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For Congress, the Best Deal on Obamacare May Be No Deal At All

Allowing the health law's insurer subsidies to go unpaid may be the superior outcome for everyone.

Credit Tom Williams/CQ Roll Call/NewscomCredit Tom Williams/CQ Roll Call/NewscomWhat would a compromise deal on health care actually look like? Following President Trump's decision to cut off funding for insurers under Obamacare, lawmakers are struggling to work out a legislative response. The best outcome for everyone may turn out to be doing nothing.

Earlier this month, Trump made the belated decision to stop making a series of subsidy payments to health insurers under Obamacare. The payments, which reimburse insurers for providing mandatory additional benefits to low-income enrollees, were never explicitly appropriated by Congress. As a result, a federal court ruled last year the payments illegal. The Obama administration kept making them anyway, and so, until recently, did the Trump White House.

The court ruled that those payments were illegal because, without an explicit appropriation, making them violated the constitutional separation of powers, which gives Congress the power of the purse. But the payments are called for in the statute of the law, and could be made legally—if Congress gives its consent.

Two legislative proposals would do just that. The first, a bipartisan bill from Sens. Lamar Alexander (R-Tenn.) and Patty Murray (D-Wash.), trades two years of funding for the subsidies, which are known as cost-sharing reduction (CSR) payments, for the possibility of some additional flexibility for states implementing Obamacare.

The bill is being pitched as a stability measure, intended to help keep premiums down in Obamacare's exchanges. Supporters also point to Congressional Budget Office (CBO) reports estimating that, in the long run, paying the subsidies would actually save taxpayers money, because Obamacare's subsidies rise in conjunction with insurance premiums. Keeping premiums down now by subsidizing insurers would reduce the amount of premium subsidies paid over the next decade by almost $200 billion, according to CBO.

The problem with this proposal is that it offers clear benefits to Obamacare's supporters but little obvious upside for critics. The division of benefits is reflected in the support for the proposal: According to Senate Minority Leader Chuck Schumer (D-N.Y.), it has the support of 60 Senators—48 Democrats and just 12 Republicans. Schumer has pushed to bring the proposal to a floor vote, but Majority Leader Mitch McConnell (R-Ky.) has not committed to doing so.

In response, a pair of Republicans, Senate Finance chair Orrin Hatch and House Ways and Means Chair Kevin Brady, released a competing proposal yesterday. It too would fund CSRs, but it would also suspend Obamacare's individual mandate for five years. Unlike Murray-Alexander, it is not an attempt to find common ground with Democrats. It is an attempt to find common ground amongst Republicans, trading the CSR funding that some want to see in exchange for the temporary elimination of the mandate—which would probably become semi-permanent, if it became law.

The Hatch-Brady proposal would also require 60 votes in the Senate to pass, relying mostly on Republicans.* Republicans have repeatedly demonstrated this year that there are not 50 GOP votes for any health care measure, making this a tough lift. So Murray-Alexander, or some lightly modified version of it, is likely to be the only option. McConnell has said he will bring it to a floor vote if President Trump says he will sign it into law, but Trump, as is his wont, has provided extremely mixed signals on what he actually wants from the legislation, suggesting variously that he both supports and opposes it. Trump's actual position on this, as on so many policy questions, remains a mystery, probably even to Trump himself.

The Alexander-Murray bill, as a result, is unlikely to come to the floor by itself. But it may end up attached to some part of the flurry of major legislation Congress is expected to work on in December, thanks to the short-term budget agreement Trump made with Democratic leadership in September.

Even if the Senate were to pass a bill, however, it would likely face some resistance in the House from conservatives. House Speaker Paul Ryan has already said he opposes it. The entire exercise, then, raises—or at least repeats—the question of what a health care compromise would look like.

For the moment, the best answer may simply be the status quo, in which Obamacare continues but without the CSR payments being made. The appeal to both critics of the health law and those who care about constitutional limits is obvious enough: The CSR payments were being made illegally, and have now been cut off, bringing the law into constitutional compliance.

The appeal to Obamacare supporters is that, over time, eliminating the payments is likely to result in greater health coverage under the law. The CBO estimates that, if the CSR payments are not made, about 1 million more people will have coverage after 2020 than otherwise would have.

The reason is because even though premiums will rise, insurers in most states will pack the bulk of the increase onto typical plans—the "silver" tier of coverage under Obamacare. Enrollees will be insulated from these increases, however, because under the law, subsidies rise with the cost of premiums. Although the cut off may result in some initial market turbulence, CBO predicts that over time the subsidies will rise so much that the plans will become more attractive, resulting in more people being covered. (In the process, the deficit will increase too.)

