From the Thursday Morning Jolt . . .
Decision Time Approaches for Republicans on Replacing Obamacare
Nigel Lawson, a member of Margaret Thatcher’s cabinet, once famously summarized, “To govern is to choose.”
We’re reaching a moment of decision for President Trump on the effort to repeal and replace Obamacare. There is no replacement legislation that will make everybody happy. There isn’t even replacement legislation that will make everybody on the Right happy. Somebody’s going to be left disappointed and grumbling that the replacement is worse than Obamacare for their priorities. President Trump has to decide whom he’s willing to disappoint.
The temptation will be to punt and demand congressional Republicans come up with a “better plan” that satisfies all of the contradictory demands of the party and country. But that just kicks the can down the road.
Trump has to start by making a decision on the timetable for repeal and replacement. Senator Tom Cotton of Arkansas declared that the House of Representatives should ditch the current replacement legislation and start over. “Start over. Get it right, don’t get it fast. What matters in long run is better, more affordable health care for Americans, NOT House leaders’ arbitrary legislative calendar.” I think he’s right. But this also means that repeal legislation won’t get passed until later this year, maybe much later this year, or even early next year. A certain number of conservatives will perceive a delayed repeal as a failure of will or spinelessness and complain loudly. FreedomWorks called the current GOP bill “a betrayal” and “Obamacare Lite.” There will always be groups eager to believe the worst about Republican lawmakers.
A lot of conservatives want to get rid of the Medicaid expansion enacted under Obamacare. If you’re in a state that hasn’t expanded Medicaid, then to be covered you have to be at or under the poverty level. For a family of four, that’s $24,300 or less. If you’re in a state that did expand Medicaid, you qualify if your family of four gets by on $33,534 or less. Right now, 10 million to 11 million people are covered under Medicaid who wouldn’t be covered under the old rules. I’d bet a healthy chunk of those folks voted for Trump.
Senators Rob Portman of Ohio, Shelley Moore Capito of West Virginia, Cory Gardner of Colorado, and Lisa Murkowski of Alaska have stated that any replacement legislation must meet a “test of stability for individuals currently enrolled in the program” – in other words, you can’t just yank Medicaid away from these people without some sort of comparable replacement.
Some conservatives don’t like the fact that the current plan has refundable tax credits, meaning if you qualify, and the total sum of the credit is greater than your tax bill, you get the remainder to apply to your insurance costs. As I’ve joked, “under the old system of subsidies, the government gave you money to pay for your health insurance. But under the new system of tax credits, the government gives you money to pay for your health insurance.” But right now, too many markets don’t have plans that most consumers consider anywhere near “affordable.” (It’s fair to argue whether people have a realistic definition of “affordable” when it comes to on-demand access to the miracles of modern medicine.) The conservative philosophy has argued, correctly, that competition brings prices down. The problem is that in a lot of places, there isn’t much competition at all. In 2016, 85 percent of people using the marketplace on Healthcare.gov had at least three insurers to choose from in their area. This year, it’s down to 57 percent. Even if you believe competition will bring prices down, that rarely happens overnight.
Then there’s the trade-off between the individual mandate and the death spiral. Conservatives rage against the individual mandate – correctly, in my mind – because the federal government has no business punishing you for not purchasing a particular product. We also warn, correctly, about the “death spiral,” a cycle where higher and higher costs are expected to be covered by a shrinking pool of customers.
In February, Aetna chief executive Mark Bertolini declared the “death spiral” had already begun:
Bertolini drew a portrait of the health insurance landscape caught in a deteriorating cycle. With too many sick people and not enough healthy ones buying insurance, he argued, the premiums have to keep going up. The more the premiums increase, the fewer healthy people want to sign up for care. They opt to pay the penalty instead of buying insurance with a massive deductible. That causes the balance of sick and healthy people buying insurance to worsen, prompting more rate increases and causing people — and insurers — to drop out.
He said that Aetna’s heaviest utilizers of health care — the top 1 percent to 5 percent — are driving half of the costs in the exchanges.
Of course, if you take away the individual mandate, the death spiral accelerates instead of decelerating.
The GOP replacement bill tries to finesse this by removing the individual mandate but allowing insurance companies to charge you 30 percent more if sign up for coverage outside of the normal open enrollment period. In other words, you can drop your plan if you don’t think you need it, but if you decide to buy it again once you do need it, it’s going to cost you more. But this still isn’t going to mitigate the death spiral, as Avik Roy points out:
There are going to be plenty of people who game the system when their health costs are greater than 30 percent of the normal premium. Let’s say you decide not to buy insurance, then you have a heart attack and then buy health insurance. Your health care consumption is going to be way higher than 30 percent above normal. So the AHCA effectively mandates insurers to sell you coverage at a loss.
This is the equivalent of not buying car insurance until after you’ve been in an accident. The insurance company is always paying out money and not enough money is coming back in.
(Note that many people across the political spectrum hate health insurance companies in general, and will cheer their financial troubles. Of course, the only thing worse than having an insurance company is not having an insurance company.)
Replacing Obamacare is complicated. There are trade-offs. Somebody’s going to walk away convinced they got a bad deal. Even worse, whenever a legislator has the courage to tell the public that trade-offs and compromises are necessary, a political challenger will insist that it is not, that it represents lawmakers being stupid, or spineless, or selling out. In 2018, congressional challengers will declare that if elected, they will give you excellent coverage for all of your health-care needs and lower premiums, co-pays and deductibles, and a tax cut, and a pony. Because it is very easy to promise a better health-care system with no compromises and trade-offs; it is pretty much impossible to deliver it . . .
. . . as President Trump is no doubt learning.