TREND WATCH: What’s Happening? The GOP is finally positioned to repeal the ACA. But this task will not be as simple as first envisioned. With GOP leaders hinting that the process may stretch into 2018, many Republicans worry that their anti-ACA momentum is fading—which puts their entire health care agenda in jeopardy.
Our Take: What’s the likely outcome? Any effort to repeal without a replacement would be a PR disaster for the GOP. That points to simultaneous repeal and replace, which comes in two flavors. The first emphasizes Medicaid expansion. The second emphasizes a stripped-down replacement for the ACA market exchanges. Most likely, Congress will hand out block grants allowing states to mix and match.
For years, congressional Republicans have been saying that they would “repeal and replace” the Affordable Care Act as soon as they were able. Well, that time has come. When Donald Trump took the presidency and congressional Republicans were again voted to the Hill, Obamacare’s fate was effectively sealed. As one of his first orders of business, Trump last month issued an executive order directing his administration to facilitate the repeal and replacement of the ACA.
But in the weeks since, it’s become apparent that getting rid of Obamacare will be a more complicated task than GOP leaders expected. Timing is one looming issue: Any effort to repeal without a replacement on deck could open the GOP to a serious voter backlash. And then there’s the question of what that replacement should look like. Are there any parts of the law that warrant keeping? Can the ACA be “repaired” instead of repealed?
Trump himself hinted at the complex logistics of repeal and replace on Super Bowl Sunday, when he admitted that the process could stretch all the way into 2018—this following Paul Ryan’s statement that the health care reform will be finished “at the end of the year.”
The delayed timeline works against the GOP: Conservative leaders have expressed frustration and concern that health care reform is losing its momentum, which could squash any chance they have of finally killing Obamacare. Plus, the longer this process stretches on, the less time the GOP will be able to spend on myriad other agendas—like tax reform and infrastructure.
Perhaps recognizing this sense of urgency, congressional Republicans have softened their tone over the past few days, introducing a new strategy into the lexicon: “repeal, repair, and replace.” As our own Emily Evans recently noted, the latest emphasis has been on the repair part of the equation, with recent discussion focused on stabilizing the public exchanges and reforming Medicaid.
Though, of course, repair may not be materially different from replace: Ryan recently said that, “To repair [the] American health care system, you have to repeal and replace this law, and that’s what we’re doing.”
WHY THE ACA FAILED
Before exploring the many paths that the GOP may take, let’s back up a bit and take a look at ACA as it stands. What’s the GOP’s case in favor of getting rid of it?
Obamacare was supposed to create a middle-class health care option that would curb costs and consist mainly of insurance plans purchased in the marketplace.
Neither of these goals was realized. Due to the heavy mandated cost of Obamacare, public exchange plans turned out to be fairly expensive and thus failed to attract as many enrollees as expected—even given the individual mandate, which penalized those without insurance. This set in motion a “death spiral” that caused healthy, higher-SES individuals to flee the exchanges and caused premiums to soar.
The death spiral was already in full force in 2016—and it’s only accelerated since, causing premiums to rise even further. Kaiser Family Foundation data show that the cost of a “benchmark” silver plan is poised to jump by double-digit percentages in many markets this year. In Phoenix, for example, the cost of a typical premium in 2017 will be more than double what it was last year.
Understandably, insurers want no part of the troubled public exchanges. Just last year, 85% of exchange enrollees had three or more marketplace insurers to choose from. One year later, that share is down to just over half (57%)—with nearly one-quarter of exchange enrollees left with a single health care provider. All in all, roughly one-third of U.S. counties have only a single insurer left on their public exchanges.
In part due to the problems of the public exchanges, Medicaid expanded to pick up the slack—which was not the original plan. According to the Congressional Budget Office, Medicaid accounted for more of the increased enrollment than the public exchanges. As mentioned in a previous note on the subject (see “Medicaid for the Middle Class?”), today one-quarter of Americans under age 65 are on Medicaid.
And of course we must recall the original core goal of Obamacare: health care for everyone plus cost savings. On the first point, the uninsured rate is down by nearly half compared to pre-ACA levels. (It’s at 8.6% according to the ACA website, compared to 15.7% pre-ACA.) This is progress, yes—but considering the soaring health care to GDP ratio, one would expect better. The latest estimates peg health care at a massive 18.7% of GDP as of October 2016. Notably, this share started rising around the time of the first open enrollment in 2014—and has been soaring since the final ACA provisions went into effect in 2015.
OPTIONS THE GOP WILL PROBABLY PASS ON
The GOP believes that it can fix this mess. But how?
Repeal without a replacement. Their first option is to repeal ACA with no replacement on hand.
This maneuver, however, would have dangerous consequences. The CBO calculates that a GOP repeal plan would leave 27 million individuals uninsured—more than the 23 million who gained insurance through the ACA, since the repeal would have to retain the guaranteed issue provision. (Guaranteed issue, without the individual mandate, would cause private insurers to flee the individual market.)
Of course, some say this 27 million figure is exaggerated. According to economist Jonathan Gruber, roughly two-thirds of 2014’s new Medicaid enrollees were eligible for the program under previous state eligibility criteria. This is an alarming finding, since it implies that many states miscategorized new applicants in order to get the extra federal subsidy. If true, it also suggests that repealing the ACA would leave many of Medicaid’s new enrollees in place.
