If some version of the Republican reconciliation bill to repeal and replace the Affordable Care Act (ACA) squeaks through both the Senate and the House after the July 4 recess, it will be the first major health care law created by Republicans without a single Democratic vote.
Republicans who care about the future of their party should ask themselves whether they want their label on an unpopular, cobbled-together bill that satisfies neither conservatives nor moderates and is easy for opponents to demonize. Do Republicans really want to be sole owners of a law that deprives millions of working class Americans of health coverage, risks destabilizing health insurance markets, hands huge tax benefits to extremely wealthy people, and is opposed by virtually all health provider organizations?
In the face of that frightening electoral prospect, they should abandon their tortured attempt to use the arcane reconciliation process to pass major health reform on a strictly partisan basis and work with Democrats to craft a bill that moderates in both parties can support and defend.
Republicans denouncing market-oriented solutions: How did we get here?
The tragedy of the ACA was that Republicans missed an opportunity to shape a market-oriented health reform that had been their idea. Each party blames the other for the failure to work together—and they doubtless share responsibility—but the consequence was that Republicans spent the Obama years exaggerating the difficulties encountered by the ACA marketplaces, depicting competition among private insurance plans as a “disaster” from which Americans had to be “rescued” before markets went into a “death spiral,” and generally giving market competition a bad name. In deciding to take sole of ownership of the current replacement, Republican not only hand their opponents an easy target; they risk further discrediting Republican principles of consumer choice, market competition, and private insurance, strengthening the appeal of single payer, and damaging the case for state flexibility.
The ACA increased affordable health coverage by funding states to expand Medicaid, a traditional Democratic move. It also created electronic marketplaces on which the uninsured could use income-related subsidies to buy private health insurance—an approach that was squarely in the market-oriented Republican tradition. Many Democrats feared that private insurance companies, which are widely distrusted institutions, would reap excessive profits at taxpayer expense. Many espoused a federally funded single payer system, such as Bernie Sanders’ Medicare for All. However, they knew single payer was a political non-starter—too costly, too radical, an anathema to the politically powerful health insurance industry. The market skeptics’ fallback position, not in the final bill, was a public option to compete with private insurance companies and “keep them honest.”
One of the great achievements of the ACA was to make the dysfunctional individual health insurance market work for millions who could not access it before the ACA. The ACA required health insurance companies to compete by offering better products for lower premiums, rather than by avoiding unhealthy customers. It outlawed refusing to sell to people with pre-existing health conditions or charging them higher premiums, and ruled out annual or life-time limits on claims. Republicans attacked these insurance market reforms as federal over-reach, but they proved wildly popular with consumers. Discriminating against the sick seems unfair and makes insurance companies appear mean and greedy. Republicans, including President Trump, now generally endorse these consumer protections, but support allowing states waiver authority that could undercut them.
The ACA also specified essential benefits that all policies must cover, which it made it easier for consumers to compare competing plans, but raised the average premium by ruling out bare-bones insurance. Republicans see the essential benefits as too prescriptive (“one-size-fits-all”) and want to allow people to buy less comprehensive, cheaper plans if they want to.
If market-oriented Republicans weren’t stuck in their anti-Obamacare rhetoric, they would point out that the ACA marketplaces worked far better than skeptical Democrats thought they would. They worked especially well in densely populated urban areas with numerous consumers and providers (think Los Angeles, Miami, Detroit), where insurance companies could cut deals with providers and offer attractive premiums, albeit sometimes with narrow provider choice and high deductibles and co-pays. The exchanges worked less well in sparsely populated rural areas, where there were not enough customers to attract competing insurance companies. This was not the fault of Obamacare, as Republicans claim, just evidence of the difficulties of creating a competitive health insurance market in rural America.
Far from making unconscionable profits, as Democratic skeptics feared, some insurance companies lost money in the ACA marketplaces. They underpriced to gain market share and then lost money because the formerly uninsured population that enrolled proved sicker than the companies expected. Some raised premiums substantially in 2017 and a few withdrew from the marketplaces, especially in less populous areas, but enrollment in the exchanges held up remarkably well in 2016 despite the uncertainty created by the election. In recent months, the Administration and Congressional leadership have escalated the uncertainty by refusing to commit to continuing the ACA cost-sharing subsidies even for the upcoming year. More companies have withdrawn from the ACA marketplaces and announced intentions of raising premiums substantially, citing uncertainty as the reason. Now that they are in charge, opponents of Obamacare could make their death spiral predictions come true, but at the cost of making replacement much harder.
