The American Health Care Act, the House Republicans’ proposal for repealing and replacing large parts of Obamacare, has had a rough start in life. It was introduced by House leaders on March 6 to a chorus of groans from all ends of the party. Freedom Caucus members and some other conservatives opposed its refundable tax credit and thought its Medicaid reforms took too long to get going. Many of the conservatives most engaged in the details of health care in recent years, meanwhile, thought its credit was not well designed to allow most people to obtain at least catastrophic coverage, and they worried about some peculiar features that seemed counterproductive. The hope of Republican leaders to rush the bill through the House and then the Senate in record time seemed implausible.
And then on March 13, the Congressional Budget Office made things even worse. The agency’s modelers projected that, while the bill would significantly reduce the deficit and ultimately reduce premium costs in the individual market, it would leave about 24 million more people without insurance in ten years than would have been the case under Obamacare.
To see how harsh an assessment that is, consider that in January the CBO projected that a bill that simply repealed all of Obamacare — its taxes, mandates, subsidies, and regulations of insurance — would leave 23 million more people without coverage in ten years. So a full repeal alone would actually leave more people covered than does the Republicans’ repeal and replacement, in the agency’s judgment. But things are not nearly so simple, of course, and the CBO’s assessment might actually point toward improvements that could strengthen the Republican approach.
Defenders of the Republican bill have responded to the CBO’s score of it by questioning the agency’s health-care modeling and its past performance. Critics of the bill have responded by pointing to the proposal’s numerous peculiar flaws. Both sides are right.
Without question, the CBO’s health-care model has enormous problems. The congressional scorekeeper has always exaggerated the effectiveness of blunt rules such as Obamacare’s individual mandate. Its baseline Medicaid projections have long overestimated growth rates in ways that make conservative reforms look like bigger cuts than they turn out to be. And its insistence that competition does not lead to business-model innovation in insurance has led it astray before, too — as in its vast exaggeration of the cost of the Bush administration’s Medicare prescription-drug benefit in 2003.
The AHCA seems almost intentionally designed to fit into these blind spots, and so to be judged by the CBO to severely undermine coverage. The great bulk of the relative coverage loss that the agency projects is a function of three core assumptions. First, it assumes that well over 10 million Americans now buy coverage only because they don’t want to pay the individual-mandate penalty and simply wouldn’t buy any insurance absent a penalty. Second, it assumes that Medicaid spending growth will accelerate much faster than overall health spending in the coming years, so that a policy that indexes federal Medicaid spending to health inflation rather than letting it grow to match state Medicaid spending would lead to massive erosion of Medicaid rolls. And third, it assumes that letting insurers have much more latitude to offer people different kinds of insurance products (including coverage with premiums equal to the new tax credit they could receive) would not result in significant numbers of new insurance products that could appeal to consumers.
All of these assumptions push in the same direction — toward scoring the Republican bill as greatly expanding the number of uninsured Americans. And all are highly dubious. But they are surely not entirely baseless, and they should also spur Republican leaders to take another look at the logic underlying their bill. Three of its key features, corresponding to the CBO’s three questionable assumptions, should get some attention in particular.
First, most conservative health-reform plans in recent years proposed to make an individual mandate unnecessary by using “continuous coverage” protections to encourage healthier people to buy insurance. These protections would eliminate Obamacare’s form of community rating (by which insurers are prevented from basing premiums on individual health risks) and then reintroduce a version of community rating available only to people who have been continuously insured. So as a benefit of being continuously covered, consumers would get guaranteed renewability of their existing plan regardless of changes in health and also some constraint on risk rating when switching plans. That would make insurance much more attractive to healthier people, since they could get in at a lower rate and then either keep their plan at that rate or have some protection from the full effects of preexisting conditions on their premium when switching to another plan.
The new Republican proposal doesn’t do that. Instead, it imposes a 30 percent surcharge on the premiums of people who have been without coverage for more than three months. This is certainly an inadequate spur to get covered, and indeed it would tend to discourage healthier people from getting insured.
