Republican Health Care Reform: Destruction or Refinement?

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With the (surprising) election of Donald Trump as America’s next president I’ve been asked by quite a few folks what this might mean for the Patient Protection and Affordable Care Act, especially as it relates to individual health insurance. It’s been over seven months since I posted anything in this blog (been busy launching a couple of companies), but I thought I’d use this space to provide my perspective on the answer.

For the impatient among you, that answer is: either a complete disaster or some modest fixes that actually improve the ACA. Dramatic, but non-lethal changes, are unlikely.

As for the details: Mr. Trump’s call to repeal and replace the ACA was core to his campaign. His official health care reform platform promised to:

  1. Repeal Obamacare in its entirety.
  2. Permit the sale of health insurance across state lines.
  3. Allow individuals to fully deduct their health insurance premiums.
  4. Promote Health Savings Accounts.
  5. Require all health care providers to publish their pricing.
  6. Provide block-grants to states for Medicaid expenses.
  7. Remove barriers that delay the introduction of new drugs.

Some of these ideas, such as promoting HSAs and increasing pricing transparency, have merit. Some, like enabling carriers to sell across state lines, are nonsensical for several reasons I described in a February LinkedIn post. None, however, offer much solace to the 20+ million consumers in danger of losing their individual coverage if the ACA is repealed. Mr. Trump and his Republican allies in Congress will need to do more.

I hesitate to predict how Mr. Trump will lead as president. He seems to be  a “big picture guy” who leaves details to others. So let’s assume he lets Congress take the lead on repeal and replace. In December 2015, Republicans in Congress passed legislation aimed at gutting the ACA. President Barack Obama vetoed the bill, but its major provisions are instructive:

  1. Repeal the federal government’s authority to run health care exchanges.
  2. Eliminate premium subsidies available to individuals purchasing through the exchange.
  3. Eliminate penalties on individuals for not buying coverage and employers who failed to offer their worker’s health insurance.

Combined with Mr. Trump’s campaign promises, these elements of the Republicans’ repeal and replace legislation, give a glimpse to the starting point of GOP-style health care reform. Add House Speaker Paul Ryan’s call earlier this year for high-risk pools and the hazy outlines of a possible reform package begins to emerge.

Given Mr. Trump’s commitment to start the repeal and replace process on the first day of his administration and Senate Majority Leader Mitch McConnell’s statement yesterday that getting rid of the ACA was “pretty high on our agenda,” health care reform is coming — and soon.

Whether the result will be an outright, actual repeal of President Obama’s signature legislative accomplishment is no sure thing. Supporters of the ACA are already vowing to defend the law. And while Republicans will hold majorities in both chambers of the new Congress, they are a long way from having 60 votes in the Senate. And that’s problematic.

Senate filibuster rules require 60 votes to cut-off debate and allow legislation to come to a vote. This means the most powerful person in Washington on health care reform may not be President Trump, Speaker Ryan, or Senator McConnell, but the Senator needed for that all important 60th vote. Yes, the first through 59th supporters are important, but their support means little if a 60th vote is not found. As a result, the 60th Senator can have a tremendous impact on the final language in the bill simply by offering (implicitly or explicitly) a favorable vote in exchange for whatever is important to that Senator.

In 2017, the 60th Senator for repeal and replace will be a Democrat. A Republican is expected to win Louisiana’s run-off election giving the GOP a 52 seat majority in the upper chamber. Assuming Republicans vote as a block — something they’ve become quite adept at in the past eight years — eight Democratic votes will be needed to end a filibuster. The requests of each of the first seven will need to be considered and addressed, but it’s the demands of the eighth Senator, that 60th vote, that ultimately matters. Unless …

The Senate can temporarily eliminate the possibility of a filibuster against a bill under the rules of budget reconciliation. However, reconciliation bills must address the federal budget; a vague definition that Congress has interpreted with varying strictness throughout the years. Clearly, eliminating funding for exchanges, taxes, and monetary penalties impact the budget. Much of the ACA, however, doesn’t. For example, requiring carriers to issue individual policies to all applicants regardless of their health conditions (what’s called “guarantee issue”) has no impact on the budget.

This creates a dangerous, even apocryphal, situation. Just one example: Republicans use the reconciliation process to eliminate penalties paid by consumers who fail to purchase health insurance, but not the guarantee issue requirement. Under this situation, few consumers — especially young, healthy consumers — will likely obtain coverage until they get sick or injured. This adverse selection would be cataclysmic and few, if any carriers, would want to participate in such a market. After all, insurers are in the business of spreading risk across a broad population. Guarantee issue without an obligation to buy coverage guarantees a concentration of risk across a narrow population.

President Trump can significantly impact the Affordable Care Act through Executive Orders, but the risk is the same as a partial repeal through legislation. The ACA is a multi-faceted construct with interlocking pieces. The wrong changes can cause devastating unintended consequences.

Republicans in Congress and President Trump may not care. The ACA has taken on nearly mythic proportions as the symbol of all that is evil with the liberal, big government side of politics. However, doing so would not only be irresponsible, it would risk the wrath of millions of voters tossed out of the individual market. Those votes matter. Keep in mind, Donald Trump’s election was close. He lost the popular vote. His leads in Wisconsin and Michigan add up to a combined total of less than 40,000 (as of today).

Yet failing to repeal Obamacare after making it so central to their 2016 campaigns could be a political disaster as well. Republicans jumped on replace and repeal in 2010 and over the past six years this position helped deliver durable GOP majorities in both houses of Congress. Many in their ranks may not care about the consequences of dismantling the law.

Assuming a desire to address health care reform in a responsible way will require the help of at least eight Senate Democrats. Fortunately for Republicans, ten Democrats have an incentive to responsibly neutralize the ACA issue in 2017. All are up for election in 2018 and hail from red or nearly red states.

