Obamacare Repeal Is Dead. Here Come the Bailouts.

New legislation would convert the health law into a series of flat payments to states.


Ron Sachs—CNP/Sipa USA/Newscom

After nine months of legislative drama, the GOP effort to overhaul Obamacare is dead. Last week President Trump seemed to say as much, tweeting that Republicans should accept defeat on health care and move on to reworking the tax code.

Even if congressional Republicans wanted to take another shot at rewriting the health law, they have little time left, thanks to Senate rules: The reconciliation instructions that would have allowed the bill to pass in the upper chamber with a simple majority expire at the end of the month.

What that means is that, even if they have not quite admitted it yet, Republicans have accepted that Obamacare is here to stay, whether they like it or not. Now they question is what comes next.

The simple answer is that Republicans don't know. There is no consensus plan about where to go from here, as a report from Vox's Dylan Scott makes clear. In many ways, this is just an extension of the original failure: Republicans never had a consensus plan on what to do with Obamacare, and in the wake of the failure of that non-plan, they still have not developed one.

But in the short term at least, there are some possibilities. One is that Republicans will work with Democrats to prop up the health insurance exchanges erected under the health care law. Health insurers are continuing to pull out of those exchanges, with insurers announcing last week that they would scale back operations in Virginia and Kentucky. The Senate, in turn, has already begun to hold hearings about how to stabilize the government-run marketplaces, and Senate Majority Mitch McConnell suggested over the summer that should the repeal effort fail, the fallback plan for congressional Republicans would be to work across the aisle to make sure the exchanges don't collapse.

Republicans, in other words, could pivot from attempting to take down the health care law to attempting to save it at taxpayer expense. Although some of the stabilization plans that have been discussed are temporary, temporary patches often have a way of becoming unofficially permanent. One potential and even likely outcome of this approach would be a recurring series of temporary bailouts, in which the exchanges are always teetering on the brink, and stabilization funding is always about to expire, and Congress comes together each year to ask what can be done and then decides to merely extend the funding for another year. This is the path of least resistance, the one that asks nothing of Republicans except a willingness to spend on Obamacare rather than attempt to solve its problems.

Another, more interesting, possibility is that Republicans will pursue one last legislative vehicle to overhaul the health care law.

Today, Sens. Lindsey Graham (R-S.C.) and Bill Cassidy (R-La.) are expected to release draft legislation that would essentially convert Obamacare into a system of block grants to states. Sen. John McCain (R-Ariz.), who helped kill the last GOP health care legislation in a dramatic late night vote in July, has already said he is willing to support it. Like previous GOP health care legislation, the new plan would eliminate Obamacare's individual mandate but maintain its rules requiring insurers to cover everyone. It would also eliminate Obamacare's system of health insurance subsidies. Instead, it would take most of the funding now used to pay for Obamacare and allow states to use it as they saw fit, meaning that the subsidies could be retained or altered. The block grants would be constrained from growing, so that a decade from now the total amount would be much less than under Obamacare.

The potential downsides are clear enough: The federal preexisting conditions protections that are the major driver of premium increases would be left in place. The combination of preexisting conditions rules and no coverage mandate would likely cause insurance markets to enter a death spiral. States would not be required to use the block grants to provide aid to the poor, so some of the funding might not be targeted towards the needy. Giving the states more freedom would mean more variation in performance; it is likely that some states would use the money poorly, and that others would simply continue with systems that look rather like Obamacare does now.

The timeline presents obstacles as well. Because of reconciliation rules, the bill would have to be passed by the end of the month, but so far there have been no hearings, and the Congressional Budget Office has not released a score. One of the reasons congressional Republicans have had such difficulty with health care legislation so far this year is their reliance on a rushed and often secretive process. It's not clear that the politics of this plan are better than previous iterations.

Yet as a fallback option, the plan has some appeal as well: Over time, the block grant caps it might help contain the health law's spending growth. States that wanted to keep an individual mandate in place could do so. States would not be required to spend on the poor, but could also use the plan's flexibility to find ways to better target the poor and the needy. The variation in performance would likely mean that some states come out better than they would under the current system, and that those experiments could then be replicated, and perhaps even improved upon, in other states.

There would be no guarantee of success, of course; state level experiments might prove self-serving and ineffective. But the alternative, of lingering instability and endless bailouts, might be worse.

The Cassidy-Graham plan, then, is a recognition, of sorts, that Republicans have failed at the federal level, and that state experimentation may now be the best alternative. It is an imperfect attempt to decentralize control of the law's operations, deferring to local governance and local accountability. And it is best understood as a tacit admission that Obamacare is here to stay, and that congressional Republicans don't know what to do about it.

It would not repeal Obamacare. It does not even offer a specific theory of how to reform Obamacare. But it does offer a theory of how to figure out how to reform Obamacare. And that is more than Republicans have had so far.