Democrats Defect from Obamacare

For practically all of the Obama administration, the partisan battle lines over the Affordable Care Act were clear. Democrats love it. Republicans want to kill it. End of story, right?

But at the end of 2016, as President Barack Obama prepared to leave office and the health care law entered another open enrollment period, something unexpected happened: Democrats stopped defending Obamacare. It wasn't despair over the law's fate in the hands of President Trump. The trend began when Hillary Clinton was still the presumptive winner.

In October, Minnesota's Democratic governor, Mark Dayton, complained publicly that although the health law had "many good features," it was "no longer affordable to increasing numbers of people." Around the same time, Democratic House Minority Leader Nancy Pelosi, whose determination to pass health care legislation helped push the bill over the congressional finish line in 2010, was asked on Meet the Press about the high price of health insurance premiums under the law. "Let's see how it works, and let's improve it," was her response. She also noted, as she has before, that what she would really "love" is a single-payer system. Just three years before, as the law's coverage expansion kicked in, she had touted it as a path to "more affordability, more accessibility, better-quality care, prevention, wellness, a healthier nation honoring the vows of our founders of life, a healthier life."

Also in October came complaints from former President Bill Clinton about a provision of the law that provides financial assistance to individuals at between 100 and 400 percent of the poverty line. "The people that are getting killed in this deal are small business people and individuals who make just a little too much to get any of these subsidies," he said at a rally in Michigan. He called the subsidy scheme "crazy" and declared that "it doesn't make sense. The insurance model doesn't work here."

Clinton was stumping for his wife. And Hillary, who just a few years earlier had blasted Republicans as a "noisy minority" engaged in "bad politics" for their opposition to the law, wasn't doing much to defend Obamacare either. In the month prior to Bill's remarks, she had only mentioned the Affordable Care Act once in campaign trail speeches—somewhat unusual given the law's prominence—and then only when Obama was in the room.

After Bill's comments made news, Hillary issued a begrudging follow-up statement. "I've been saying we've got to fix what's broken and keep what works," she said, "and that's exactly what we're going to do."

This was the Democratic presidential nominee's defense of her predecessor's signature achievement, the most expansive and expensive piece of social welfare legislation signed in a quarter century: Keep the parts that work, and fix what isn't working. It was an acknowledgement, as if anyone needed it, that the law was broken and was no longer desirable in its current form.

To be sure, no Democrat would be signing on to any GOP repeal vote in the near future. The Democratic opposition is subtle. But it is real.

More and more, Democrats have stopped defending the actual legislation as it exists on the books and in the real world. Instead, they have started arguing in favor of what might be described as a hypothetical "good parts" version of the law. They defend the idea of Obamacare, of a government-granted guarantee of affordable universal coverage, rather than the whole legislation itself.

Donald Trump's inconsistent and often incoherent opposition to the law—he promised to repeal and replace it with some unspecified alternative—meant that Democrats did not have to respond to detailed Republican attacks on the system. Instead, pressure came from the legislation's real-world failures. From spiking premiums to dwindling plan choice to blatantly illegal payouts, 2016 was the year that Obamacare finally became indefensible.

To understand why Obamacare went so wrong in 2016, you have to understand its history and design. Obamacare was always politically contentious. When debate over the legislation that would become the Affordable Care Act began in 2009, Republicans were unified in their opposition to the law. The public, too, was always wary: For essentially all of the health law's life, more of the public has opposed it than supported it. Committed Democrats were its only basis of support.

The law was challenged repeatedly at the Supreme Court, and though it survived, it did not remain unchanged. In particular, the Court altered Obamacare's expansion of Medicaid, the health program for the poor and disabled jointly funded by the states and the federal government, which was one of the two main ways that the law expanded insurance coverage. After a 2012 Supreme Court challenge, states gained the option to decline to expand Medicaid under the law without risking federal matching funds.

The law's other major mechanism for expanding coverage was a system of subsidies for middle- and lower-middle-class Americans to buy health insurance. That kicked in at the beginning of 2014, but it struggled out of the gate. Most of the online health insurance exchanges—some run by individual states, some managed by the federal government—were essentially unusable for months after they went online in October 2013. Even after they became usable, back-end systems remained incomplete for years, causing headaches for insurers, who had to manually compile and submit information about what subsidies they were owed by the government.

