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health insurer bailout

For those who are “woke” to Obamacare’s failures, the Senate GOP’s health insurance reform bill has plenty to hate and maybe some things to love. There are likely to be some changes in the bill before it goes to a vote, which now has been delayed until sometime after Congress’ July 4th recess. Known as the Better Care Reconciliation Act of 2017 (BCRA), the bill is another mixed bag of GOP health care reforms and non-reforms. It is the Senate Republicans’ effort to improve upon the bill passed by the House of Representatives in May. The non-reforms are tied to an inability to repeal all aspects of Obamacare (the Affordable Care Act, or ACA) within the context of budget reconciliation, a process which permits a simple majority for approval of changes linked in some way to the budget (the so-called Byrd rule). Yuval Levin offers an excellent discussion of the bill and the general motivations for the form it has taken:

They are choosing to address discrete problems with Obamacare within the framework it created and to pursue some significant structural reforms to Medicaid beyond that, and they should want the merits of their proposal judged accordingly. Their premise is politically defensible — it is probably more so than my premise — and the proposal they have developed makes some sense in light of it.

It’s necessary to get one thing out of the way at the outset: the CBO’s scoring of the Senate bill is flawed in a massive way, like the earlier score of the House bill. The estimate of lost coverage for 22 million individuals is based on the CBO’s errant predictions of Obamacare coverage levels. (See here and here, and see Avik Roy’s latest entry on this topic.) Does anyone believe that enrollment on the exchanges will decline by 15 million in 2018 due to the elimination of the individual mandate? That’s over 40% more than total enrollment in 2017, by the way. Even if we attribute the CBO’s prediction to the elimination of both the individual and employer mandates, it would be an incredible plunge, especially given the means-tested tax credits in the BCRA. Does anyone believe that coverage levels under Obamacare would increase by 18 – 19 million by 2026 (mostly on account of the individual mandate)? That is the baseline assumed by the CBO in its scoring of the BCRA, which is laughable. A more realistic estimate of lost coverage under the BCRA might be 2 to 3 million, but remember that many of those coverage losses would not be “forced” in any sense. Rather, they would be purposeful refusals to take coverage with the demise of the individual mandate. But they would tend to be the healthiest of the current, coerced enrollees.

A related point has to do with hysterical claims that the BCRA will “kill thousands of people”. Someone cooked-up this talking (screaming?) point to rally the ignorant left and perhaps frighten the ignorant right (including a few GOP Senators). As Ira Stoll explains, there are several reasons to dismiss these assertions, not least of which is its tradeoff-free conceit. More ugly detail on the basis of these claims can be found here.

Will the BCRA “gut” Medicaid, as Charles Schumer, Nancy Pelosi and other have claimed? Program spending would not decline by any means, only its growth rate. Enrollment would decline with tougher eligibility rules, but as noted above, tax credits more generous than the Medicaid savings (relative to Obamacare) would help replace lost Medicaid coverage with private insurance. Steve Chapman has contributed one of the most nitwitted commentaries on Medicaid reform that I have seen. Not only do critics consistently ignore the proposed tax credits for coverage at low incomes, but they never address the monumental waste in the program., something that would likely improve under the budgeting requirements and additional discretion given to states by the BCRA.

An even crazier scare story going around is that the Senate bill will cut Medicare benefits. That is not the case, though the bill repeals an Obamacare Medicare tax increase on the self-employed.

Getting back to the broader BCRA, here are some of the major provisions:

