Step 1: Cut a Hole in a Box // The Republican Plan to Replace Obamacare
Republicans have two goals for their Obamacare replacement that would seem in conflict. Their first priority is to reduce taxes on the wealthy included in the Affordable Care Act. These taxes are a focus of Paul Ryan’s Better Way plan (they are listed in Figure 2 of Page 10 of that .pdf — this Fact Sheet lists repealing these taxes as one of the features of Ryan’s plan). The importance of this goal is clear from Yuval Levin’s recent article in the National Review. Levin is viewed as a kind of policy svengali by conservatives, so this is not just some random blogger. Here’s the important section, which rounds out Levin’s list of the advantages of the repeal-and-then-replace legislative strategy (rather than both at once):
And third, the idea of a dual-reconciliation strategy was driven by a logic of tax reform. The first reconciliation bill, by eliminating the Obamacare taxes, would lower the revenue baseline against which an eventual Republican tax reform was measured — making deeper tax cuts possible later in the year. And the second reconciliation bill, by providing some tax credits for insurance to lower-income people at the same time it enacted corporate and personal income-tax cuts, would improve the distribution tables of the Republican tax reform, making its benefits less skewed toward higher-income people. Since repeal and replace would take effect at the same time (in two or three years under this hopeful scenario), the effect on health policy would be the same as one bill, but the tax-reform effort would be much aided by splitting them up.
In plain English: Obamacare redistributes from rich to poor, since it taxes the rich and then gives subsidies to the poor. Relative to Obamacare, Ryan’s plan is very regressive — it cuts taxes on the rich and then gives uniform tax credits to all (along with some other tax goodies that mainly benefit the wealthy). If Republicans first erase Obamacare, then replace it with Ryan’s plan, the new tax credits will look good compared to the no-Obamacare baseline (everybody gets them!), and the tax cuts don’t exist anymore (since the new baseline is now no-Obamacare). Not only that, Republicans want to enact more tax cuts (that will surely benefit the rich) — that’s the “deeper tax cuts” — and it’s easier do that if it doesn’t look like they’ve already instituted massively regressive policy in the form of replacing Obamacare with Ryan’s plan. In other words, their legislative strategy is determined, in large part, by how conducive it is to regressive tax policy. For many Republicans, Ryan very much included, reducing taxes on the wealthy is the whole point of repealing Obamacare.
Their second priority, at least putatively, is to maintain Obamacare’s coverage gains. Representative Cathy McMorris Rodgers of Washington, the chairwoman of the House Republican Conference, in the NYT:
No one who has coverage because of Obamacare today will lose that coverage. We’re providing relief. We aren’t going to pull the rug out from anyone.
Trump has also promised “insurance for everybody.”
It would seem that maintaining Obamacare’s coverage gains requires maintaining Obamacare’s revenue gains, which come from the aforementioned tax increases and fee reductions to Medicare, which Ryan’s plan also eliminates.
Ryan’s Better Way plan describes itself thus:
Our plan lower costs by giving you more control and more choices so you can pick the plan that best meets your needs — not Washington’s mandates.
Allow me to translate again. Obamacare’s “individual mandate” requires that everyone get some form of health insurance, or else pay a penalty. The mandate requires defining what counts as “insurance.” Not only that, these regulations reduce the “adverse selection” problem, where young and healthy people buy bare-bones, high-deductible coverage, leaving the comprehensive coverage market to people with high expected health costs, and therefore, high premiums. Ryan’s “more choices” means that these bare bones policies are now fair game. Which means that the adverse selection, which tortured the pre-Obamacare individual market, will be back in action.
So how does Ryan plan to cover people who have high-expected health costs? Two ways.
First, if you have continuous coverage — meaning you never let your health care lapse — then insurance companies cannot discriminate against you. This seems pretty good, but 1) it’s pretty easy to let coverage lapse between jobs or in times of financial hardship 2) this doesn’t solve the adverse selection problem at all. The whole issue is that healthy people demand much different plans than non-healthy people (see this classic paper if you want the supporting theory). The market will eventually break up into minimal policies attractive to healthy people (and Ryan would tout how cheap these policies are as victories over the higher-cost Obamacare policies are) and policies with more coverage that would be attractive only to sicker people, which would be hugely expensive.
If you haven’t had continuous coverage, then you get kicked over to the “high risk pool,” which is Ryan’s other way of cordoning off sick people from healthy people so that the healthy people can pay less for insurance. If you are sick enough to qualify for the high risk pool, then you are sick enough for insurance companies to want a lot of money to pay for your hospital bills. Ryan’s plan proposes subsidizing people in this market to the tune if $25b over the course of 10 years, but this is not nearly enough. The much-smaller (~100,000 people) temporary high-risk pool set up by the ACA was spending that much per year already. In the end, the additional costs will end up being borne by the patients — in the form of high premiums, and massive out-of-pocket costs.
One of the problems in analyzing Obamacare’s impact on health insurance costs is that it changed the nature of health insurance. Comparing policies is difficult — many of the pre-Obamacare, minimal insurance policies (with lifetime and annual limits, for instance) cost less, but they also offered less. Many insurers offset some of the increased costs of the new benefits mandated by Obamacare by shrinking provider networks. How do you control for that?
Ryan’s plan would change the nature of health insurance too — even if it ended up covering roughly the same number of people for less money, the coverage is different. If you’re healthy, and plan on remaining healthy for the rest of your life, it’s a good deal. If you’re not healthy, or ever become not healthy, you’re not nearly as protected.
If you buy Ryan’s spin, then this means you get “more control and more choices to pick the plan that best meets your needs.” But many will just be left with some junk in a box.