At the same time, it became clear that Obama's repeated promise that anyone who liked their current health care plans and doctors would be able to keep them was false, and that millions of individuals would be forced to drop their coverage and providers. Through an executive action of dubious legality, the Obama administration issued a fix allowing some people to remain on non-compliant plans. But that only raised questions about whether health plan sign-ups in the exchanges would actually hit government projections.

Beyond the questions about total enrollment numbers, there were also questions about the demographic mix of people who would enroll under the law. Obamacare's insurance scheme was reliant on a sufficient percentage of relatively young and healthy adults signing up for coverage. Because these people use less medical treatment, and are thus less expensive to cover, their premiums would balance out the sicker and more expensive enrollees. If the young and healthy didn't sign up, premiums would rise, meaning that at the margins, fewer people would choose to purchase coverage, leading to more premium hikes, even fewer sign-ups, and so on, eventually resulting in what was widely described as a "death spiral."

All of this turmoil set the stage for 2016, a year in which Obamacare seemed to be, if not fully descended into a death spiral, standing on the precipice of one.

As it turned out, enrollments in the exchanges have come in far below initial projections. The Congressional Budget Office (CBO) initially predicted that about 21 million people would be signed up for coverage through the law's exchanges in 2016. In January, the nonpartisan budget office slashed the estimate to about 13 million. In March, it fell to 12 million. That same month, the Centers for Medicare and Medicaid Services (CMS), the federal agency that oversees the law, announced that it expected an "effectuated enrollment"—that is, people who have not only signed up for coverage but are up to date on their payments—of just 10 million for the year.

So it was little surprise when health insurers, who had entered the Obamacare business in hopes of finding a large new customer base, eventually began looking for the exits.

At the end of 2015, UnitedHealth, one of the nation's largest health insurance companies, said on an earnings call that it was likely to scale back its presence in the exchanges the following year. The decision, an executive explained, was driven by about $425 million in expected losses on individual exchange products. Part of the reason for the losses was that the people who had signed up were far sicker, and more expensive to cover, than expected. And while the administration had repeatedly promised that those numbers would improve over time, UnitedHealth saw no indication that the trends were changing.

In April, the company made its decision official, announcing that it would cease selling Obamacare plans in most states. Loss projections, the company said, had grown to about $650 million. Nearly 800,000 people covered by the company's Obamacare insurance would be left to find new plans.

The law's defenders downplayed the move, noting that UnitedHealth had entered the exchanges late and was not ultimately a major player. "We have full confidence—based on data—that the marketplaces will continue to thrive for years ahead," a spokesperson for the Department of Health and Human Services said at the time.

But UnitedHealth's exit was just the beginning. In July, citing losses of $1 billion, Humana said that it would scale back from selling plans in 1,351 counties across 19 states to offering Obamacare coverage in just 156 counties in 11 states. In August, another major U.S. insurer, Aetna, announced that it too would scale back its participation, ceasing to sell in 11 of the 15 states where it had operated.

Around the same time, several of the co-ops—a series of smaller, state-based nonprofit insurers set up using government-backed loans under the law—announced that they would be closing up shop at the end of 2016. Most of the co-ops had struggled from the outset; by the fall of 2016, just seven of the 23 created under the law remained open for business. They too cited operating losses and a sicker-than-expected population.

As insurers bolted from the market, plan choice dwindled—and premiums skyrocketed. The law's problems were particularly acute in Tennessee. In September, BlueCross BlueShield of Tennessee (BCBST) said that it would leave the state's largest markets, Nashville, Knoxville, and Memphis, leaving 130,000 customers to find new plans. BCBST had already requested and won permission for an average 62 percent rate hike in the state; the company expected a $500 million loss in 2017. Two other insurers operating there, Cigna and Humana, had requested rate hikes of 23 and 29 percent, respectively, but had been allowed to refile at even higher rates—46 and 44 percent. The state's insurance commissioner allowed the move out of fear of a mass exit of insurers, warning that the state's Obamacare exchange was "very near collapse."

As it was, BCBST's partial exit left many without much choice of plans. According to The Tennessean, 72 of the state's 95 counties will be served by just one carrier in 2017.

Nationally, the number of insurance plans available in the exchanges was also dropping dramatically. About a third of the country's counties would be served by just one insurer in 2017, according to an estimate by Avalere, a health policy consultancy. In Arizona, one county very nearly ended up with no insurer providing exchange coverage at all. Only after receiving approval on a 51 percent premium hike did Blue Cross Blue Shield of Arizona agree to sell Obamacare plans in the county. The company agreed to sell there even while facing substantial losses in its overall Obamacare business, and urging policy makers to stabilize the market—making it clear that it couldn't sustain such losses for long.

