Conservatives Trapped in the Healthcare Swamp
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No one said draining the swamp would be easy. Once a bureaucratic monstrosity becomes law and distorts normal human choice and rationality, it is hard to break free from the quagmire.

Speaker Paul Ryan and the House of Representatives leadership have offered a “replace Obamacare” plan that has been attacked from every side and is very complex. It is hard to love but bears a close look at what it actually does. The alternative is today’s disintegrating health insurance system.

Obamacare’s tax penalty for individuals and companies not purchasing health insurance is eliminated, with insurers able to add a 30 percent surcharge for claims submitted during lapses before an illness, a big gain for free choice and responsibility. Individuals would be allowed to purchase any plan (other than for abortion and payments to Planned Parenthood are frozen for a year) approved by their state, including low-cost catastrophic-only plans. On the other hand, there is an ambiguous requirement to cover “essential health benefits,” which seems to somewhat undermine these claims.

Obama’s preventive care and other expensive benefits forcing high deductibles would no longer be mandatory. But insurance companies still must absorb the higher cost of those with pre-existing illnesses and of more expensive elderly (although to a less degree) and still could not cap annual or lifetime payouts or remove children from parents’ policies until age 26.

There are tax credits to help pay individual premiums, nominally to people purchasing insurance but apparently actually paid to health insurance companies. The GOP bill would substitute subsidies to the poor with tax credits based on both age and income, phasing out for those earning more than $75,000, with credits limited to $14,000 per family. For those not earning enough income, the tax credits would be “refundable,” that is, subsidized. Maximum contributions to tax deductible health savings accounts are increased from $6,700 to $13,100.

The House plan would eliminate Obama subsidies to insurance companies to cover individual plan losses but substitute federal grants of $100 billion over 10 years to states under a Patient and State Stability Fund to end in 2027. It would assist covering the medically uninsurable, including under state high-risk pools that have historically been the market-friendly alternative rather than having them covered by general insurance with higher premiums for everyone.

It was the joint federal-state Medicaid program for the poor rather than the individual insurance exchanges, however, where most of those under Obamacare received health coverage. Very importantly, the Republican bill would end Medicaid as an open-ended entitlement, substituting federal matching grants based upon current state Medicaid spending levels to transform it into a per-capita formula. The states that increased eligibility for Medicaid from the official poverty level to 138 percent of poverty under Obamacare would continue to receive enhanced funding until 2020 when new beneficiaries would be funded at the lower poverty level. Inflation adjustments would be decreased by a definition originally proposed by President Clinton. The result of these would be an $880 billion reduction in Medicaid spending, an unheard-of 25 percent entitlement reduction below the current CBO cost trend line.

The greatest objection from conservatives has been against refundable tax credits for the poor, calling it a new entitlement. The argument favoring this proposal is this treats individual insurance more like employer-provided insurance, which receives a much higher $3.6 trillion tax subsidy that is not available to those purchasing individual insurance. This employer subsidy is also the justification for expanding the individual savings account tax preferences.

Opponents’ credibility is undermined by the fact that 13 Freedom Caucus Representatives, including chairman Mark Meadows, supported refundable credits in a bill introduced by then-Rep. Tom Price in 2016, and this also appeared in previous GOP-supported bills in 2014 and 2015. Even Ronald Reagan supported an earned income tax credit to favor getting a job rather than receiving a welfare check without working.

The result so far has been division among Republicans and opposition from all Democrats even before details were released. Opponent Senators Rand Paul and Mike Lee and Representatives Jim Jordan, Meadows, and Mark Sanford re-introduced the 2015 bill passed by Congress to repeal Obamacare without replacing it, which Paul himself earlier had opposed and then modified his position into repealing and replacing separately but passing both on the same day.

So everyone really concedes there must be some replacement legislation, especially to move from the House to the Senate — where if changes cannot be adopted under so-called reconciliation, any changes would require 60 votes rather than a simple majority — and voters were promised both repeal and replacement.