  • Medicaid reform to replace the budgetary disaster of federal matching with per capita caps or block grants, and state program control.
  • Means-tested tax credits for insurance purchases would extend to low-income individuals who might otherwise lose their expanded Medicaid eligibility. According to Levin, this group is heavily weighted toward the unmarried and childless.
  • Greater state authority over regulation of the individual insurance market. This is accomplished through the availability of state waivers from many Obamacare regulations, including essential health benefits.
  • Almost all Obamacare tax provisions would be repealed. One exception is the “Cadillac” tax on high-cost employer plans starting in 2026 (after a temporary hiatus). Many of these repeals would benefit individuals broadly as taxpayers, employees, business people, and patients.
  • Expanded allowable age rating to 5/1 from 3/1. This helps limit adverse selection by pricing more risk where it exists, and the means-tested credits would help offset higher premiums for older individuals with low incomes.
  • Provides about $130 billion in “stabilization” funds for insurers over a three-year period. This is an attempt to keep premiums down during a transition over which the GOP probably hopes to enact additional deregulatory measures. Is this a practical maneuver? Yes, but it also reflects a bit of “corporatism-when-it’s-convenient” hypocrisy.
  • Eliminates funding for Planned Parenthood. Presumably funding could be restored later were the organization to split off its abortion services into a financially distinct division, which the Hyde Amendment would seem to require.
  • Retains coverage for pre-existing conditions.
  • Elimination of the individual and employer mandates, including the tax penalty. However, individuals who go without coverage for two months would face a six-month waiting period before they could re-qualify for coverage.

Eliminating the mandates is great from a libertarian and an economic perspective. The coercion inherent in those requirements is bad enough. In practice, the individual mandate has proven less effective in encouraging enrollment than Obamacare’s architects had hoped, which makes the CBO’s conclusions all the more puzzling. The employer mandate gives firms an incentive to reduce hours and employment, so it has extremely undesirable labor-market implications.

Most criticism of the BCRA from the right has centered on its failure to fully repeal Obamacare insurance and health care regulations. The continuation of Obamacare community rating is a major shortcoming of the bill, as it distributes the financial risks of medical needs in ways that do not correspond to the actual distribution of health risks. The result is the very same adverse selection problem we have witnessed on the Obamacare exchanges. Unfortunately, this raises the specter that we’ll be stuck with some form of community rating in the long-term, along with employer-provided coverage and the ill-advised premium tax deductions, which tend to inflate premium levels.

Michael F. Cannon of the CATO Institute calls the BCRA an Obamacare rescue package. John C. Goodman is largely in agreement with Cannon, stating that Republicans have no real desire to repeal Obamacare. Peter Suderman at Reason has many of the same concerns. In addition to community rating, Cannan (and Senator Rand Paul) are unhappy that Medicaid spending continues to grow under the bill with a new program of subsidies (tax credits) to boot! They also condemn the so-called “stabilization” or “cost-sharing” subsidies that would be paid to insurers under the bill. While a broader range of plans would become available, there is little confidence that insurers will be able to  bring down premiums and/or deductibles substantially without the added subsidies.

Avik Roy has defended the Senate bill for its proposed reforms to Medicaid, replacement of Obama’s Medicaid expansion with tax credits for private coverage, and transitional tax credits to smooth jumps in premium levels as income rises from low levels. This is an improvement over the House bill. However, marginal tax rates would be high under the BCRA for individuals in the range of income over which the credits phase out, which is a legitimate “welfare trap” criticism.

David Harsanyi also believes the bill is a good start:

If Republican leadership had told conservatives in 2013 that they could pass a bill that would eliminate the individual and employer mandates, phase out Obamacare’s Medicaid expansion, cut an array of taxes, and lay out the conditions for full repeal later, I imagine most would have said ‘Sign me up!’

Naturally, most critics of Obamacare have strong misgivings about a bill that would leave major components of the ACA’s structure in place. That includes Obamacare’s regulation of health care delivery itself, not just health insurance coverage. The BCRA might incorporate signifiant changes before it goes to a vote, however. One can only hope! Rand Paul has suggested breaking the bill into two parts: repeal of the ACA and other spending provisions, though it’s not clear how a repeal bill would qualify under the Byrd rule. Either way, the GOP intends to follow-up with additional health care legislation and administrative changes. Were a bill enacted soon, there is some chance that additional legislation could garner limited bi-partisan support. Long-term stability of the health insurance and health care markets would be better-served by a stronger semblance of political equilibrium than we have seen in the years since Obama was elected.