Still, whether the number is 27 million or “just” 20 million, we’re talking about a massive increase in the number of uninsured Americans. This would guarantee a political nightmare for the GOP. What’s more, a wholesale repeal would be a net cost to government due to all the extraneous deficit-reducers built into the ACA legislation (such as Medicare fee cuts and new taxes).
Many leading Republicans believe repeal must happen immediately to put the pressure on Democrats to cooperate on building a replacement. If the ACA is still intact, Democrats have no incentive to work with the GOP on an alternative. But that’s becoming a very risky bet. With partisanship rising, it's possible that the Democrats would simply fold their arms post-repeal and watch the GOP squirm—figuring either that the GOP will effectively need to re-instate the ACA or that they could ride the public outrage to victory in the fall of 2018
Repeal and replace… eventually. The GOP could also repeal and delay a replacement. In this case, they would be able to repeal the ACA as promised, but continue to fund the ACA until they can devise a better plan—presumably after the midterm elections.
Of course, delayed replacement would further destabilize an insurance market that started breaking down well over a year ago. What’s more, President Trump has already publicly demanded Congress to repeal and replace the ACA at the same time—effectively backing the GOP into a corner.
SIMULTANEOUS REPEAL AND REPLACE
OK, so if the plan pretty much has to be simultaneous repeal and replace, what sort of replacement are we looking at?
Retool the ACA’s Medicaid expansion. One approach would retain most or all of the ACA’s Medicaid expansion under a different name. Unlike the ACA, however, the GOP’s expansion would fund states through fixed block grants, which put a hard limit on federal outlays yet also give states the freedom to spend funds as they see fit.
Medicaid expansion has its pros and cons. The pros are that it would enable top-down cost control and wouldn’t require beneficiary cost-sharing. The cons are that it would cost more up front and represents the antithesis of small-government conservatism. That said, White House counselor Kellyanne Conway recently remarked that President Trump favors the liberal use of block grants for Medicaid.
Replace the public exchanges. Another approach, likely working in conjunction with Medicaid reform, would replace the public exchanges with a more market-based alternative. The GOP's basic plan is to accept the idea that everyone should be covered, look for a way to reduce costs, and “capitate” the subsidy amount (allowing it to vary by age, no longer by income).
On the first point, the majority of Republicans favor maintaining ACA’s guaranteed issue and community rating (no pre-existing conditions) provisions. (Only Senator Ted Cruz has proposed eliminating guaranteed issue altogether.) But since they also want to drop the individual mandate, they need to come up with alternative means of ensuring that everyone signs up. The simplest option is to institute a “continuous coverage” requirement, which encourages people to stay enrolled by adding penalties, enforcing lock-out periods, or allowing insurers to consider pre-existing conditions for anyone who experiences a significant lapse in coverage. Many Republicans also urge widening the age-rating band (from 3:1 to 5:1) to incentivize more young people to join.
A minority favor the use of “risk pools,” which reverse the core logic of the ACA. Instead of (in theory) lumping everyone together to spread out the cost of health care, you would cordon off unhealthy people into their own separate group. This isn’t a new idea: 35 states ran their own high-risk pools prior to the implementation of Obamacare. For this to work with guaranteed issue, these pools could be funded by government subsidies paid out to insurers of high-risk individuals.
To cut overall cost, Republicans favor jettisoning many of the ACA’s benefit mandates—which would create a more stripped-down plan. Many also favor liability law reform (an old GOP favorite) or, like Trump, would support allowing insurers to sell across state lines. They could even lean further on tactics like top-down administrative capitation, one example being the Accountable Care Organizations put in place by Obama.
Finally, the GOP wants to change the subsidy structure. Republicans support per-capita payouts (including Health Savings Account tax credits) that are fixed by age, not income. An age-based subsidy structure would simplify administration and would avoid the ACA’s steep implicit marginal tax rate on income.
WHAT WILL THE FINAL PLAN LOOK LIKE?
Ultimately, the final legislation will probably be a mix and match of all of these approaches. The Patient Freedom Act of 2017, introduced by Republican Senators Bill Cassidy and Susan Collins, is just that. It gives states three options: Keep the ACA, implement a “state- and market-based alternative” (in which Medicaid expansion is optional), or essentially reject all federal funding and to revert back to pre-ACA law. This plan thus extends an olive branch to blue states that want to maintain Obamacare as is.
But unfortunately for Republicans, their final plan may not please most Trump supporters. According to a recent Kaiser Family Foundation study, what the vast majority of Trump voters on ACA exchanges dislike most about the program is its income-related subsidy, which gives the most to those who work the least. (Why am I struggling on $50K to cope with skyrocketing premiums and deductibles when the family down the street at $25K gets everything paid for?)
Capitated age-based payouts are the GOP’s response to this problem. As your income rises, your subsidy will not be cut. Yet it’s not clear whether this will assuage middle-class anxiety. It still leaves a huge “cliff”—bigger than under ACA—between those who are eligible for Medicaid and those who are not. It also puts a lot of pressure on those just-over-Medicaid households. The Kaiser survey also indicates that many Trump supporters, struggling to get by already, do not welcome any GOP market plan that pushes more of the cost burden onto their shoulders.
The only reform that could get around both obstacles is zero out-of-pocket cost for the poor and little or no increase in cost-sharing at higher income brackets. But such a plan would then, alas, run into the problem of excessive cost. In other words, it would violate the trilemma of all benefit programs: Of your three possible goals—adequacy, fairness, and affordability—you can achieve any two, but not all three.
