Republican Stalemate Will Test Whether the ACA Is Indeed Collapsing

Basically, if healthcare costs come down, insurance markets are easier to fix. And theoretical arguments about the role of government and federalism seem a lot less important when less money is at stake.

"Obamacare is collapsing, and we must act decisively to protect all Americans," President Donald Trump has said. We may be about to conduct an involuntary experiment testing whether that's true. Republican plan to repeal and replace the Affordable Care Act appears to have thus far attracted insufficient support from the more conservative wing of the Republican party. The conservative wing likely lacks the support among Democrats or more moderate Republicans to actually vote to repeal Obamacare when doing so would have more than symbolic importance. The result may be "Stalemate+," in which there are mild administrative reforms of the ACA, nothing fundamental occurs. If so, we'll see if supporters of the ACA are right that the bill is just suffering from a "head cold" or whether, as President Trump, House Speaker Paul Ryan and others believe, it has Stage 4 cancer.

The Republicans appear to have painted themselves into a corner. Its successful presidential candidate (and lots of others who dropped by the wayside) ran on a mantra of "repeal and replace." It will break faith with their supporters if they cannot get their act together and come up with a consensus plan to repeal, let alone replace. And yet, the repeal/replace plan known as the American Health Care Act released earlier this week angers conservatives because it perpetuates an entitlement to significant tax credits, appalls deficit hawks because it cuts taxes without seeming to cut expenditures commensurately, worries insurer-types and wonks because its proposals regarding "continuous coverage" may not actually work, and troubles those with an understanding of Washington politics by postponing, possibly into never-never land, the day when Medicaid will actually be substantially reformed, leaving in place for now an expensive system that many regard as dysfunctional. Oh, and it also embarrasses some state governors who, though decrying Washington and big government, do like its supply of plump Medicaid subsidies that keep many of their constituents happy while rescuing them from the challenges of actually paying for healthcare themselves.

Republicans will also have trouble passing in 2017 a "clean repeal" of the sort actually passed by Congress as recently as 2016 (but then vetoed by Barack Obama). Passing a repeal when doing so has more than symbolic value and without a replacement would likely scare millions of Americans who (a) vote and (b) gained health insurance coverage -- albeit often cruddy and/or expensive health insurance coverage -- through that law. Abetted by liberal media members who don't see signs of impending doom, many of them persist in the optimistic view that, left to its own devices, Obamacare will soldier on. Until such time, if ever, that the requisite majority could coalesce around a replacement bill, these displaced individuals might retaliate intensively at the ballot box for the loss of coverage.

Finally, there are other replacement healthcare proposals floating around. This includes the Cassidy Collins compromise proposal -- states get to keep Obamacare if they like it or, if not, get about the same amount of money -- and, just today, a reintroduction of World's Greatest Healthcare Plan of 2017, which, among other things, repeals the individual mandate, employer mandate and income-based tax credits, and instead gives all persons -- including those with health insurance from their employer -- a relatively flat credit with which to buy insurance. But, again, very few Republicans have spoken up for Cassidy Collins and, notwithstanding its braggadocio title, The World's Greatest Healthcare Plan has hitherto not been embraced by large swaths of the Republican party.

The result of disunity in the Republican party, coupled with an uncharitable attitude by most Democrats to anything that might tinker with their erstwhile President's eponymous accomplishment, may result in a stalemate. Former House Speaker John Boehner may have been both churlish and right when he recently admitted, "Republicans never ever agree on healthcare." Until the next election, then, the Republican executive branch may be able to tinker with Obamacare around the edges through regulatory changes, but will be unable to alter the core of that law  --  at least on paper. #Stalemate+.

The problem, however, is that Stalemate+ may not be acceptable to the insurance industry, which has mostly had a miserable experience under the ACA. President Trump may well be right when he claims that Obamacare is collapsing. All the training wheels are now off. The free reinsurance scheme by which American taxpayers propped up/bailed out/subsidized health insurance for those on the Exchange is gone. Risk Corridors, an amazing component of the original ACA designed to insulate health insurers from exactly the thing they are supposed to bear -- risk -- was mortally wounded by legislation in 2015 and 2016 to which President Obama acquiesced. Even had this not happened, however, Risk Corridors would have expired by this year. A federal judge has ruled that federal payment of "cost sharing reduction" subsidies, which form about 10% of Exchange insurer income, is illegal because Congress never actually appropriated any money for the program and this pesky thing known as the Constitution prohibits President Obama (and Trump) from just spending money on whatever they happen to regard as a worthy cause. Maybe, possibly, Republicans, now that they own healthcare, will actually fund cost sharing reductions and cure the problem. Or, maybe not.  But the uncertainty is precisely the problem. It's hard for insurers to set rates in the coming months for 2018 not knowing if 10% of their revenue will ever materialize. All of this explains why the leading lobby group for the health insurance industry, America's Health Insurance Plans, has given the Republican bill a lukewarm reception, and basically asked that additional steps -- all of which cost the federal taxpayer money -- be taken sooner.