  • Senator Tammy Baldwin of Wisconsin
  • Senator Bob Casey, Jr. of  Pennsylvania
  • Senator Joe Donnelly of Indiana
  • Senator Heidi Heitkamp of North Dakota
  • Senator Tim Kaine of Virginia
  • Senator Angus King of Maine (officially an Independent, but he caucuses with Democrats)
  • Senator Joe Manchin of West Virginia (and arguably the most conservative Democrat in the Senate)
  • Senator Claire McCaskill of Missouri.
  • Senator Debbie Stabenow of Michigan
  • Senator Jon Tester of Montana

The important question, then, is not what Republicans want to replace the ACA with, but what will it take to get enough of these Senators to come along? A task that could be extremely difficult if new Senate Minority Leader, Charles Schumer, doesn’t make it politically impossible for many of these Senators to break ranks.

Republican then have two choices:1) go nuclear and gut the ACA through the reconciliation process, but keep in place market reforms like guarantee issue; or 2) pass something palatable to eight Democrats, but which they sell as “repeal” to their base. Clearly the first option is irresponsible, but these are not necessarily responsible times. Nuking the ACA will appeal to many in the party, both in Congress and in their districts.

The more responsible choice, repealing the ACA in name only, makes the law more palatable and workable. This last point is critical: once they repeal and replace the ACA, the GOP will own health care reform. It darn well better be clear by say, October 2018, that the new system is working.

Which result — destruction or refinement — is most likely? We’re in a new and wacky world. We’ll find out soon enough.

10 thoughts on “Republican Health Care Reform: Destruction or Refinement?

  1. If McConnell chooses to eliminate the filibuster for legislation, no Democratic votes would be needed for full repeal in the senate…right?

    • Rick: Yes. The filibuster is a rule of the Senate and the Senate can change their rules. But it’s a dangerous precedent. Republicans turned the filibuster into an art form during the Obama Administration. Given the way pendulums behave in the political world, if the GOP did away with the filibuster they would come to regret it down the road. From what I’ve heard, Senator McConnell is someone who respects the institution. So while it’s possible Republicans could mess with the filibuster, I don’t believe they will.

  2. Great essay Alan, Just what the doctor ordered. What happens to the exchange when the Feds end the subsidy, and will we ever see a better commission again?

    • Thanks for the kind words, Jeff. As for the exchanges, some states may try to keep theirs going, but between executive orders and defunding through reconciliation it’s hard to see the federal exchanges surviving. Plus, the vast majority of those enrolling in either state or federal exchanges are consumers receiving the premium subsidy. Doing away with those will make health insurance unaffordable for millions of Americans.

      As for commissions, it all depends on what happens to the Medical Loss Ratio provisions and market realities. I don’t see how the MLR provision can be eliminated through reconciliation. So, unless eight of the 10 Democrats listed in the post go along with its repeal it’s not going anywhere. And, of course, the nuclear option I discuss above means the individual market is destroyed making commissions irrelevant.

  3. Alan, I appreciate the insights.

    Republican Health Care Reform: Destruction or Refinement?

    Politics aside (if one can even suggest that) the enormous capital driving things like carrier and provider consolidation, big data analytics and coordinated care models as well as transformational technological innovation (including small smart things like wearables) the next wave of healthcare reform is already breaking. What a great time to be a disruptor in a multi-trillion dollar global industry that “wastes” 30% of revenue (or premium). If the future belongs not to the strong but to the adaptable; I’m optimistic!

  4. One aspect of Trump reform/repeal that interests me is the effect on agent commissions if the MLR feature is reversed. My interest is not entirely self-serving or mercenary, but is ethical in nature. When the ACA was first enacted, insurance companies slashed commissions by half, using the MLR feature as their reason. I am not sufficiently versed in how insurance companies calculate what they can ‘afford’ to pay agents, so I will not cast disparaging remarks upon this decision, tempting as it is. What I look forward to (again, if the MLR rule is reversed) is seeing whether or not insurance companies restore commissions by the percentage they were cut.

    On a related note, I was recently surprised to discover that an insurer here in California that just cut agent commissions (again) has a sense of humor, though made dry by years of drought. They ended their commission cutting letter with the statement ‘We appreciate your business and look forward to working with you for a successful 2017’. If they appreciate agents much more there will be no business to appreciate.

    • Thanks Bill. As for commissions ever returning to their former levels, I’m skeptical. California always had among the highest commission rates in the country. Carrier consolidation means carriers are aware of that reality and there’d be a natural tendency to move toward a national average. That’s just the way CFOs think (no offense to any CFOs out there).

      Having said that (and apologies for being the bearer of bad tidings) many agents active in the individual market are convinced commissions are being slashed to discourage sales given the loss of the risk corridors and the losses most carriers are experiencing with their individual business.

      It will be interesting to see if health care reform Republican-style changes this dynamic. As noted in the post, if the GOP goes for the nuclear option (stripping out the premium subsidies and penalties but leaving guarantee issue in place) not only will commission go down, but there will be few, if any, insurers left in the individual market. Being an optimist I assume rationality and prudence will prevail. But in today’s political client, that, unfortunately, is far from guaranteed.

  5. Thank you for this. As a CA broker in the trenches of the IFP OE, I have been grasping for facts to be able to answer mindfully when asked the loaded question – more so as of yesterday. I appreciate you posting this and sharing your thoughts as I respect your outlook.

  6. Thanks, Alan. Great info as always. I am assuming in your section about the bill the GOP proposed in December, 2015 that in #2 you meant eliminating “premium subsidies” on the exchange, not eliminating premiums.

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