This is not a deal that either side will especially love: On the one hand, it accepts that Obamacare will remain largely in place going forward. (The Trump administration is already detailing its plans for this year's open enrollment period.) On the other hand, it is likely to cause some disruption in the short term, and provides an important signal that neither Congress nor the White House are interested in propping up the law. It does not imply a permanent equilibrium.

Yet it offers limited but clear benefits to both parties going forward in a way that other proposals do not, and is probably the best grounds for a compromise that currently exists. The best health care deal, in other words, may be no deal at all.

*Correction: This post initially stated that Hatch-Brady would need 50 votes to pass. Presuming no changes to the filibuster, it would need 60.

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  • damikesc||

    Given that some of the early info appears that they might include a DACA provision as well --- yeah, Republicans, just shit all over your base and then bemoan why the went for guys you don't like.

    The GOP wouldn't repeal Obamacare, but seem anxious to save it. They ran on ending Obama's illegal immigration policy and then , instead, decide to make it law.

    THIS is why you get Trump.

    I'd rather see no deal than whatever shit Ryan is going to try and dish up.

  • Rhywun||

    I can't wait to see this whole sorry exercise repeated with higher education next time the Dems are in charge.

  • Austrian Anarchy||

    Uncanny how Lamar Alexander came up with a proposal that is indistinguishable from something any old Democrat could cobble together.

    Good thing Haslam decided not to run for Corker's seat, or TN would have identical twin RINOs in the delegation.

  • BYODB||

    Well it took a year or two, but Reason finally appears to agree with me. Jesus.

  • Diane Reynolds (Paul.)||

    For the moment, the best answer may simply be the status quo, in which Obamacare continues but without the CSR payments being made.

    Doesn't this give the Democrats ammunition that Obamacare would be a rousing success if the Republicans hadn't stopped making the illegal payments? Do... I dunno... 'regular folks' and the news media really care about the nuances of separation of power? Obamacare has been in a slow death spiral-- some counties in my state literally having no insurers in the exchanges-- just to give one example. Democrats have essentially admitted that the illegal CSR payments were providing O-Care with the stability it needed. I guess I just don't see the illegality of the payments as something anyone is going to care about.

    to wit.

    Kreidler, a Democrat, blames the rate increases on uncertainty in the health insurance market. Specifically he points to ongoing efforts in the Republican-led Congress to repeal the Affordable Care Act and President Donald Trump's threat to end federal subsidies that help reduce out-of-pocket expenses for people who buy individual health insurance.
  • BYODB||

    HA, so now Democrats care about uncertainty in health insurance markets? After they dropped a nuke on predictability all by themselves? When everyone with even a shred of intelligence saw rate hikes as the only possible outcome of the ACA?

    Yeah. No one cares, they will ultimately get away with it, but it would be great if everyone stopped pretending that we can somehow alter course. Democracy is going to kill the Republic, as predicted, and Republicans are going to do zero things to fix it. Also as predicted.

    Shallow, vapid demagoguery has won the day. Just like it did with Social Security, Medicare, Medicaid, and a long litany of programs that can't possibly succeed but we enact them anyway because people like something for nothing and their chicks for free. Even, or especially, if they don't exist.

  • KennethJohnKelly||

    Your reference is out of date.
    Every county in Washington
    (and the country, for that matter) has at least one insurer selling through its state Exchange.

  • Sevo||

    So O-care has turned over the market to monopolies in many places?
    What a crock of stuff we were handed by that lying piece of shit!

  • Sevo||

    "The best outcome for everyone may turn out to be doing nothing."

    If only Congress were better at this!

  • tlapp||

    "That government is best which governs least."

    Yes I love gridlock.

  • Bubba Jones||

    So, Suderman is learning to love Trump after all?

  • Leo Kovalensky||

    "The best outcome for everyone may turn out to be is Congress doing nothing."

    FTFY

  • NotAnotherSkippy||

    Keeping premiums down now by subsidizing insurers would reduce the amount of premium subsidies paid over the next decade by almost $200 billion, according to CBO.

    You do realize the illogic of this analysis, right? Premiums cover the cost of care plus overhead (including profit). Insurance companies exist because their actuaries do a good job of predicting the costs and then scale up premiums to cover the overhead. The CSR payments do nothing to change that model, they simply change the point at which the checks are written. So the logic suggesting that CSR payments save money is relying on the fact that government checks are magically better than premium checks else the insurance companies are taking in more money for exactly the same level of service. But that would be cronyism/extortion. Huh.

  • magellannh||

    Mr. Suderman's analysis is very close, but he missed the key point. Stopping the CSR subsidies inadvertently makes the premium tax credits significantly more generous for folks buying non-silver plans. More generous to the tune of $200 billion over 10 years.