In the election campaign, Republican demonization of Obamacare focused on the marketplaces rather than the Medicaid expansion, not because they were enthusiastic about Medicaid, but because thundering against health care for low-income people does not poll well. In fact, many of those newly covered by Medicaid were low-income working class adults in the older industrial states that put Trump over the top.
Exaggerating the flaws in ACA marketplaces and downplaying the Medicaid expansion during the campaign has put Republicans in a political pickle.
Exaggerating the flaws in ACA marketplaces and downplaying the Medicaid expansion during the campaign has put Republicans in a political pickle. Their replacement bill keeps the concept of federal subsidies for purchasing private health insurance, but restructures the subsidies in ways that will create winners and losers and enormous new uncertainty—not a lot of voter appeal in that scenario. At the same time both Republican bills make drastic cuts in Medicaid that would not only reverse the expansion but threaten coverage for populations long eligible for Medicaid. It will leave millions uninsured and use the savings to cut taxes for extremely high income people. A natural Trump voter reaction could be, “You said that getting rid of Obamacare would make insurance cheaper, but you didn’t tell me it meant keeping my cousin from getting opium addiction treatment to benefit some New York millionaire—not what I voted for.” It is not surprising then that the Republican bills have so little public support.
Americans love health reform proposals in the abstract, but support plummets when they see that specific changes will create losers as well as winners. We have seen this movie twice before, in the Clinton and Obama years, as Allan and Sheri Rivlin pointed out in January, 2017.
Three challenges Republicans will face
Republicans still have a chance—perhaps their last chance–to move toward universal affordable coverage while featuring two Republican themes: (1) market competition among private insurance plans; (2) greater flexibility for states to tailor health care to their particular needs. But to succeed, they’ll have to stop demonizing Obamacare and work with centrist Democrats on a bipartisan bill that strengthens the marketplaces and improves Medicaid.
Making health insurance markets work smoothly is tough, and the bipartisan team would face three big challenges that also confounded the drafters of the ACA.
The first is making health insurance attractive to younger, healthier people, so that premiums are not dominated by the costs of older sicker customers. Republicans reject mandating health insurance purchases, but don’t have a workable alternative. If they want to give consumers the choice of cheaper, less comprehensive insurance, they will have to figure out how to keep the healthiest from buying the cheaper plans and switching to more generous plans when they need them.
The second challenge is making the markets attractive to competing insurance companies by sharing the risks of unpredictable outsized claims. Most state experiments with high risk pools have not been successful. A reinsurance plan could likely work better. Unfortunately, the ACA included only a temporary reinsurance provision which lapsed, in contrast to the permanent reinsurance which has been successful in Medicare Part D.
The third challenge is how to create competitive health insurance markets in sparsely populated rural areas. Republicans are right that the ACA didn’t solve the problem, but haven’t proposed a solution of their own. All of these problems could be solved, but not in an atmosphere of partisan blaming and demonizing.
In a bipartisan deal, Republicans could also make a strong case for giving states more flexibility in the use of Medicaid money—even for combining the marketplace subsidies with Medicaid to create comprehensive income related support for health insurance purchase—but not in the context of slashing federal funding. States face extremely varied needs and some might devise innovative solutions to health financing that would prove more effective than the current hodge-podge of federal and state contributions. But if “flexibility” proves a code word for drastic withdrawal of federal funding that leaves millions without coverage and gaping holes in state budgets, even Republican-led states will reject it.
To save their legacy, Republicans must work with centrist Democrats
If Republicans want their legacy to be a viable market oriented solution to affordable health care and more autonomy for states, they must drop their quixotic effort to pass a replacement for Obamacare with only Republican votes. They should work with centrist Democrats to craft replacement legislation that shows markets can work and won’t be so punitive that it will sweep into office those Democrats who want a centralized government-managed plan. If the Republican replacement destabilizes insurance markets, unravels the popular consumer protections of the ACA, reverts to hardships for people with pre-existing conditions and cuts a lot of working class people off Medicaid in the name of state flexibility, it will greatly strengthen the popular appeal of a single payer system. Republicans who revere markets and state flexibility should not take that risk.
If a bipartisan group comes together, its immediate priority must be to stabilize health insurance markets and prevent a downward spiral that would make it harder for any replacement to work. If insurance companies are to stay in the marketplaces and not raise premiums substantially they must have immediate guarantees that the cost -sharing reduction payments under the ACA will be paid (preferably through 2020), that the individual mandate will be enforced, and that they will have reinsurance or other protection against out-sized claims. Otherwise the market meltdown that Republicans have falsely claimed is already happening will be brought about by inaction and millions of people will suffer the consequences. That is a sure way to kill public confidence in market solutions.