Magazine | February 6, 2017, Issue

A Risky Obamacare Strategy

Republicans are neglecting ‘replace’

For nearly seven years, Republicans have been saying that they would repeal and replace Obamacare as soon as they had the power to do it. Now they have the White House and majorities in both houses of Congress, but appear not to have any viable strategy for making good on that promise.

The elusiveness of that strategy follows from the many constraints under which Republicans are operating. Here are six. One: A lot of people who voted for Republicans want to see the end of Obamacare, for both philosophical and practical reasons. Two: A lot of them — sometimes the same people — are nervous about losing their health coverage if it goes. Most people also like important elements of Obamacare, such as its ban on insurer discrimination against people with preexisting conditions and its requirement that adults under age 26 be allowed to get coverage through their parents’ plans.

Three: Senate rules are generally thought to expose any legislation that modifies or abolishes Obamacare’s regulations to filibuster — which means that any 41 of the chamber’s 48 Democrats could block that legislation. Republicans can use the “budget reconciliation” rules to pass legislation with 51 votes in the Senate, but only, they think, if that legislation exclusively concerns taxes and spending rather than regulations. Four: The Democrats are nearly uniform in their opposition to doing anything to Obamacare other than tweaking or spending more money on it.

Five: Republicans do not all agree on what “replacement” should look like. The most worked-out Republican plans would make it possible for nearly everyone to buy catastrophic-insurance policies but vastly reduce the federal role in regulating health insurance. Some Republicans, though, would prefer to return government policy to what it was before Obamacare, or to pursue a different free-market policy, even if those alternatives led to a loss of coverage for 10 to 20 million Americans.

Six: Obamacare’s provisions are interrelated in a way that makes piecemeal changes perilous. Because the law requires insurers to sell the same policies at the same prices to the sick and the healthy alike — one of its popular elements — it creates an incentive for healthy people to forgo insurance. They can wait until they are sick to buy it. But health-insurance markets cannot work if only sick people buy coverage. That’s why Obamacare also includes its unpopular provision fining people for not buying insurance: to prod healthy people to get covered. Take away the fines but not the regulation, and insurance markets could unravel.

In the weeks following the election, when they were surprised that their party had won unified control of the government and would have to enact health-care legislation, Republican congressional leaders came up with a strategy that attempted to take account of the first five conditions. That strategy came to be known as “repeal and delay.” Early in 2017, Republicans would pass a bill under the reconciliation rules to repeal the tax and spending provisions of Obamacare but would provide that the repeal take full effect a few years from now. In the interim, they would pass legislation replacing Obamacare.

If Republicans stick together, they can execute the first part of this strategy without any Democratic votes and without reaching an agreement among themselves on a replacement. They could then tell conservatives that Obamacare is dead, or at least that it has been given a death sentence, and tell voters in general that a replacement is coming. Some Republicans even say that Democrats will work with them on the second bill (replacement) once the first one (partial repeal) has been enacted.

Many Republicans are, however, uneasy about this strategy. Republicans who want a replacement that ensures that most of Obamacare’s beneficiaries have access to insurance fear that some of their Republican colleagues will call it a day once they have crippled Obamacare. They think Democrats will be more eager to blame them for taking away people’s coverage than to work with them on restoring it — and think that Democrats will be successful in blaming them, since they will in fact have passed a law taking it away.

One serious drawback of the strategy is that it does not account for the interrelatedness of Obamacare’s provisions (our sixth fact above). The partial-repeal bill would abolish the fine for people who go without insurance, and might even do that effective immediately. But it would leave in place Obamacare’s protection for people with preexisting conditions, both because it is popular and because it is a regulation that they think cannot be touched under reconciliation rules.

Obamacare’s exchanges have already been attracting a relatively sick segment of the population: Many healthy people are paying the fine instead of buying insurance. That’s why many insurers have been booking losses and leaving the exchanges. If the fines are abolished, even more healthy people will decide to forgo health insurance until they get sick. The result could be higher premiums, more insurers dropping out, and even fewer customers. Ending the subsidies for people buying insurance on the exchanges by a date certain, as the partial-repeal bill would do, would make insurers even more inclined to leave the exchanges.

People buying individual health policies outside the exchanges could be affected, too. Their premiums might also increase as healthy people decide they don’t need health insurance.

If partial repeal has these effects, Democrats will probably try to score political points by assailing the Republicans for having wrecked Obamacare without replacing it, and to demand that Republicans restore the law’s repealed components rather than work with them on a replacement. The plan could amount to repealing in haste and repenting at leisure.

