Politics & Policy

The Path Forward for Replacing Obamacare

House Speaker Paul Ryan (Reuters photo: Joshua Roberts)
Where the AHCA went wrong — and how Republicans can craft something better

House speaker Paul Ryan declared on Friday that “Obamacare is the law of the land . . . for the foreseeable future.” I foresee a different future, but only if conservatives learn the right lessons from the demise of the American Health Care Act.

Republican and conservative leaders failed the cause of free-market health reform in three principal ways. First, they failed to make a moral case for replacing Obamacare, as opposed to purely repealing it. As a result, they then failed to unite the hard-line and pragmatic wings of the GOP around a coherent health-care-reform proposal. And due to the ambitions of the 100-day legislative agenda, and the peculiar legislative calendar associated with the Senate’s reconciliation process, they chose not to invest the time in getting health-care reform right.

The moral case for replacement

Conservatives intuitively understand the moral case for repealing Obamacare. The law significantly expands the role and scope of the federal government in determining Americans’ personal health-care choices. Its individual mandate is a constitutional injury. And its Rube Goldberg-like maze of insurance regulations has made health insurance unaffordable for millions.

But when it came to replacing Obamacare, Republicans usually presented the case in exclusively political terms: Replacement was necessary because the alternative would be daily front-page stories of the millions thrown off of their health-care plans by the GOP Congress. Conservatives rarely attempted to make a moral case for replacing Obamacare. Indeed, if you believe that the federal government has no legitimate role in helping the uninsured afford health coverage, your intuition is that there isn’t a moral case for replacing Obamacare.

That intuition is understandable, but mistaken, because it is in fact the federal government that has made health insurance so costly through seven decades of unwise policies. Those policies include the exclusion from taxation of employer-sponsored health insurance, an outgrowth of World War II-era wage controls. They include the enactment of the Great Society entitlements, Medicare and Medicaid, in 1965. They include the EMTALA law, signed by President Reagan, that guaranteed free emergency-room coverage to everyone, including the uninsured and illegal immigrants. And they include Obamacare.

(To those who say that the employer tax exclusion is no big deal because “it’s your money,” I say this: If the government only deigns to give “your money” back to you when you elect to work in a W–2 job and hand a fifth of your income over to health-insurance companies, your money isn’t really being treated like it’s your money.)

This seven-decade pileup of federal intervention in the health-care system is directly — and exclusively — responsible for the astronomical costs of the present-day American health-care system. It is not right, when confronted with such a state of affairs, to shrug our shoulders and say “tough luck” to those who can’t afford insurance. Indeed, we have an affirmative duty to reform federal policies so as to make health insurance once again affordable for the working poor.

In America today, we spend hundreds of billions of dollars a year subsidizing health coverage for wealthy Americans through the employer tax exclusion — which disproportionately helps those in high tax brackets — and Medicare, a universal entitlement under which taxpayers are forced to fund generously subsidized government insurance for Warren Buffett, Mitt Romney, and Hillary Clinton. Those federal policies have, for seven and five decades respectively, divorced 200 million Americans from the cost and value of the care they consume.

Put simply, the U.S. health-care system does not reflect the principles of a free market, but rather those of crony capitalism.

Large, incumbent companies are addicted to the employer tax exclusion because it makes it harder for employees to leave them for start-up competitors or freelance work.

Put simply, the U.S. health-care system does not reflect the principles of a free market, but rather those of crony capitalism. It is a system designed to benefit C-suite executives and multinational corporations at the expense of hourly wage workers and mom-and-pop businesses.

To advocate for a fiscally fairer system — in which we subsidize the wealthy far less while covering more of the uninsured, with less total federal spending as a result — ought to be in the wheelhouse of a conservative movement that aspires to support opportunity for all and favoritism to none.

But unfortunately, it is often the case that the loudest opponents of replacing Obamacare are the loudest defenders of the crony capitalist status quo ante, fighting to preserve the health-care interests of the Fortune 500, and expressing outrage over Obamacare’s federal mandates while saying nary a peep about Medicare’s.

A freer, fairer health-care system — one that is more affordable and more conservative — would move away from entitlements favoring the wealthy, such as Medicare and the employer tax exclusion, and toward a market-based safety net that helps blue-collar Americans get through rough patches and back on their feet.

Toward a real conservative health-policy consensus

Was the AHCA the ideal bill to achieve those goals? Not really, though that was not entirely the fault of its drafters; President Trump opposes Medicare reform, and even if he didn’t, the reconciliation process would prohibit the consideration of Medicare-related legislation.