Second, the new tax credit envisioned by the Republican bill is means-tested at the top (phasing out for individuals with more than $75,000 in income) but not at the bottom (and so not phasing in with greater support for lower-income people just above the new Medicaid threshold). This means that, although the bill pursues a very aggressive and welcome reform of Medicaid’s basic funding mechanism, it does not do enough to enable people with incomes just above Medicaid eligibility to purchase attractive coverage.
And third, although the bill does deregulate some of Obamacare’s most onerous insurance rules — including the premium age bands that impose higher costs on younger people and the actuarial-value requirements that lead to higher premiums — it does not reverse Obamacare’s core federalization of insurance coverage. It leaves in place Obamacare’s guaranteed-issue and community-rating rules and most of its other insurance regulations.
Why would Republicans leave these rules in place? Because they are pursuing this effort through the budget-reconciliation process in order to avoid a Senate filibuster, and that process limits their ability to change policy. Reconciliation in the Senate is governed by the so-called Byrd rule, which requires each element of the bill to be relevant to the budget. That means that pure tax and spending measures are allowed but that pure rules changes — such as reforms of insurance regulations — may not be.
The House Republican proposal has clearly been designed with a very specific set of assumptions in mind about what can make it past the Byrd rule in the Senate, and these assumptions account for most of the bill’s peculiar features, such as the decision to leave Obamacare’s key regulations in place and also the unusual approach to continuous-coverage protection. They also account for much of the bill’s trouble both with Republican members of Congress and with the CBO.
The January CBO report assessing the effects of a pure Obamacare repeal, mentioned above, actually helps clarify this point. It concluded that a repeal of the law’s taxes, mandates, and subsidies that left in place its regulations would leave far more people uninsured than would a complete repeal that also eliminated the law’s insurance rules. This is because eliminating those regulations would let insurers offer more-varied products and give them a better chance of surviving in the individual market. The same is surely true regarding the House Republican bill: If it repealed more of Obamacare, it would help more people get covered.
That suggests that the House Republican bill occupies an untenable middle space between two more-plausible approaches to conservative health-care reform. The bill suffers from a lack of clarity about how to handle the Senate’s reconciliation rules. Greater clarity would require Republicans to decide between doing more or doing less than this bill envisions.
On the one hand, House Republicans might conclude that it is not their job to solve procedural problems in the Senate and then proceed with a bill that aggressively rolled back Obamacare’s regulations and replaced them altogether. Such a bill would return nearly all insurance regulation to the states and subsidize catastrophic coverage (with continuous-coverage protection and a credit more generous at the bottom) in a way that enabled everyone in the individual market to afford at least that much. This would leave it to the Senate to decide how much of such a bill to retain and in what form.
Or House Republicans could, on the other hand, conclude that there is no reason to expect Senate rules to allow them to take on Obamacare’s insurance regulations, deciding to pursue instead something more like a set of stabilizing reforms through reconciliation. These reforms could be along the lines of what the House bill envisions as a transition to a new system that breaks the bounds of the exchanges and loosens rules some. It could also involve the replacement of Obamacare’s subsidies with the kind of credit the House bill envisions (albeit, again, more generous at the bottom). But it would not pretend to be a repeal of Obamacare. It would be an effort to loosen Obamacare’s strictures to the extent possible within Senate rules, with more to come if and when it’s achievable.
Either would be a coherent and legitimate measure. Either would be more effective than the current bill and would be scored as much stronger on coverage by the CBO while still significantly reducing the deficit. And both could be accompanied by regulatory reforms from the Trump administration’s Department of Health and Human Services and by any further legislation that might be able to garner some Democratic support to get 60 votes in the Senate.
Such a change of direction is by no means out of the question. Just a few weeks ago, Republican leaders were committed to a strategy of two reconciliation bills, which would have separated repeal from replace. They were dissuaded from that course by internal and external criticism and have settled on a much more sensible direction. The bill they’re pursuing instead now needs improvement, and the kind of constructive criticism that got them here can take them further still. That may mean that the process cannot move as quickly as leading Republicans now insist it must. But it could also give the final bill a much better chance of success.