As it turned out, exchange enrollments have come in far below initial projections. Obamacare in 2016 seemed to be, if not fully descended into a death spiral, standing on the precipice of one.

This is the fundamental problem for insurers, and for the law: Not enough people are signed up. More specifically, not enough healthy people are signed up. Virtually every insurer that has pulled back from the law has cited losses stemming from a sicker and more expensive than expected exchange population. That means insurers have to raise premiums to cover costs.

More than a year after UnitedHealth's earnings call, there is little reason to believe that the situation will improve. In October, the financial analysis firm S&P Global forecast that overall Obamacare enrollment was likely to stagnate in 2017. And more insurers look ready to ditch their Obamacare business. In November, as the exchanges opened for business, Anthem—which sells Blue Cross Blue Shield plans in 14 states—said that "overall the financial performance in individual ACA compliant products has been disappointing." The company hinted that it might follow its competitors and pull back next year. "If we do not see clear evidence of an improving environment and a path towards sustainability in the marketplace, we will likely modify our strategy in 2018," Anthem Chief Executive Officer Joseph Swedish said on an earnings call. If Anthem does back away, it would mean that all of the major national health insurers had substantially scaled back their business.

Obamacare was sold as a market-driven system in which private insurers would compete for business. But the business—regulated, managed, and designed by the federal government—was never as good as promised. The customers didn't show up, and now the insurers are on their way out too.

The slow meltdown of the exchanges happened against a backdrop of other problems. An August CMS report found that the cost of the Medicaid expansion was about 50 percent higher than expected on a per-capita basis, coming in at just over $6,300 per person—meaning that the Medicaid portion of the law is much more expensive for the federal government, which pays the full cost of the Medicaid expansion up front and 90 percent in later years.

Legal challenges remained too. In September the Government Accountability Office issued a report finding that the Obama administration had been wrongfully making payments to health insurers via its reinsurance program, which Republicans in Congress had been investigating. In a separate case, a federal judge ruled in May that the Obama administration had been illegally reimbursing health insurers under the law's cost-sharing program, which provides additional subsidies to individuals between 100 percent and 250 percent of the poverty line. The administration, in other words, was still trying to prop up Obamacare illicitly.

In its final days, the Obama administration was pushed into admitting some of the law's struggles. In October, newly released data forced the White House to admit that premiums for "benchmark" health insurance plans in the exchanges—a kind of typical plan on which the law's subsidies are based—would go up about 25 percent on average.

Administration officials attempted to downplay the news, arguing that about three quarters of customers would be insulated from the hikes because the subsidies would increase along with the cost of the premiums. But that means the overall cost of the law to the public will be higher. The administration also justified the increases by noting that premiums, which had initially come in somewhat lower than CBO projections, were merely rising to be closer to what was initially projected. But that's hardly a comfort to the individuals affected by the hikes, most of whom were probably not basing their expectations on CBO projections. And it ignores the limited choice and skimpy quality of the plans on offer. As Mercatus Center health policy scholar Brian Blase noted in October, Obamacare exchanges tend to have "extremely high deductible policies with very narrow provider networks," which means they "are generally lower quality than CBO expected when the law passed."

One administration official simply shrugged off the increases by saying that the initial rates had been too low. "The reality is, I think in many markets the rate increases are just needed," acting CMS administrator Andy Slavitt told the Association of Health Care Journalists in October. In a September op-ed published as many of the premium hikes were starting to become public, Health and Human Services Secretary Sylvia Matthews Burwell euphemistically described 2017 as a "transition year" for the law, suggesting, with more hope than evidence, that this would be a one-time shift.

Even Obama seemed to treat Obamacare more as a policy foundation than as something complete and functional unto itself. Its successes were real, he insisted, but "that doesn't mean that it's perfect. No law is."

As the election neared, it was left to Obama himself to mount a full-throated defense of the law that bears his name. On the eve of the election, he delivered an extended speech praising it for providing millions of people with health insurance coverage, for reducing health care cost inflation to its lowest level in years, and for making health coverage available to those with pre-existing conditions.

"Because of this law," he said, "because of Obamacare, another 20 million Americans now know the financial security of health insurance…Never in American history has the uninsured rate been lower than it is today. Never."

But even Obama seemed to treat Obamacare more as a policy foundation than as something complete and functional unto itself. Its successes were real, he insisted, but "that doesn't mean that it's perfect. No law is." He tempered his praise by framing the end of his speech as a question about how to address the system's "growing pains."

