Where Will the Obamacare Debate Go in 2014?

by Reihan Salam

Jonathan Weisman of the New York Times invokes a “political fact” that isn’t best described as a fact in reporting on how Republicans are thinking about Obamacare:

“It’s no longer just a piece of paper that you can repeal and it goes away,” said Senator Ron Johnson, Republican of Wisconsin and a Tea Party favorite. “There’s something there. We have to recognize that reality. We have to deal with the people that are currently covered under Obamacare.”

And that underscores a central fact of American politics since Franklin D. Roosevelt signed the Social Security Act during the Depression: Once a benefit has been bestowed, it is nearly impossible to take it away.

Recall the political scientists Eric Patashnik and Julian Zelizer on some of the myths surrounding Obamacare:

Given how difficult it is to revise an existing law, it might seem that a program’s entrenchment is assured once it has been enacted. In his 1976 book “Are Government Organizations Immortal?” political scientist Herman Kaufman argued that “government activities tend to go on indefinitely.” More recent research demonstrates, however, that policy entrenchment has limits. According to a study by Christopher R. Berry, Barry C. Burden and William G. Howell, a spending program has a 1 percent chance of death every year in its first 10 years of life, after which the probability of termination slowly begins to decline. New policies are trial and error affairs, and they don’t always pan out. Programs can be killed. An example is the Medicare Catastrophic Coverage Act of 1988, which Congress terminated in 1989 when senior citizens soured on the measure. Short of formal repeal, programs can simply fade away, as did Lyndon Johnson’s Model Cities initiative and Richard Nixon’s revenue-sharing program. The main danger the ACA faces is not outright repeal, but the gradual whittling away of its subsidies, regulations and tax provisions.

Much depends on what we mean by “take it away.” It could be that once the principle of universal coverage is established, the genie can’t be put back in the bottle, for better or for worse. It is also true, however, that the Affordable Care Act is unlikely to achieve universal coverage in its current form, even if we assume that all states accept the Medicaid expansion. The decision by the Obama administration to allow over-30 individuals to purchase catastrophic coverage options on the exchanges suggests that we’re already seeing a “gradual whittling away” of some of the Obamacare’s regulations, and a number of its tax provisions, starting but not ending with the medical device tax, look vulnerable as well. If it turns out that the first year of implementation sees a net reduction in the number of Americans with private insurance, this whittling away will accelerate, and for good reason. (Moreover, the elimination of the filibuster for lower-court judicial nominees and executive branch appointments sets the stage for its eventual elimination for legislation as well, which greatly improves the prospects for repeal, though the odds are probably still worse than even.)

Weisman identifies two broad strategies Republicans are pursuing. Some, like Tom Price and Paul Ryan, favor root-and-branch reform that places heavy emphasis on reforming the tax treatment of medical insurance. Price’s approach, which is similar but not identical to a bill backed by the Republican Study Committee, differs in important respects from the approach Ryan has favored in the past, and it remains to be seen how Ryan and his allies will approach health-system reform in the coming year.* But Price and Ryan are both offering an agenda for replacing rather than reforming Obamacare.

Other Republicans, including Kelly Ayotte, are open to incremental reform:

Senator Kelly Ayotte, Republican of New Hampshire, said she was teaming up with Democrats on a host of incremental changes to the law, such as expanding health savings accounts and repealing a tax on medical devices. And other Republicans are wondering aloud how long they can keep up the single-minded tactic of highlighting what is wrong with the law without saying what they would do about the problems it was supposed to address.

A more robust reform agenda might focus on the ACA subsidy cliff, a subject Jonathan Wu of ValuePenguin recently addressed:

If your income is at or below the above 400% FPL figure for your household size, the government will subsidize your healthcare so that you spend no more than 9.5% of your income. Earn a dollar above the 400% FPL threshold and the subsidies disappear completely. This obviously creates a problem! If insurance costs substantially more than the capped premium for your family, that extra dollar may actually cost your household a huge amount in actual dollars.

Earlier this month, Katie Thomas, Reed Abelson, and Jo Craven McGinty of the Times reported on middle-income families bearing the consequences of the subsidy cliff, including a family in Ayotte’s home state. The problem is that addressing the subsidy cliff without deregulating the exchanges means spending much more to subsidize coverage for families further up the income scale. This is one reason why the root-and-branch approach favored by conservatives like Ramesh Ponnuru and Yuval Levin, in which the tax subsidy for ESI and the exchange subsidies are replaced with a flat and universal tax benefit for coverage, is so attractive to advocates of market-oriented reform — it doesn’t create the same work disincentives as sliding-scale subsidies, and insurers would be free to experiment with a wide range of low-cost benefit designs. Short of that, we might reform the subsidies by capping them at 300% FPL rather than 400% FPL while deregulating the exchanges, as Avik Roy and Douglas Holtz-Eakin have recommended. We’d still have a subsidy cliff, but the exchanges would also offer lower-cost options, thus mitigating its impact.

Right now, subsidies vary considerably for under-65s who are insured on the exchanges or through their employers, an artifact of the desire to contain the costs associated with Obamacare and to minimize the disruption (or the appearance of disruption) associated with moving from one mode of subsidizing insurance coverage to another. Don Taylor Jr. finds that the average subsidy for individuals with employer-sponsored insurance is $1650 while the average subsidy for individuals on the exchanges will be $5510, though of course these populations are quite different. While the subsidy for ESI rises with income, the subsidy for exchange insurance declines with income, a fact that will greatly complicate efforts to create a more coherent subsidy.

P.S. Earlier on, I incorrectly stated that the Price bill was backed by the RSC. 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.