Politics & Policy

Unpacking the Complexity of Repeal and Replace

House Speaker Ryan discusses the GOP health-care plan, March 9, 2017. (Reuters photo: Aaron P. Bernstein)
Conservatives are anxious to repeal Obamacare, but repeal must be a true repeal.

The debate over the repeal and replacement of Obamacare has been hard for many on the right to parse because the concept of “repeal” — a term with a straightforward meaning that is isolated from “replace” — can lose its clear meaning when the two are joined at the hip.

Obamacare touched on so many aspects of health policy — aspects any reform effort would inevitably need to address, albeit in a different manner — that evaluating any one element of the law in isolation from the others is enormously difficult. Which aspects are central, and which are peripheral, is no easy question to answer for such a massive law. That difficulty is compounded by the lack of consensus among Republicans on an ideal replacement. Sound Obamacare replacement ideas in the minds of some may double down on Obamacare’s worst features in the minds of others. A further complication is introduced by the sequencing of reform. Some replace concepts, though in isolation of potential merit, may take on a different character in a policy context where metastatic remnants of Obamacare remain on the books pending repeal at a later date.

“Repeal and replace” has become a mantra in many corners on the right but it has long been a source of unease for some conservatives who have feared that “replace” might in practice not represent true “repeal.” The reaction to American Health Care Act represents the eruption of such concerns, which have brewed under the surface of our Obamacare debates for years, into the spotlight.

Sensing that things might play out precisely this way, many conservatives, Heritage Action included, urged Congress to lay the groundwork last Congress for an immediate repeal of Obamacare shortly after the inauguration of Barack Obama’s successor. That process culminated in the passage of the 2015 reconciliation bill that the same conservatives have urged Congress to pass for the last several weeks. But that bill was imperfect, as many noted at the time. Its authors, reluctant to test the limits of the Senate’s Byrd Rule, which limits what can be included in a reconciliation package, prematurely omitted from the bill the repeal of Obamacare’s various insurance regulations. Though it repealed Obamacare’s taxes and spending, it was understood at the time to be a floor, not a ceiling, for repeal. More work, we all knew, would be needed.

Rather than build from that floor to full repeal, the architects of the House bill have instead aimed to renovate America’s Obamacare-era insurance markets from the ceiling down by combining repeal and replace. The danger of this approach, conservatives feared, was always that it would be built on a shaky floor. And in the case of the AHCA, it is.

Obamacare’s beating heart was its regulatory structure: the benefit mandates, the one-size-fits-all community-rating rules, the limits on pricing structure and rules about where cost burdens must fall, and the federal review of decisions about insurance markets that can be handled perfectly well in the states. The goal, in the words of proponents like Sara Rosenbaum, was to restructure the insurance market by grafting onto it the “characteristics of a public utility.” The law’s various other impositions on Americans — the coercive individual mandate, the taxpayer-financed subsidies necessary to help people purchase insurance far more expensive than they would otherwise desire, the massive tax increases — flow by necessity from this regulatory heart. These elements are intertwined and inextricably linked, and so long as that heart beats, tweaks to the design of our insurance markets will only be able to help on the margins. The demand on the left to revive Obamacare — or something worse — will persist.

Obamacare’s beating heart was its regulatory structure.

The AHCA makes some changes to Obamacare’s core regulatory architecture, most notably on the law’s actuarial value rules governing how much cost insurers must bear in plans offered to customers and on Obamacare’s narrow age-rating limits. But far too much remains. Instead, motivated both by House leadership’s overriding desire to settle without debate the complex task of reforming America’s health-insurance system in a post-Obamacare environment and by timidity in the face of the Senate parliamentarian, Elizabeth MacDonough, leadership has expended an enormous piece of political capital on replacing Obamacare’s subsidy structure with a newer, flatter design. And it has made this issue a focal point in the controversial repeal-and-replace debate while backing away from a matter far more important: Obamacare’s regulatory apparatus.

The result of all of this: Obamacare’s regulations are tweaked but not eliminated, and Obamacare’s subsidies are correspondingly tweaked to finance this new, slightly less regulated insurance market. Beginning the repeal debate in this way makes it impossible for our country to do what it really ought to in reforming our markets: start by asking what insurance markets and the products sold in them could and should look like in an ideal world free of Obamacare’s regulatory constraints, and then tackle the question of how to adapt our inefficient system of health-care financing in America to account for this newer, better world.

To tell the American people that Obamacare has been repealed and replaced with market-driven, patient-centered health care by such an effort would be misleading. To leave the country stuck with an individual market that continues to crater would be a tragic and lasting discredit to conservative health-reform principles.