But there were other features of the AHCA that got less attractive over time. A leaked draft version of the bill from February contained an important and robust reform of the employer tax exclusion, one that was eliminated by the time the official version of the AHCA came out in March. The final bill pushed the implementation of Obamacare’s Cadillac Tax — Democrats’ ham-handed attempt at reforming the exclusion — back from 2018 to 2026.

The AHCA’s original flat tax credit — a new, universal entitlement — would have moved us farther away from a health-care system in which federal involvement is limited to those who truly need the help. While the final bill contained some reductions of that new tax credit for the highest earners, its structure was not designed to benefit the working poor; indeed, the AHCA would have made premiums unaffordable for millions of blue-collar Americans.

That gets us to the AHCA’s failure to roll back Obamacare’s insurance regulations. Prior to Obamacare, the federal government had no involvement in regulating health insurance for those on the individual market; i.e., those who buy insurance for themselves and don’t receive coverage from their employers or the government. Those new federal regulations — along with the individual mandate — are the two key ways in which Obamacare expanded the involvement of the federal government in the health-care system.

There was never any consensus among rank-and-file congressional Republicans that ‘A Better Way’ was, in fact, the best way forward.

The AHCA didn’t do enough to roll back Obamacare’s insurance regulations, because the bill’s tax credits were designed to remain constant regardless of the regulatory environment, thereby making regulatory changes “incidental” to a reconciliation bill which must, by rule, solely concern taxing and spending.

Despite these flaws, before President Trump and Speaker Ryan issued their Friday ultimatum, the contours of a deal were emerging between hard-line Republicans and their pragmatic counterparts. Under such a deal, the AHCA’s tax credits would be restructured to use a means-tested formula that better served the working poor, a key consideration for pragmatists. That means-tested formula would, simultaneously, allow for the majority of Obamacare’s insurance regulations to be repealed via reconciliation.

The AHCA was a leadership-driven bill; its core policy planks were derived from conversations that Ryan had with the chairmen of key House health-care committees. There was never any consensus among rank-and-file congressional Republicans that “A Better Way” was, in fact, the best way forward.

Governing is hard, as the Speaker rightly noted on Friday. But there remain reasons to be optimistic that the GOP’s hard-line and pragmatic factions can forge a deal that would result in better policy than the AHCA, a deal that makes health insurance more affordable for those who most need it to be so.

Take the time to get it right

The most galling aspect of the AHCA was the process itself, in which House GOP leaders recklessly put haste and politics above good policy. The official draft of the AHCA was posted on congressional websites on the evening of March 6. On March 24 — 18 days later — leaders pulled the bill after issuing a failed ultimatum to its opponents. Worse yet, had the bill actually passed the House, Senate Majority Leader Mitch McConnell was prepared to immediately take it to the Senate floor, without hearings and with limited opportunity for constructive amendment.

This rush to bad judgment about a bill that would have reshaped one-sixth of the economy was so terrible that it made Nancy Pelosi look like the standard-bearer of good governance. President Obama was sworn into office in January 2009. The Patient Protection and Affordable Care Act was enacted in March 2010. The fact that Democrats spent 14 months debating health care did not prevent them from passing two other transformative pieces of legislation in the interim: the 2009 stimulus and the 2010 Dodd-Frank Act.

The contrast with the current GOP-controlled government is stark. Over the past month, I heard from numerous members of Congress who said that they couldn’t get consideration for their constructive amendments — and worse yet, that they couldn’t even design constructive amendments — because leadership’s fealty to the GOP’s legislative calendar meant that Republicans only had time for one or two more shots at getting the AHCA scored by the Congressional Budget Office.

It should go without saying that a bill affecting 67 million Americans on Medicaid, 24 million more on the individual insurance market, and 26 million uninsured ought to get more consideration than that. But apparently it doesn’t.

Republicans need to take the time to think health care through, and get it right. Those in leadership who believe they’ve done enough thinking are wrong. The American Health Care Act’s flat tax credits were poorly conceived. Its ad hoc policy giveaways had little economic rationale. Replacing Obamacare via reconciliation was a late change in strategy, and leadership’s ever-changing assessment of what could pass Senate muster reflected that.

Perfection should never be expected of federal legislation, but few believe that the AHCA was the best the GOP could do. Indeed, Republicans retain an opportunity to do far better, if they start afresh and take the time to craft health-care reform the right way.

The consequences of failure are too high to give up now.

Avik Roy — Avik Roy is the President of the Foundation for Research on Equal Opportunity (FREOPP.org), a non-partisan, non-profit think tank.

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