The strategy could not be better designed to maximize disruption in health markets. Yet public hostility to such disruption is the central fact in the politics of health care. It is the main reason the Clintons’ health-care plan crashed and burned in the 1990s: Remember those ads saying it threatened everything viewers valued in their health care? It is the reason that Barack Obama spent $44 million savaging John McCain for threatening to tax employer-provided health insurance in 2008. It is the reason that one of President Obama’s main talking points in selling Obamacare was that it would let people keep their plans if they liked them. It is the reason that the cancellation of many plans as a result of Obamacare’s regulations became the biggest political problem his administration faced on health care since the law passed. And it is the reason Speaker of the House Paul Ryan keeps saying that Republicans will see to it that we make a “stable transition” from Obamacare to a better system.

A better Republican strategy would be designed around Ryan’s stated goal. It would begin with the understanding that Obamacare’s worst features are its overregulation of health insurance and its centralization of regulation in Washington, D.C. The way Obamacare regulates insurers’ treatment of people with preexisting conditions, the benefits they have to offer, and the difference between what they can charge the young and the old have raised premiums and deductibles, resulted in insurance policies that are not attractive to the young and healthy, and so made the exchanges shaky at best in much of the country even with the help of the individual mandate.

Republicans already have a set of legislative ideas (if not yet actual legislation) that builds on that insight. The main Republican alternative to Obamacare — advanced in different forms by Senators Bill Cassidy, Orrin Hatch, Richard Burr, and Marco Rubio, by the House Republicans, and by Tom Price, Trump’s nominee to be secretary of health and human services — is to create a much less regulated market.

In the ideal form of this legislation, people who do not have coverage through their employers would get a tax credit that allowed them to purchase at least catastrophic coverage. They could choose to buy more-extensive coverage if they supplemented the credit out of their own pockets. Their coverage would need to satisfy only two conditions to qualify for the tax credit: It met their own state’s regulatory standards, and people on the insurance rolls would be able to renew their policies or buy comparable policies if they got sick.

That second requirement, common to many Republican plans, would offer real protection for people with preexisting conditions. Those already covered by Obamacare — that is, who enrolled in the expanded version of Medicaid or bought exchange policies — would be able to stay covered. The combined effect of the regulation and the tax credit would make their coverage affordable. But healthy people would not be able to game the system by waiting until they got sick to buy coverage; the regulation would be an incentive for them to get covered while they’re well.

This alternative would face some criticism from both left and right. Some on the right would call it “Obamacare lite,” since it would involve the use of tax credits to help people buy health insurance. But a replacement of Obamacare along these lines would eliminate its federal definition of essential benefits, its age bands, its employer and individual mandate, its Medicare rationing board, and its federally subsidized exchanges. It would end the federal government’s chief regulatory role, which was Obamacare’s main innovation. And this replacement, unlike Obamacare, would be neutral with respect to whether people chose comprehensive or catastrophic coverage.

The result would be a market that was in important respects freer not only than what we have now but than what we had before Obamacare. Even before Obamacare, a range of public policies stunted the market for cheap, renewable individual insurance policies. A conservative Obamacare replacement would enable that market to grow. The purchase of health insurance would still be heavily subsidized, as it has been for decades. But federal subsidies would no longer come with as heavy a thumb on the scale for one form of insurance over another. Compared with the policies of the last several decades, federal policy would shift toward facilitating rather than seeking to shape the decisions of market participants.

On the left, the main criticism of this kind of Obamacare replacement would be that catastrophic coverage is inferior to comprehensive coverage. Whether it’s worth paying extra for more-extensive coverage, though, is a trade-off best left to individuals and families. Some evidence suggests that the main value of insurance is that it protects people from major financial setbacks if they get sick.

A legislative strategy designed to advance this kind of replacement would not defer action on Obamacare’s regulations. Nor would it abolish its tax credits in one bill only to create new ones later. Instead it would end funding for Obamacare but also establish the new, simpler tax credit, stipulating that people could use the credit to buy any policy that met the two conditions — approval from state regulators and renewability — that conservative replacement plans envision. Obamacare’s regulations could stay on the books, but they would be made irrelevant. Replacement and repeal would be accomplished in one step.

Getting Republicans to agree to this strategy in the requisite numbers, overcoming parliamentary hurdles, and answering Democratic attacks on it would be no small task. It would involve taking a first step that is more ambitious than repeal-and-delay would, and therefore it might take longer to accomplish. But it would reduce the likelihood of severe disruption to health-insurance markets and of a political debacle for Republicans. It would rip out Obamacare’s regulatory heart, which repeal-and-delay cannot guarantee. And it would make good, at long last, on seven years’ worth of promises to repeal the law and replace it with something better.

Ramesh Ponnuru — Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.

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