Last week, the CBO threw buckets of cold water on the American Health Care Act.
While there are serious questions concerning the CBO’s methods and its historical accuracy (see Avik Roy’s critique), Democrats fighting to defend the ACA as it heads towards collapse celebrated; they know CBO scores have potent political weight.
The Republican response was two fold—the loudest voices want to repeal the ACA and see what happens. They’re wishing away the concerns of millions of Americans to demand a rapid march over the political cliff.
Many other Republicans (e.g., Senators from Medicaid expansion states) are quietly eying the hills. To succeed politically and substantively, the AHCA needs to preserve the ACA’s most popular features in a fiscally sustainable way while building a base of political support that lasts beyond the next election.
Here’s a path forward.
ACA’s core flaws. The ACA has two fundamental flaws—it is financially unsound and politically unstable. The ACA’s financial instability is hard-wired. Combining a weak individual mandate, community rating that strongly tilts against young people, guaranteed issue and comprehensive benefits has produced predictable results. Too many young people have concluded the ACA’s a bad deal, too many others are gaming the system and premiums/deductibles are too high for too many.
Whether the ACA is in a death spiral is debatable. Whether it’s heading that direction is not.
The ACA’s enactment added political instability to the mix.
Had common ground with Republicans been found when the ACA was enacted, its repeal would not be today’s top legislative priority.
AHCA’s proposed fix; heat and light
The AHCA carries a heavy load of political peril. The AHCA replaces subsidies with refundable tax credits. Critics on the left believe the tax credits won’t be generous enough. Refundable tax credits give the Freedom Caucus real heartburn.
Eight years ago it was Democrats who were criticizing the Congressional Budget Office. Now it’s Republicans who are bashing the CBO for estimating that 14 million Americans will lose their health insurance next year if the House Republicans’ “repeal and replace” bill becomes law.
The media and the blogosphere have done a reasonably good job of debunking the Republicans’ criticisms of the CBO. Any citizen paying attention can discover that although fewer people enrolled in the Obamacare exchanges in 2014 than the CBO predicted in 2010, the CBO correctly forecast that the uninsured rate would fall by about half and that employers would not stop offering health insurance. The attentive citizen can also discover that the CBO’s predictions were more accurate than those of many other experts.
The media has also reported that Democrats leveled their own unfair criticisms against the CBO back in 2009 and 2010. Obama, Nancy Pelosi, and Max Baucus, to name just a few prominent Democrats, criticized the CBO for not giving the alleged cost-containment provisions in the Affordable Care Act more credit.
I want to make three points here that I have not seen made elsewhere:
(1) The criticism that both Democrats and Republicans make of the CBO consists almost exclusively of raw opinion, usually delivered in a huff, and almost never cites or discusses research;
(2) The CBO may have been off in predicting how many people would enroll in Obamacare and Medicaid, but it was accurate in predicting the failure of the managed care fads written into the ACA to cut costs; and
(3) Today, more than ever, America needs the CBO because the CBO adheres to the quaint principle that evidence should trump ideology.
William Tecumseh Sherman, who laid waste to the South at the end of the Civil War, famously said, “War is Hell”.So, too, is health reform.And like Sherman’s infamous March to the Sea, where he burned town after Confederate town, the Republican War on Obamacare entered its attrition phase with the introduction on Monday in the House legislation to repeal and replace ObamaCare. Except that Ryan is marching in the wrong direction; his troops are marching “north” and burning towns behind their own lines.
Ryan’s bill released Monday was greeted with a chorus of derision from the newly empowered Republican base; some conservative wags dubbed the bill “RINOCare”. Thoughtful conservative analysts savaged it.Michael Cannon, the hard core libertarian Cato Institute health analyst, called it “a trainwreck waiting to happen” and suggestedthat “it will create the potential for the sort of wave election Democrats experienced in 2008” In Reason.com, Peter Sunderman wrote, “it’s not clear what problems this particular bill would actually solve.”
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.
Across the country, ugly confrontations are occurring between Republican lawmakers who pledged to repeal Obamacare and Americans who are afraid of losing their healthcare coverage. The protesters’ fears are understandable. The cost of medical services can be devastating. The chief selling point for Obamacare was that, between the guarantee of coverage on the exchanges and the expansion of Medicaid, the vast majority of Americans would be protected. And the main difficulty that Republicans face in repealing Obamacare is the widespread concern that tens of millions of people might be tossed off the rolls.
The confrontations are the unavoidable consequence of a collective action dilemma. The dilemma is this: To achieve good collective outcomes, government must often prevent people from doing what they think is best for themselves. Individually, I might like to be free to dump trash in the most convenient place, to pollute the waterways and skies, to fish and hunt without limit, to drink and drive, or to use other people’s property and possessions without their permission. Millions of other people might want these liberties too. But collectively, we’re all vastly better off when everyone’s freedom to do these things is constrained. One of the benefits of government is that it can prevent people from acting in ways that are individually rational but that, when practiced widely, make us collectively worse off.
