The GOP Health Care Bill Falls Into The Obamacare Trap

By John Daniel Davidson

Friday, March 24, 2017

House leaders canceled a planned vote Thursday on the Obamacare repeal and replace bill after President Donald Trump and Speaker Paul Ryan failed to broker a deal with members of the conservative House Freedom Caucus. No word yet on when there might be a vote on the American Health Care Act, which has come under fire from conservative Republicans in the House, centrist Republicans in the Senate, and Democrats everywhere.

It didn’t have to be this way. Having campaigned for seven years on repealing and replacing Obamacare, Republicans could have put forward something other than a marginally conservative variation on Obamacare that more or less leaves the current ACA framework in place. They had plenty of options (like this, and this, and these, to mention a few) but opted instead for a bill that causes short-term disruption while promising long-term benefits—the same flawed recipe that made Obamacare so unpopular for so many years.

The crux of the problem is that Republicans, whether they realized it or not, accepted the underlying premise of Obamacare: the federal government should ensure near-universal health coverage, and it should do so without “pulling the rug out from under anyone,” as Speaker Ryan has said.

With that as their starting point, Republicans needed to craft a bill that would offer some palpable, immediate improvement over Obamacare while enacting long-term reforms that would attract GOP support in Congress. As it is, the AHCA doesn’t do enough to get House conservatives on board but goes too far for some Senate Republicans, especially those senators from states that expanded Medicaid under the ACA.

Republicans Botched Medicaid Reform

Medicaid expansion, it turns out, is nearly the whole of Obamacare—and the center of the debate over how to replace it. Ryan is correct that the AHCA represents the most sweeping reform of Medicaid in the program’s 52-year history, changing the funding mechanism from an open-ended entitlement into a per capita or block grant scheme, which would presumably constrain Medicaid’s cost growth.

But what the AHCA gives with one hand, it takes with the other. The bill preserves Obamacare’s Medicaid expansion for those states that opted into it, but bars expansion by states that have thus far resisted (and missed out on billions in federal funding). Recall that Medicaid expansion under the ACA was effectively a complete transformation of the program from a narrowly tailored program for low-income pregnant women and infants, the disabled, and the indigent elderly, to a new health care entitlement for everyone who earns less than about $16,400 a year.

But states have already come to rely on the federal funds that flooded in with Medicaid expansion, and pulling back on federal funding now would create a fiscal crisis in those state’s budgets. Even switching to a per capita funding mechanism is going to cause fiscal problems for expansion states, which is why GOP senators from those states are hesitant to embrace even that aspect of the AHCA’s Medicaid reform.

By unevenly reducing Medicaid funding across the 50 states, the Republican bill sets about reforming Medicaid in a way that will cause massive disruption and confusion—and in the end might not reduce overall Medicaid spending in the long term.

How To Reform An Entitlement

Medicaid is just the most salient example of a problem the AHCA shares with the ACA, which is this: if you want to create a new entitlement or government welfare program, the conventional wisdom is that you have to front-load the benefits. Don’t let anyone see or feel the costs of the entitlement before they get the benefits from it. Once people get used to the benefits, it becomes very difficult to mobilize a constituency to roll the entitlement back, no matter what the long-term costs might be.

President Lyndon Johnson understood this principle well, which is why, when Congress created Medicare and Medicaid in 1965, the benefits were felt almost immediately, while the costs became clear only much later. (LBJ enrolled President Harry Truman as the first Medicare enrollee and presented him with the first Medicare card at the bill-signing ceremony.)

Obama and the Democrats botched this with the ACA, which imposed a host of new health insurance regulations that caused millions of Americans to lose their pre-ACA coverage—before anyone really had a chance to benefit from the supposedly more generous and comprehensive plans mandated by the federal law. Obama’s promise that “if you like your plan, you can keep it,” came up against the reality of millions of canceled plans.

The result was a public relations nightmare, which Republicans seized to their advantage. The GOP notched major midterm election gains in 2010 and 2014 primarily by pointing to the pain Obamacare had caused many Americans. Champions of the ACA argued that Obamacare in fact benefited many Americans, especially older people and those with pre-existing conditions, but the first effects of the law were to strip millions of people of coverage they thought they would be able to keep.

Combined with rising premiums, which Republicans blamed on the ACA (even though, to be fair, premiums had been rising before the law was passed), Obamacare’s early disruptions made it look an awful lot like what it actually is: a massive income redistribution scheme. One of the reasons the GOP even has a chance to repeal the ACA now is because the law’s lopsided effects turned many Americans against it from the outset.

The GOP Bill Satisfies No One

Unfortunately for Trump and Speaker Ryan, the AHCA falls into this same trap. Many of the benefits of the bill are sort of out there in the hazy future. The bill repeals Obamacare’s prohibition on denying coverage to those with preexisting conditions, promising instead to help fund state high-risk pools, a mechanism states used to cover high-cost patients before the ACA. But the first thing that will happen, before states get their high-risk pools up and running, is that insurance companies will deny coverage to those with pre-existing conditions.

Arguably, that’s a good thing. For insurance to work, insurers must be allowed to spread risk in a predictable way. But the headlines will be all about the ailing Americans who lost their Obamacare coverage because of the Republican plan.

The same can be said for other aspects of the GOP approach. The AHCA allows people to put more money into health savings accounts, which in theory means those people will be able to shop around for better deals on medical procedures and services. But those benefits won’t be felt for some time. Same with Republican promises that premiums will come down once insurance companies are able to sell plans across state lines. Maybe they will, but that’s a long ways off, and in the meantime, premiums might keep going up, and Republicans will bear the blame.

Republicans could have avoided falling into this trap any number of ways. They could have proposed a bill that guaranteed every American would have at least catastrophic health coverage to protect them from financial ruin brought on by illness, as Ben Domenech recently suggested in the New York Times. They could have restructured Obamacare’s premium subsidies in a way that benefits those with lower incomes without creating huge benefit cliffs and disincentives to work, as Avik Roy has outlined repeatedly.

Instead, they have made the same mistake as the Obama administration. They crafted a health care reform that causes immediate pain, promises that things will get better soon, and in the meantime satisfies no one.