage.  So, families are denied access to exchanges and tax credits because individual coverage costs less than 9.56 percent of income even though the insurance that would cover the family costs much more.

The number of people affected by this bizarre provision is not known with certainty, but could be as high as 4 million.  Even more would be affected but for Medicaid and the Child Health Insurance Program (CHIP).  These programs provide coverage for many children in families affected by the family glitch.  CHIP is up for renewal in 2015.  If that program is not renewed, more than 2 million additional children now covered by CHIP could lose coverage because of the family glitch.   Fixing the family glitch is Obamacare supporters’ top priority.

Obamacare supporters would like to amend the Affordable Care Act in other ways as well.  They would like to see more aggressive regulation of insurance offerings through the health exchanges to promote competition.  They would like to extend reinsurance provisions that protect insurance companies from the risk of extraordinarily high claims which in turn drive them to charge high premiums to protect against such risks.  But fixing the family glitch is a big enough objective to offset changes they find less congenial.

Republican antipathy to the Affordable Care Act and political polarization are big enough obstacles to make improbable any bi-partisan legislation to modify the Affordable Care Act.  But there is one more hurdle.  Most of the changes each party might seek would raise spending or lower revenues.  That is true both for the Republican and the Democratic agenda.  Repealing the device tax would lower revenues by more than $30 billion over the next decade.  Repealing the mandate that employers provide insurance would increase the number of people eligible to buy insurance on the health exchanges who would qualify for tax credits and cost-sharing subsidies.  So would fixing the family glitch.  How much these two changes would add to spending depends on legislative provisions, but they would not be inexpensive.  Strengthening the Cadillac tax would raise some revenue.  But these changes in Obamacare taken together would raise the deficit.  Congressional rules require spending cuts or tax increases to offset this deficit-increasing effect.  Finding them would further complicate any effort to fashion a politically viable bipartisan bill.

So, the chances of legislation to fix the Affordable Care Act don’t look very good.  But there is a deal to be struck here that could serve the objectives of both parties.  Republicans could continue to promise eventual repeal of Obamacare, but meanwhile nudge the law in directions they support, something that total political war has conspicuously failed to do.  Democrats could fix the family glitch, a problem that has gnawed at them since the impact of that provision first became clear.  Here is a concrete and specific way for the two parties to show that legislative work can get done even when the parties remain at loggerheads.

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