That, in itself, represented a failure for both the president and the law. Speaking about universal health care in 2009, as the Affordable Care Act struggled to make its way through Congress, Obama declared, "I am not the first president to take up this cause, but I am determined to be the last." The election of Donald Trump all but ensured that he would not be.

As Obamacare continued to show signs of strain, the public remained firmly divided over the system's merits, which was itself a problem. Democrats had enacted the law without clear public support and over the strenuous objections of the opposing party, and the political dynamic had changed little in the ensuing years. Frustration over the law's failures, which Donald Trump bashed repeatedly on the campaign trail, almost certainly contributed to the surprise GOP sweep in November's election. Its ultimate fate would be left up to a political party that opposes it.

In the weeks after the election, Republicans declared that they would tackle the health law immediately after Trump assumed the White House in 2017. Vice President–elect Mike Pence said in November that Trump "wants to focus out of the gate on repealing Obamacare and beginning the process of replacing Obamacare with the kind of free market solutions that he campaigned on." Speaker of the House Paul Ryan suggested that Republicans might go even further by overhauling Medicare as well. And Trump named Georgia Republican Tom Price, a staunch critic of Obamacare and the author of one of the most detailed legislative plans to repeal and replace the law, to head the Department of Health and Human Services, signaling the administration's strong opposition to the law.

But just as quickly, it became clear that repealing Obamacare would be difficult, as both a political matter and a legislative process—and replacing it might be even tougher. Republicans lacked the 60 votes in the Senate necessary to defeat a filibuster, meaning that the law could not be repealed in its entirety. (Ending the filibuster remained a possibility, but several GOP senators expressed wariness about doing so.) Instead, Republicans would be left using a complex legislative process known as reconciliation, which can only be used on measures that affect the federal budget. This maneuver would allow them to strip out many of the law's core components, including its subsidies for private insurance, but might leave some of its coverage regulations in place, depending on judgment calls by the Senate parliamentarian (although some critics of the law argue that reconciliation could be used to repeal those regulations too).

Nor was it clear that Republicans truly had the appetite to repeal the entire law. Several GOP legislators said that a provision allowing dependents up to age 26 to stay on their parents' plans would almost certainly be kept. In anonymous interviews, GOP aides suggested that the Medicaid expansion, responsible for much of the law's coverage gains, might also stay in place. And any major rollback that did occur would almost certainly be delayed for a year or two while Republicans tried to put a replacement plan together.

Down-and-out Democrats find themselves sticking up for Obamacare in name only. At the same time, Republicans rail against the law while quietly considering the merits of maintaining many of its core components.

Even with more time to figure things out, a Republican replacement might not be forthcoming. GOP legislators spent most of the Obama presidency promising that a comprehensive replacement plan was imminent, but they didn't manage to release even an incomplete framework—principles, not policy—until 2016. Sen. Lamar Alexander (R–Tenn.), the chair of the Senate Health, Education, Labor, and Pensions Committee, which would be critical to the development of any real plan, suggested that crafting a detailed alternative would take around six years. Although various Republicans have sketched out some paths forward, the party has failed for years to unite around any one of them. Repeal and delay, then, threatens to turn into delay without repeal.

A Trump administration could act without Congress, hastening the insurance-market meltdown by refusing to fund the illegal payments to insurance companies. But Republicans seemed anxious about taking that approach as well: Days before Thanksgiving, House Republicans filed a motion to delay the lawsuit challenging the legality of the Obama administration's payments.

Trump himself, meanwhile, seemed to waver on his opposition to the law. Although he frequently lambasted Obamacare on the campaign trail, it was never clear that he understood what it did or how it worked, and he never offered a coherent alternative. Nor, despite his running mate's suggestion to the contrary, did the preferences he stated consistently rely on free market principles. On multiple occasions, Trump offered praise for single payer systems; at other points, he seemed to describe provisions that would look a lot like Obamacare.

And so D.C. is trapped in a kind of bipartisan Freaky Friday scenario. Down-and-out Democrats find themselves sticking up for Obamacare in name only, while gesturing vaguely at an ill-defined glorious future. Meanwhile, newly empowered Republicans rail against the law while quietly considering the merits of maintaining many of its core components.

As always, the possibility remains that Trump will change his mind. Just days after he won the election, he met with President Obama, who urged the incoming president to keep significant parts of the health care law in place. After that meeting, Trump said that he would consider doing so.