The House Republicans’ Terrible, Horrible, No Good, Very Bad Obamacare Replacement Plan

It won’t work.

Obamacare works for the poorest that have affordable health insurance because all of the program’s subsidies tilt in their favor.

Obamacare doesn’t work well for the working and middle class who get much less support––particularly those who earn more than 400% of the federal poverty level, who constitute 40% of the population and don’t get any help.

Because so many don’t do well under the law, only about 40% of the subsidy eligible have signed up and, with so many insurers losing lots of money, the scheme is not financially sustainable because not enough healthy people are on the rolls to pay for the sick.

To fix it, House Republicans are proposing a very attractive program for the better off and, with the Medicaid rollback, gutting the program for the poor to be able to pay for it.

Republicans claim their new tax credits would be enough to buy a catastrophic plan even for the poorest––and in many cases that will likely be true. But, what good will it do a person making $15,000 a year to get a premium credit only large enough to buy a plan with a $3,000 or $5,000 deductible?

The House Republicans are also proposing an individual health insurance market scheme that may even be worse than Obamacare itself.

As bad as the Obamacare individual mandate was for consumers––and as ineffective as it was for insurers––it did cause those not buying health insurance some pain. The Republicans now want to create a scheme that doesn’t require anyone to sign up. But when they get sick enough that they need insurance, they will be able to quickly do so by paying a paltry 12-month 30% premium surcharge.

For example, a person paying $5,000 for health insurance would pay a one-time total $1,500 penalty! A family paying $10,000 in annual premium would pay only a $3,000 penalty for any late enrollment!

Obamacare is so poorly constructed it is literally an anti-selection machine. The Republican proposal is worse.

The Republicans are also offering a $100 billion nine-year stabilization and consumer assistance fund, beginning with $15 billion in both 2018 and 2019 and $10 billion thereafter, to help states both stabilize their insurance markets and support those who would lose their Medicaid coverage. This sum of money wouldn’t come close to dealing with either the Obamacare individual health insurance market problems or the gap that gutting Medicaid would create. In 2015 alone, for example, the Obamacare reinsurance stop-loss payments, and the risk corridor payments the carriers requested, totaled $13.8 billion––and they would have still lost their shirts.

What the market needs to be viable are not subsidies but a market that works efficiently in the first place.

The House has likely come up with this mess because its various pieces fit the Senate’s budget reconciliation rules. Anything else would require a bipartisan compromise with the Democrats.

I have always believed that Obamacare would have been a lot better if there had been a bipartisan compromise in the first place, with Democrats agreeing to things that would have helped the Republican’s more middle class constituency.

Now, the Republicans are making the same mistake––taking care of their base and giving the Democratic base a lousy deal. That would make this Republican scheme just as politically unsustainable––half the country will hate it––just a different half.

And, the Republican’s guarantee issue scheme of buy it whenever you need it will make the Republican program just as financially unsustainable––too many won’t buy it and those who do will be disproportionately sick.

The real solution is to build a program that is good for both the poor and the middle class instead of constructing one half of the country will always hate.

Just as soon as the Democrats get back in power they will use the same simple majority rules the Republicans are now exploiting to turn the table once again.

I feel for the spot the Republican leadership is in trying to please the most conservative in their caucus looking to kill all of Obamacare while also trying to please their moderates that don’t want to see people lose their coverage.

The Republicans are trying to create something they can sell to enough Republicans to pass it.

What they need to create is a program that they can sell to enough consumers to make it financially viable and that will meet the needs of a consensus of voters to make it politically viable.

If you would like to see a good review of the Republican proposal to replace Obamacare, I recommend Sarah Kliff’s post at Vox.

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2 replies »

  1. I think one fundamental problem facing both parties is the simple fact that most Americans want and expect more from government than they are willing to pay for. A lot of them think all we have to do is soak the top one percent ad infinitum and everyone else can have a free ride. It doesn’t and can’t work that way. In the end, we get the government we deserve.

  2. Good analysis, Bob. I’d be interested in your prognosis of what will happen. The high stakes political game began this week, of course. There seem to be many possible scenarios as this plays out. One is certainly that they fail to get enough votes to pass anything remotely close to AHCA….and so pass some version of Cassidy-Collins giving states money to stabilize their individual markets and more flexibility…and then pivot to an attempt to produce a kind of bipartisan bill that the Rs can call a repeal and replace but which does not transform Medicaid and leaves much of Ocare structure in place, but with the changes to tax credits Rs are proposing (though with more $$ to consumers for purchase).