Authored by Saeculum Research & Neil Howe
In January, the newly inaugurated President Donald Trump issued an executive order directing his administration to facilitate the repeal and replacement of the Affordable Care Act (ACA). After years of protest, the GOP is finally positioned to get rid of Obamacare. But how?
Any effort to repeal without replacement could open the GOP to a serious voter backlash. That leaves Republican leaders with only one path: Repeal and replace simultaneously.
What will this ACA replacement look like? There are two approaches. The first approach focuses more on maintaining (or possibly even enlarging) the ACA through Medicaid expansion. While this approach is simpler, enables top-down cost control, and doesn’t require beneficiary cost-sharing, it costs more up front and represents the sort of bureaucratic solution conservatives hate. The other way to go is to replace the exchanges with a more efficient and stripped-down market-oriented system—an approach which conservatives love and which avoids the ACA’s steep and demoralizing subsidy taper, but which also puts the cost burden on beneficiaries. Policy analysts, the poor, and the near-poor tend to favor the first approach. The working middle-class individuals who voted Trump into office tend the favor the second.
Let’s first take a look at ACA as it stands. As we discussed before (see: “Medicaid for the Middle Class?”), the ACA was intended to create a middle-class health care option that would curb costs and would consist mainly of insurance plans purchased in the marketplace. But neither of these goals was realized. Exchange insurance premiums have soared. And according to the Congressional Budget Office (CBO), Medicaid accounted for more of the increased enrollment than the public exchange program. The ACA’s exchanges also attracted a more costly and lower-income customer base than originally anticipated. And skyrocketing premiums forced many young, healthy, and high-income individuals to leave the system—resulting in a so-called “death spiral.”
Today, the GOP is positioned to end the ACA for good. How can they do this? Their first option is to repeal ACA and not replace it. This maneuver, however, would have dangerous consequences. First and foremost, the CBO calculates that a GOP repeal plan would leave 27 million uninsured. (This is actually more than the 23 million who gained insurance through ACA because the repeal would retain the guaranteed issue or “preexisting condition” provision. Guaranteed issue, without the individual mandate, would cause private insurers to flee the individual market.)
Some say this 27 million figure is exaggerated. According to economist Jonathan Gruber, roughly two-thirds of 2014’s new Medicaid enrollees were eligible for the program under previous state eligibility criteria. This is an alarming finding, since it implies that many states miscategorized new applicants in order to get the extra federal subsidy. If true, it also suggests that repealing ACA would leave many of Medicaid’s new enrollees in place.
Still, whether the number is 27 million or just 20 million, we’re talking about a massive increase in the number of uninsured Americans. This would guarantee a political nightmare for the GOP. Indeed, Republicans have already agreed to keep parts of the ACA—such as the guaranteed issue, age 26 provision, and lifetime spending caps—expressly in order to keep people insured. House Republican Kevin Brady has condemned the idea that a replacement plan would force millions to go without insurance, calling it “the new big lie in health care.”
That leaves repeal and replace. How can this be done? The GOP could repeal and delay a replacement. In this case, they would be able to repeal the ACA as promised, but continue to fund the ACA until they can devise a better plan—presumably after the midterm elections. But delayed replacement would further destabilize an insurance market that started breaking down well over a year ago. What’s more, President Trump has already publicly demanded Congress to repeal and replace the ACA at the same time—effectively backing the GOP into a corner.
If the plan is to repeal and replace simultaneously, what will the replacement look like? There are two approaches.
The first approach would retain most or all of the ACA’s Medicaid expansion under a different name. Unlike the ACA, the GOP’s expansion would fund states through fixed block grants, which put a hard limit on federal outlays yet also give states the freedom to spend funds as they see fit. This solution, however, isn’t without drawbacks: It costs more up front and represents the antithesis of small-government conservatism. That being said, White House counselor Kellyanne Conway recently remarked that President Trump favors the liberal use of block grants for Medicaid.
The second approach, very likely complementing the first, would replace the ACA exchanges with a more market-oriented alternative. To get people to join, Republicans need to find a replacement for the individual mandate given their acceptance of guaranteed issue. (Only Ted Cruz has proposed eliminating guaranteed issue altogether.) The simplest option is to institute a “continuous coverage” requirement, which encourages people to stay enrolled by adding penalties, enforcing lock-out periods, or allowing insurers to consider pre-existing conditions for anyone who experiences a significant lapse in coverage. Many Republicans also urge widening the age-rating band (from 3:1 to 5:1) to incentivize young people to join.
To reduce costs, Republicans favor jettisoning many of the ACA’s benefit mandates—which would create a more stripped-down plan. Many also favor liability law reform (an old GOP favorite) or, like Trump, would support allowing insurers to sell across state lines. To maximize flexibility and to avoid the ACA’s steep implicit tax rate on income, Republicans support subsidies (including Health Savings Account tax credits) that are fixed by age.
The final legislation will probably be a mix and match of these approaches. The Patient Freedom Act of 2017, introduced by Republican Senators Bill Cassidy and Susan Collins, is just that. It gives states three options: Keep the ACA, implement a “state- and market-based alternative” (in which Medicaid expansion is optional), or essentially reject all federal funding and to revert back to pre-ACA law.
Unfortunately for Republicans, neither their Medicaid nor their market approach may please most Trump supporters. According to a recent Kaiser Family Foundation study, what the vast majority of Trump voters on ACA exchanges dislike most about the program is its income-related subsidy, which gives the most to those who work the least. Expanding Medicaid simply exacerbates this “benefit cliff.” On the other hand, the survey also indicates that these Trump supporters, struggling to get by already, do not welcome any GOP market plan that pushes more of the cost burden onto their shoulders.
The only reform that could get around both obstacles is zero out-of-pocket cost for the poor and little or no increase in cost-sharing at higher income brackets. But such a plan would be unaffordable—even for progressive “Berniacs.”
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