The GOP’s Forced March on Health Care Begins
House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell have begun a forced march of their members toward what they hope will be the enactment of legislation repealing and replacing the Affordable Care Act (ACA). Ryan and the chairman of the key committees in the House released their initial pieces of the legislation last evening (the plan is currently broken into two parts, reflecting the jurisdiction of the two main committees, Ways and Means and Energy and Commerce). It is clear from a quick review of the plan, and from initial reactions to it from others, that the task before them remains daunting.
The initial House plan is right in a structural sense. It recognizes that, in the United States, most people under age 65 get their insurance through employers. For political and policy reasons, they cannot change this reality. What they must do, instead, is stabilize and improve the market for people who do not have access to an employer plan, starting with providing them with a tax benefit that is roughly comparable to the tax benefit conferred on employer coverage. The House plan does this by providing age-adjusted refundable tax credits to households buying insurance on their own, ranging from $2,000 to $4,000. These credits would replace the premium credits provided under the ACA, starting in 2020.
The House proposal also recognizes the urgent need for Medicaid reform. The plan released yesterday would move away from Medicaid’s historical reliance on federal matching payments to finance the program. Instead, the plan would move toward per person payments to the states, based on historical spending patterns, also starting in 2020. States would be given much more flexibility to run the program without federal interference.
While the House structure is sound, the overall plan falls short in many important details.
For starters, the House has dropped one of the most important provisions included in the leaked draft – the placement of an upper limit on the tax preference for employer-paid premiums. While the employer system should be largely left alone, there is a need for cost discipline in job-based coverage, and the only way to do that is with a cap on the tax preference. This cap would also generate much needed revenue to pay for an adequate tax break for those outside the employer system. This is a matter of fundamental equity as well as of sound tax and health policy.
An even more pressing problem for the GOP, the one that could easily derail the overall effort, is the inadequacy of financial support for the lowest income households. The GOP wants to say their plan provides access to health insurance for all Americans. And while their plan does provide a tax credit to households without employer coverage, the credit is much less than the ACA’s subsidies for families with the lowest incomes. Moreover, the House is seeking to roll back the funding associated with the ACA’s Medicaid expansion, after leaving the federal funding for the expansion in place through 2019.
Further, the House bill leaves in place the insurance rules of the ACA but tries to limit who is protected by them to people who stay enrolled in coverage. But the penalty from dropping insurance and then trying to get back into the market is far too small – just a thirty percent surcharge for one year. This policy is likely to lead to even more adverse selection in the individual market than is occurring under the ACA.
In combination, the policies in the House bill would lead to a very large increase in the number of Americans without health insurance. It is true that all Americans could get insurance if they wanted to, but many households will see their options get worse under this plan compared to the ACA, not better. The Congressional Budget Office (CBO) is sure to make these points when its estimate of the plan is released in the coming days.
It will be tempting for GOP leaders to say CBO is wrong and urge the public to ignore the agency’s estimate, but that would be a mistake. CBO is not always right but it would be hard to make a credible case that the GOP plan, as it now stands, will not lead to much higher numbers of uninsured Americans.
Instead of ignoring CBO, GOP leaders should acknowledge the challenge and address it head on by adjusting their plan. Broader enrollment in coverage is possible with the right policies.
First, the GOP must compromise on Medicaid. Thirty-one states expanded Medicaid under the ACA, while nineteen did not. It is possible to find a compromise that allows all states to provide safety-net insurance up to a uniform national level of income. The program could then be reformed to allow more state flexibility within a framework of fixed federal spending per enrollee. The federal government's financial commitment to the program would not be cut dramatically in the near term. But, if done right, a compromise of this kind would represent a fundamental reform of the program that would lower long-term costs and improve the health outcomes for the program’s participants.
Next, the GOP should address the value of the tax credits for households just above Medicaid eligibility. It is not necessary to replicate the ACA’s credits, but it is also important to recognize that households at 200 percent of the federal poverty line (around $24,000 for a single person) will need more than $2,000 or $3,000 or even $4,000 to get a health insurance plan. Higher credits for this population would not jeopardize the GOP’s goal of less complex and affordable tax credits.
Finally, the GOP needs to aggressively pursue automatic enrollment into health insurance for persons eligible for the refundable tax credits but who fail to select insurance plans on their own. Insurers should be required to make products available to all customers in a state with premiums equal to the base level of federal tax credits available to people above the level of income-adjusted assistance. The deductibles of these policies would be adjusted as necessary to ensure the premiums matched the credits. Any consumer could enroll in these plans, and thus gain protection from major expenses without cost to themselves. But these plans could also serve as a safety net for persons who would otherwise go uninsured; states would place citizens who fail to use their credits into them pending their selection of an alternative option. This kind of automatic enrollment system, done correctly, could boost dramatically the number of people with insurance under both the ACA and replacement legislation.
The motivations for moving quickly on repeal and replacement of the ACA are clear enough. The longer the GOP waits, the more time will be available for opponents to slow them down and perhaps block the effort altogether.
But there is also risk in going too quickly. Health care policy is complex, and whatever is done will have lasting consequences. If Republicans rush a plan through Congress with major flaws, it will likely backfire on them, and perhaps lead to another round of legislation that is far less to their liking.
Speaker Ryan and his colleagues are right that this is the year to think big and move forward with an ambitious reform agenda. But that does not mean even legitimate concerns should be pushed aside to serve an arbitrary legislative calendar. At this point, with the process moving toward its critical stages, it would be far better to make sure the policy is sound, and acceptable to the public, than to pass a bill quickly that even its authors will later regret.
James C. Capretta is a resident fellow and holds the Milton Friedman chair at the American Enterprise Institute.