    Premium tax credits are indexed to the premium for a benchmark silver plan and all silver plan premiums will be increased by 20% or so to make up for the cost of the lost CSR subsidies. (as Mr. Suderman says, this is how most state regulators are handling it)

    The key is that people who get premium tax credits but don't qualify for cost sharing subsidies can use their now inflated premium tax credit to buy a non-silver plan. Premiums on non-silver plans weren't impacted by the CSR issue, so those folks get 20% more subsidy bang for the buck when they apply their now increased premium tax credits to bronze or gold plans.

    This is why the CBO estimates Trump's action results in a $200 billion increase in the deficit and it's the reason the CBO thinks more people will be insured. The increase in premium subsidies folks get when they buy bronze and gold plans means at the margins, more people will choose to buy insurance compared to going without. That's just econ 101. Higher subsidies make gold and bronze premiums appear lower, so consumption will increase.

  • KennethJohnKelly||

    CSRs save money because they keep silver QHP premiums down, which in turn keeps subsidies for non-silver plans down. Higher benchmark silver premiums leads to richer subsidies for most people under 400% of the FPL.

  • Uncle Jay||

    RE: For Congress, the Best Deal on Obamacare May Be No Deal At All
    Allowing the health law's insurer subsidies to go unpaid may be the superior outcome for everyone.

    For Congress, the best deal on Obamacare would be to repeal all of it and deregulate the healthcare industry.

  • Johnimo||

    Amen, Uncle Jay.

    Fat chance of it actually happening, but that would be the best deal for EVERYONE. In a free market, most people would opt for catastrophic event healthcare, paying for the normal stuff on a day to day, visit by visit basis. Cost would come down because the consumers would pay directly and seek out the best bang for their medical care bucks.

    Their are several other changes needed, such as ending the ban on interstate health policy sales, and freeing up the prescription drug business. Also, we should make it as easy as possible for healthcare professionals to enter the US and practice medicine.

  • tlapp||

    Absolutely but the insurers bought off most of the democrats and enough of the republicans to keep that mandate and "essential" service clause. Gruber was correct in calling the supporters of this law "stupid Americans"

  • magellannh||

    Essential benefits requirements are not the cause of Obamacare's high premiums. The controversial benefits don't impact premiums much at all compared to other cost drivers.

    Here are the top three controversial benefits and their premium impact:
    1) Maternity - $12/month
    2) Mental health - $13/month
    3) Preventative - $15/month

    Source: http://bit.ly/2y545wJ

    This extra monthly cost isn't causing Obamacare's crazy high premiums. Sure, you can make an argument that government shouldn't be involved, but you can't make an argument that essential benefits are a significant driver.

    The main driver of high premiums is low participation by healthy people coupled with Obamacare's system of blending expensive and highly subsidized low income people into the same risk pool as less costly unsubsidized people with $5k deductibles.

    People getting CSR subsidies consume 60% more medical care per person than people who don't get any subsidies. This makes sense when you consider that people without subsidies are on the hook for their first $5k or so of spending, so they spend more judiciously than people who get CSR subsidies and can go to the ER or a doctor for free, or nearly for free.

    ACA blends a large number of heavily subsidized expensive people into a risk pool with a small number of higher income folks paying their own way. This guarantees folks paying their own way get badly shafted.

  • Hank Phillips||

    If the Democrat version of socialized medicine can be amended to again ban condoms, diaphragms, birth control pills and pregnancy termination, Republicans will stampede to sign it into law as New and Improved!

  • AngelaM||

    Obamacare critics aren't getting enough out of the proposed compromise. What a shame! The reason the opponents aren't getting much is not some nefarious conspiracy but because the majority of Americans would prefer to keep their insurance and not see their premiums rise into the stratosphere, making insurance impossible to purchase. Yes, by 2026, these problems may even out and some of the people who lost their insurance will get it back. People are not chess pieces. They can't go into hibernation until 2026. They go on living and are subject to all the ills of the flesh. What happens to them while we wait for things to "even out?' Is ideology really that important that we are willing to sacrifice real people to it?

  • Sevo||

    What did you hope to say there? That O-care caused a huge rise in premiums? We all know that.

  • tlapp||

    Yes my plan was cancelled. I'm self employed and had a plan that served my family well. Now pay $3k per year more with higher deductibles. Obamacare raised my costs so full repeal would be better than any compromise. I want my freedom back that was stolen by this POS.

  • Sevo||

    A judge tells the state AGs suing for the illegal O-care subsidies to go pound sand:
    "Judge rejects bid by 18 U.S. states to revive Obamacare subsidies"
    [...]
    "A U.S. judge in California on Wednesday refused to block President Donald Trump's decision to end subsidy payments to health insurers under Obamacare, rejecting a request by Democratic attorneys general from 18 U.S. states.
    U.S. District Judge Vince Chhabria in San Francisco sided with the Trump administration, saying the government does not have to make the payments while litigation over the subsidies unfolds."

    Source: http://us.pressfrom.com/news/u.....subsidies/

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