The bottom line is that the subsidies are lower than under Obamacare. The official (although not necessarily accurate) Congressional Budget Office estimate is that the bill would cut the budget deficit by $337 billion over a decade, significant even in spendthrift Washington. Taxes would be cut $883 billion and spending by $1.2 trillion. Premiums are estimated to increase for the short term but decrease 10 percent over time.

The political problem is that CBO estimates the number of uninsured would increase by 14 million in 2018 and perhaps 24 million by 2026, mainly as a result of people not purchasing insurance, exercising their freedom when not forced by government. The penalty does not even work today, since 12.7 million claimed an exemption from it and only 6.5 million actually paid the tax fine, so the purported increase of uninsured without it is surely exaggerated.

CBO severely overestimated the numbers who would join Obamacare, and it is hardly more accurate today. It now estimates that 18 million people would be insured through Exchanges in 2018, while there are only 10 million today, an impossible increase, and an immediate overestimate of 8 million in the uninsured population. Four in ten in the CBO estimates of the uninsured under the GOP plan come from lost Medicaid participation, though all the officially (100 percent) poor would still be eligible since it costs them nothing to obtain this $6,000 benefit.

CBO likewise does not count potential increases in coverage as a result of making health insurance less expensive and more attractive, while the Center for Health and Economy estimates a GOP-type plan would actually generate a net increase of a million more individually insured in 2018 and only four million less indigent in Medicaid by 2026, well below CBO.

So what should Congress do? Ideally, frustrated at the end, everyone might just end up accepting what should happen anyway — repeal of Obamacare, a version of Milton Friedman and Charles Murray’s individual health tax credit to offset employer subsidies, Medicaid no longer an entitlement as a true block grant, and all regulation left to the states. But what about now?

The House Budget Committee has just recommended that the Rules Committee modify the bill to meet conservative objections by: limiting eligibility for Medicaid assistance to the officially poor, requiring the able-bodied poor to work to receive Medicaid benefits, and restricting the individual tax credit provisions to “the population they are intended to serve,” which statement was sufficiently ambiguous to assuage moderates, too, including five committee Democrats.

An administration official speaking anonymously said they were also considering an amendment to the bill before floor action to phase out the Medicaid reductions from the current late-2019 to early-2018 and to advance the insurance market reforms from 2020 to 2018. I would also suggest an amendment to strike the “essential health benefits” language as vague, though Secretary Tom Price could probably be trusted to define it narrowly in implementing regulations.

Where should conservatives end up on the House proposal? With these amendments, the bill is an enormous improvement on Obamacare. It cuts significant spending, deficits and taxes; increases consumer freedom; reduces premiums and increases choice; supports the real poor; ends Medicaid as an open-ended entitlement; and turns most of the action to the states where it belongs. That makes the bill worth conservative support, with the realization that further changes can be made later by statute and regulation.

As any bill progresses through Congress, conservatives must trust Sen. Paul and friends to work the best deal on the floor that they can, given the fact that only Republicans will vote for any reform. First, something must get through the House before anything can change.

Secretary Price has learned the power of regulatory change from President Obama. His new head of Medicaid, Seema Verma, has already written to the states saying reasonable premiums and co-pays will be needed to help subsidize the very poorest’s coverage, as she had done as senior Indiana health official. Indeed, as a former Senate counsel, Brian Callahan, has argued, using President Obama’s own legal rationalizations, almost all of Obamacare could be eliminated by regulation alone, a threat that needs to be made manifest.

For better or worse, cleaning the swamp is now the Republican problem, and the GOP must demonstrate success or its congressional majority will disappear. Conservatives must get used to the perils of government control in confronting such quagmires. If some less-than-perfect House Republican health plan is totally defeated, the defenders of the status quo will smell blood in the water and deep six the dramatic budget proposals, reduced taxes and the rest of what President Trump is trying to do.

Obamacare is the first and the most important area of promised reform. In truth, although there is principled opposition on the merits, the major opposition is from moderate and conservative Republicans who fear the political repercussions of reducing subsidies from Obamacare levels. Yet, some pain is inevitable to make things better, at least in the short run, and the alternative of doing nothing is political suicide in the 2018 election.

Without a House bill, the swamps will increase mire and not only conservatives but all Republicans and Americans will be entombed in the morass forever.

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