Yet even proponents of some aspects of the bill concede that that could well be the case under the AHCA. James Capretta notes:

The House bill leaves in place the insurance rules of the ACA but tries to limit who is protected by them to people who stay enrolled in coverage. But the penalty from dropping insurance and then trying to get back into the market is far too small — just a 30 percent surcharge for one year. This policy is likely to lead to even more adverse selection in the individual market than is occurring under the ACA.

Yuval Levin critiques this provision from a different angle, noting the penalty

would create a disincentive for everyone who hasn’t been continuously covered to get coverage, by making insurance more expensive for them. But that disincentive would do more to drive away healthy people than sick people, since the added premium is more likely to be worth it to someone who otherwise would have higher costs than to someone just looking to get insurance for a rainy day. It would, in other words, exacerbate the problem it is trying to mitigate.

It would be a difficult thing to repeal and replace Obamacare simultaneously and end up at the sweet spot of the kind of free-market system America has never really had in its history, no matter how deeply committed those involved in the drafting were to achieving that outcome. The AHCA, though a serious effort, demonstrates that difficulty. And while it is not inconceivable that through the process of amendment, the sweet spot might be attainable, it would take much work.

Such amendments would need to more fully deconstruct Obamacare’s progressive regulatory architecture, repealing not merely the law’s narrow age-rating bands and actuarial-value requirements but also its benefit mandates, one-size-fits-all rules banning lower premiums for healthier enrollees, arbitrary restrictions on out-of-pocket costs, and broad duplication of state regulatory authority. The promise of the current bill — that Secretary Tom Price will use his full authority to mitigate the damage caused by these insurance mandates — is insufficient. Executive action can always be reversed by a new regime and even this current iteration of re-rulemaking process will take time. As Heritage Action argued last week in a piece for the Conservative Reform Network, “In leaving this sweeping federal regulatory authority on the books for a future left-wing administration to abuse, conservatives are unwittingly laying the groundwork for full centralization of all aspects of health coverage under the auspices of unaccountable bureaucrats in Washington.” The only impediment to preventing successful repeal of these regulations is the subjective interpretation of complex Senate rules by an unelected lawyer.

It is no surprise the conservatives are once again urging what they fought for previously: the 2015 bill as a first step, in anticipation of plenty of hard work to come.

Success on this front has become harder to imagine over the course of the last several weeks. Many conservatives are sickened by the process and the secrecy deemed necessary for it to move forward. The possibility that it will produce anything worthwhile seems to be diminishing by the day. Speaker Ryan said last week that lawmakers have a “binary choice” before them: the American Health Care Act or the Affordable Care Act, and affiliated outside groups have followed his “with me or against me lead,” running ads against conservatives who hope to make the bill better.

Given all this, it is no surprise the conservatives are once again urging what they fought for previously: the 2015 bill as a first step, in anticipation of plenty of hard work to come. With the AHCA debate deadlocked at present — and with a government-funding deadline looming — the House may have few better options to move forward. But the work of the last several weeks need not have been for nothing.

The repeal floor can be raised. The 2015 bill would be far better policy — and perhaps more palatable to all parties — amended with some version of the AHCA’s Medicaid caps. Properly executed and implemented, those could constitute a significant reform to a failed 1965 welfare program. That said, conservatives have raised serious policy concerns, most notably on the draft’s handling of Obamacare’s sweeping Medicaid expansion. The White House has indicated it would support substantial changes on this point.

Taken together, Republicans could proceed forward having not only passed the 2015 bill but also having resolved the potent issue of Medicaid. State governors would have the certainty they feared they would lack about the future after passage of the 2015 bill as originally written, and the debate could move to the most contentious issue: insurance taxation.

How such debate would proceed is an open question, though given the legislative calendar and complexities of tax policy many conservatives believe the tax treatment of health care should be handled as part of this summer’s tax-reform effort. Such an approach would allow for a wide-ranging debate about how best to equalize the tax treatment of insurance in the individual and employer markets. Heritage has long supported capping the employer exclusion, which was included in previous drafts of the AHCA. This idea could be less divisive when done in conjunction with lowering individual rates. Other ideas — a credit or deduction for individual insurance purchases — might also win the day. But that is a debate that we now know cannot be resolved before members have internalized its contours and considered their options. That will take time — time we do not have as Obamacare continues to collapse. Which is why Obamacare must be repealed now.

Conservatives are anxious to repeal Obamacare, but repeal must be repeal. If Republican leadership and the Trump administration want to deliver the best health reforms possible, they should follow conservatives’ lead by repealing Obamacare and including the best reforms of the AHCA, while leaving the most contentious debates about what comes next the time and space they need to breathe.

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