The Republican Health Plan: Good, Bad, and Ugly The Senate’s latest effort to repeal and replace Obamacare is a mixed bag, but it’s not as bad as you’ve heard.Joel Zinberg
https://www.city-journal.org/html/republican-health-plan-good-bad-and-ugly-15299.html
Joel Zinberg, M.D., J.D., F.A.C.S., a visiting scholar at the American Enterprise Institute, is a practicing surgeon at Mount Sinai Hospital and an associate clinical professor of surgery at the Icahn School of Medicine.
In the near term, the health-care plan that the Senate released this week—officially, the Better Care Reconciliation Act (BCRA)—will provide stability to individual health-care markets and state governments. It commits to funding the cost-sharing reductions that insurers are required to provide, but which Congress had not funded adequately through 2019. This should calm insurers uncertain about staying in the individual-insurance markets. Anthem, a major insurance player in both the Affordable Care Act (ACA) marketplaces and Medicaid, has announced that the Senate bill “will markedly improve the stability of the individual market and moderate premium increases.” The Congressional Budget Office predicts that premiums will be 30 percent lower than under current law by 2020. The BCRA will also allow insurers to charge older enrollees up to five times what they charge 20-year-olds—the standard before the ACA—rather than the 3-to-1 limit that Obamacare imposes. This should make the market more attractive to insurers and insurance more affordable for young people, who have resisted signing up under the ACA.
The BCRA also delays the end of enhanced federal funding for Obamacare’s Medicaid expansion and begins phasing it out with a gradual reduction in the enhanced federal payment share between 2021 and 2024. States would be free after 2024 to continue coverage for the expanded population covered under the ACA, but at regular federal matching rates. This should give governors ample time to plan if and how they want to continue expanded Medicaid eligibility. It will also give them time to expand private insurance markets to those at or below the poverty line, since the BCRA removes the lower income limit on premium tax credits to purchase insurance. Adults displaced by the phase-out of the Medicaid expansion and residents of states that did not expand Medicaid could use these credits to purchase private insurance.
In the longer term, the BCRA makes it far more likely that Obamacare’s section 1332 “innovation waivers” can become effective tools for state-based experimentation and reforms to improve insurance coverage. These waivers let states modify or eliminate many central ACA provisions, including the rules regarding the premium tax credits and cost-sharing subsidies and which plans and essential health benefits (EHB) must be offered on the insurance exchanges. The BCRA ends ACA restrictions that have inhibited waiver applications. It also streamlines the application process and creates a $2 billion fund to motivate states to apply for waivers.
But the Congressional Budget Office’s prediction that the BCRA will lead to 22 million more uninsured by 2026 has dampened enthusiasm for the Republican proposal—even among Republicans. The problem is that the CBO’s estimates of coverage under current law are based on its March 2016 baseline, which is known to be inaccurate. The CBO predicts that the BCRA will decrease coverage in the non-group market, including marketplaces, by 7 million, yet concedes that “enrollment in the marketplaces under current law will probably be lower than was projected under March 2016 baseline used in this analysis.”
The CBO’s estimate that 15 million fewer people will be covered by Medicaid in 2026 as compared with current law is also suspect. About a third of this loss derives from people whom “CBO projects would, under current law, become eligible in the future as additional states adopted the ACA’s option to expand eligibility.” It’s unlikely that the 19 states that have thus far not expanded eligibility under the ACA would expand if the law remains unchanged, especially since, under Obamacare, states now have to start sharing some of the financial burden for these newly eligible enrollees with the federal government.
The CBO has consistently overestimated ACA coverage gains because it overstates the efficacy of the individual mandate and its penalty in motivating people to obtain non-group, Medicaid, and employer-provided coverage. Obamacare’s individual-mandate penalty was always too weak and riddled with exceptions to be effective. The BCRA repeals the mandate and replaces it with a requirement that people who fail to maintain continuous insurance coverage must wait six months before re-enrolling. This enrollment delay may or may not be more effective than the individual mandate in convincing people to obtain insurance; some lapses in coverage are truly involuntary. But the delay will spare those who do participate in the market from the higher premium costs of providing insurance for people who try to game the system by waiting until they are sick to seek insurance.
The BCRA will, however, lead to Medicaid losses. Like the American Health Care Act (AHCA) passed by the House of Representatives earlier this year, the BCRA limits the growth in federal Medicaid funding by moving from the current open-ended entitlement to a system of per-capita caps or block grants. Until 2025, the annual inflator will be the same as that used in the AHCA—the consumer price index for medical services (CPI-M), after which the BCRA will link annual increases to the CPI for Urban Consumers (CPI-U), which typically grows slightly less quickly than CPI-M. Medicaid spending typically grows faster than either of these measures. Under the BCRA, the growth in federal Medicaid spending will decline by large and growing amounts over time—even more than in the AHCA. Even with the added flexibility that states will gain under the BCRA to administer their Medicaid programs, it’s doubtful that innovation can offset decreased federal funds without cuts to Medicaid benefits and enrollment. Growth in the Medicaid entitlement must be restrained, but the BCRA formula may be too extreme to attract votes needed for passage.
Like the House AHCA, the Senate BCRA also vitiates efforts to reign in the cost growth of employer-provided insurance by delaying the imposition of Obamacare’s “Cadillac” tax on employer plans with premiums above specified thresholds until 2026. This suggests that it will never be imposed. Half of Americans get health insurance through their jobs. Employer-paid premiums are tax-exempt for employees and tax-deductible for employers; this tax preference costs the federal government more than $250 billion a year in foregone revenues. Limiting it would encourage employers to offer more cost-effective plans and raise significant revenue.
The Senate should replace the Cadillac tax with an upper limit on the amount of employer-paid premium that is exempt from taxation, and start imposing it in 2020. This would be more progressive than the Cadillac tax, since higher-paid workers are subject to higher marginal tax rates and would pay more tax on premiums that exceed the limit than lower-income workers. Getting started on capping premium exemptions by 2020 would encourage cost discipline in the biggest part of the insurance market, generate revenue that could be used to mitigate the Medicaid cuts, and boost premium tax credits to low-income people.
The BCRA is an imperfect piece of legislation. Senators should alter and pass it and then work with their colleagues in the House to synthesize a workable Obamacare replacement. Failure to do so will leave the country with a failing health system and unsustainable entitlement growth.
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