In healthcare, the collective action dilemma stems from the fact that comprehensive coverage—by which I mean all forms of third-party payment, including Medicare and Medicaid, as well as private insurance—is the main driver of the healthcare cost spiral that gone unchecked since the mid-1900s.
For decades, the costs of health care in America have escalated without comparable improvements in quality. This is the central paradox of the American system, in which costs outstrip those everywhere else in the developed world, even though health outcomes are rarely better, and often worse.
In an effort to introduce more powerful incentives for improving care, recent federal and private policies have turned to a “pay-for-performance” model: Physicians get bonuses for meeting certain “quality of care standards.” These can range from demonstrating that they have done procedures that ought to be part of a thorough physical (taking blood pressure) to producing a positive health outcome (a performance target like lower cholesterol, for instance).
Economists argue that such financial incentives motivate physicians to improve their performance and increase their incomes. In theory, that should improve patient outcomes. But in practice, pay-for-performance simply doesn’t work. Even worse, the best evidence reveals that giving doctors extra cash to do what they are trained to do can backfire in ways that harm patients’ health.
Reports coming out of Washington suggest that Republicans may have bitten off more than they would like to chew with repealing & replacing the ACA, with a proliferation of proposals and no consensus on which to support, or how to get the 60 Senate votes needed to turn an eventual consensus plan into law.
There is a general consensus in the GOP to proceed with the budget reconciliation process, but if they pass the bill the House passed in 2015, it will immediately defund plan subsidies and the Medicaid expansion, setting up 25 million or more to lose their coverage right around midterm elections in 2018.
Even a less drastic budget reconciliation bill, for example one that gets rid of the individual and employer mandates by deleting the penalties associated with them, would leave us with a, “zombie ACA”, with everything not budget-related still in place, but malfunctioning with unintended consequences.
All this uncertainty is bad—it’s bad for the government, it’s bad for industry, and most importantly, it’s bad for the tens of millions of confused consumers trying to make informed decisions about how and if they can get health coverage.
Taking a step back
As the saying goes, when you have a hammer, every problem looks like a nail. In this case, when you have a legislative majority, every problem looks like it should be solved by changing the law.
But does that have to be the case? What if Congressional Republicans were to take a back seat and let Tom Price and the Department of Health and Human Services (HHS) begin the process of reforming health reform?
Republicans are having a hard time agreeing on how and when to repeal Obamacare. The Patient Protection and Affordable Care Act (ACA) is difficult to unravel because it was designed to alleviate a problem too costly for the government alone to fix. The health care law was passed to make medical care more accessible for low-income Americans and those with pre-existing conditions. This was to be done largely by socializing the costs and spreading the burden among a much broader segment of the healthy population. This is not unlike a pyramid scheme, where a broad base of people at the bottom get ripped so a few at the top can benefit.
Republicans have it within their power to use a process known as budget reconciliation to repeal Obamacare provisions that involve the budget, with a simple majority vote. For example, Republicans can repeal the taxes, fees and appropriations that fund the ACA. The individual and employer mandates, with associated penalties, can also be repealed. What Republicans cannot do is repeal the costly insurance regulations that drive up premiums for most people. That would require the help of perhaps a dozen skeptical Democrats.
“We’re telling those people that we’re not going to pull the rug out from under them, and if we do this too fast, we are in fact going to pull the rug out from under them.”
– Rep. Tom MacArthur (R-N.J)
“The fact is, we cannot repeal Obamacare through reconciliation.We need to understand exactly: what does that reconciliation market look like.And I haven’t heard the answer yet.”
– Rep. Tom McClintock (R-Calif)
“It sounds like we are going to be raising taxes on the middle class in order to pay for these new tax credits.”
– Sen. Bill Cassidy (R-La)
These quotes, and many others, from a leaked recording of the Republican closed-door strategy session in Philadelphia last week are both jarring and reassuring.
They reveal in harsh light what the media, pundits, and commentators have been saying for weeks: the Trump administration and congressional Republicans are in a deep quandary about the best path forward on repeal and replace, and are just beginning to weigh the pros and cons of the complex policy options involved.
But the discussion also shows us that rank and file Republican lawmakers understand the difficulty of the task and know the political price they’ll pay if they screw it up. Their remarks also imply frustration with the cavalier, ill-informed, and mixed-message statements coming out of the White House.
Healthcare reformers, like the wives of King Henry the 8th, have a thankless job. In a curious inversion of the Tudors, President Trump, who has promised to make healthcare great again, finds himself in the same predicament as the King’s sixth wife who knew what she had to do, just didn’t know how she could do it any differently. Dr. Mark V. Pauly (MVP), Professor of Economics at the University of Pennsylvania, believes President Trump’s options are neither exhaustive, nor exhausted.
SJ: I’m quoting from your book Healthcare Reform without side effects “with community rating…doors are open for political and special interests to lobby…Imagination will be stifled…political rent seeking will be rampant.” When I read this paragraph I checked the publication date of your book. It was not 2016. It was 2008 – before the passage of the ACA.
MVP: Unfortunately, the book wasn’t published soon enough before the ACA.
SJ: What, in a nutshell, is the problem with the ACA?