Compounding the problem is the truly contradictory behavior of Americans on both sides of the political spectrum. President Trump on the one hand is destabilizing the Exchanges by (a) trash-talking Obamacare and (b) saying he basically is not going to enforce the individual mandate vigorously, which induces at least some healthy people who would not otherwise do so into purchasing health insurance. By doing this, he fosters the argument that it is Republican venality rather than Democratic architectural misdesign that is pushing the ACA into a death spiral. Many liberals, on the other hand, who just don't appear to be able to tolerate the notion that some private insurer somewhere might be able to make a modest profit selling health insurance, appear to be opposing modest regulatory steps taken by the Trump administration to actually stabilize the Exchanges. The new President's HHS has seen massive liberal opposition to proposed regulations forcing people to make purchasing decisions with less knowledge about their health futures the next year and by preventing cat-and-mouse games by those seeking to enroll for insurance in the middle of a year. (Some insurers are also saying that later purchasers are healthier and that cutting them out is counterproductive.) No wonder Humana has joined other insurers in saying they are out of the Obamacare game and even pretty steadfast supporters of Obamacare such as Molina Health have said they have to reconsider. If various members of the Blue Cross family that have collectively lost billions decide they don't want to play anymore, it's pretty much game over for Obamacare.

In a world of Stalemate+, what is going to matter more than political posturing, are the financial books of insurers for 2017. If, on the one hand, insurers are finding that their premium increases last year have finally found an equilibrium, then insistence by Trump (and others) that the ACA is collapsing is going to look not just foolish but as having failed in uttering what they hoped was a self-fulfilling prophecy. A festival of gloating and chest-thumping is likely to help Democrats greatly in their pursuit of other liberal interventions. (Few except the dwindling number of curmudgeonly deficit hawks will express concern that the tax revenues supposed to pay for the ACA will be grossly insufficient to support the subsidies needed to support the high premiums).

On the other hand, if insurers find that, even with an average gross premium increase of more than 20% this past year, they are still losing money on Affordable Care Act individual policies, it's going to be well nigh impossible for them to explain to their shareholders or boards why they continue in the enterprise. Yes, of course, those insurers could raise prices in 2018 to compensate, and, due to the blank check nature of the Affordable Care Act, much of that increase would have to be paid for by the federal government. But individuals would have directly to absorb the increases if, as is the case far more often than ACA opponents often acknowledge, many of them have earnings more than 400% of the federal poverty level and/or make their purchases off the Exchanges. And when a good chunk of these healthier consumers prefer to drop out of the system because the price has gotten just too high, that, my friends, is called an adverse selection death spiral of the sort that no insurer anywhere can survive. Trump and other pessimists will have been proven mostly right.

So, what's the answer? Is this the part where I confess I don't know? I tend to be among those who are pretty gloomy about the future of the ACA left to its own devices. I suspect many insurers will be dropping out and I am deeply troubled about the ever-escalating cost of the program and, basically, its bang for the buck. (If one divides the cost of Obamacare by the number of people helped by Obamacare and compares that to the projected value of that ratio at the time the ACA was passed, the picture is not pretty.) So, continuing unamended Obamacare is not a good answer. The American Health Care Act at this point, however, looks like a political failure, having attracted derision from a broad spectrum of interest groups and those on the left and right.  President Trump is evidently meeting with various people to try and get some support, but it's not as if he has this reservoir of great popularity that he can use to twist arms. And, much as I might like the concept behind Cassidy Collins -- use federal taxing power to help fund healthcare but let the states take great responsibility for its implementation --  it's the kind of bill that won't get traction until enough people acknowledge we've hit bottom and ideologically pure alternatives have been exhausted.

Possibly Stalemate+ will get us to just to skip "Stage 1" of healthcare reform for now. We could, for once, not focus on the convenient villain of insurance companies. Instead, we could move to what President Trump appeared to describe recently as "Stage 2 and 3." Basically, if healthcare costs come down, insurance markets are easier to fix. And theoretical arguments about the role of government and federalism seem a lot less important when less money is at stake. Stalemate+ might catalyze examination of pharmaceutical pricing, medical malpractice, insurer bad faith liability, antitrust enforcement, scope of practice, and infrastructures for patient self-care. Yes, the Republicans will have to abate on their promise to repeal and replace, but if they, along with Democrats, can actually for once bend the true cost of healthcare, few of their constituents may object. And hope that Obamacare doesn't collapse while all this is going on.