The sum of the GOP plan is to take everything that is bad about Obamacare — taxes, regulations, subsidies, and mandates — and leave the critical structure in place, albeit with some policy tweaks around the edges. Worse, even those tweaks don’t occur for another three years. Thus, absent a provision freezing all new enrollment in the comatose exchanges and in Medicaid expansion, a provision not mentioned in the current draft, states will have a perverse incentive to flood the rolls of Obamacare before the minor cuts and restructuring takes place.
The result of the GOP plan is that prices will not come down, choice and competition will not expand in a meaningful way, and the stress on the budget will not be relieved. Meanwhile, the perception will be that Obamacare was repealed and Republicans will then own this disastrous outcome. Stupid is as stupid does.
While GOP leaders have officially announced that this trial balloon is dead, it is instructive to understand the framework with which they are working. At its core, they have incorrigibly adopted the premise of the Left by focusing on enrollment numbers instead of reducing costs and fostering more choice, competition, and innovation. As such, absent a major change, any future plan will be built upon the same premise with the following similar outcomes:
1. Leaves the insanely constricted exchanges and regulatory state intact
The main problem with Obamacare (and health care in general, even before Obamacare) is that it places actuarially insolvent regulations on the insurance industry. By forcing them to cover anyone under any circumstance (guaranteed issue) and for the same price as the broader community (community rating), and offering plans only through the prism of very narrowly tailored “market places” (platinum, gold, silver, and bronze “actuarial values”), the entire concept of insurance has been stripped from the industry. Hence the death spiral of unsustainable price hikes, lack of choices, competition, innovation, and cost consciousness.
The GOP “replacement” never repeals this officious structure. It leaves the basic structure in place and affords insurers slightly more flexibility within each given regulation. Thus, the 800-pound gorilla in the room — guaranteed issue mixed with community rating, which is responsible for almost all of the premium hikes — is left intact. The age-rating bands (how much insurers can charge older consumers) are expanded a bit but still left in place.
Aside from this being another unconstitutional mandate on the private sector, the result will be disastrous.
Additionally, the mandated benefit packages and enrollment scheduling regulations give states and insurers more flexibility. But the basic structure of federal standards and the entire structure of the exchanges are left in place — all built upon actuarially insolvent regulations. There is no way we will ever experience an “Uber style revolution” in health care under this structure.
Even most of the tweaks are not implemented until 2019. So even the minor decrease in prices that should occur as a result of slightly more flexibility for insurers will not take place for another three years. Meanwhile, the death spiral of unaffordable prices and no options or insurers will continue. The market will be dead by then.
2. Individual and employer mandate bait and switch
The draft plan would repeal the requirement for individuals to purchase — and for employers to provide — health insurance. However, it replaces it with a premium penalty that will be even worse. Insurers will be required to charge customers automatically an extra 30 percent on premiums if they went for more than two months without insurance during the previous year.
Aside from this being another unconstitutional mandate on the private sector, the result will be disastrous. Given that they are retaining most of the regulatory structure — and as such, prices will remain unsustainably high — employers who are now free from the mandate will dump their employees from health care coverage. That in itself will result in a major disruption. But it gets worse.
By maintaining guaranteed issue, healthy individuals will just go without insurance, and then if they get sick, anyone can still demand a policy. It’s worth taking the risk of paying an extra 30 percent when you really need it in exchange for avoiding paying the equivalent of another monthly mortgage for nothing when healthy.
Moreover, the new premium penalty for those gaming the system won’t begin until 2019, but the individual and employer mandates will be repealed immediately. This will further hurt the solvency because, again, the bill would maintain the exchanges and the regulations. Therefore, higher prices mixed with fewer people paying into the system will result in a nightmare scenario.
3. Replaces massive subsidies with … massive subsidies
The draft plan would replace the subsidies with massive refundable tax credits, which are the same as subsidies. The one difference is that the varying rates of subsidization, capped at $14,000 per family, would be based on age in addition to income. Thus the subsidies would be even more complex and would induce even more market-distorting price increases, especially given that this subsidy regime is built on top of tweaking the existing regulatory dumpster fire instead of repealing it.
In addition, this plan would maintain the statutory expansion of Medicaid eligibility to able-bodied adults and only modestly reduce the growth of federal matching funds beginning in 2019 based on the already record-high baseline. Moreover, as noted before, without freezing new enrollment now, it will incentivize states to flood the rolls with more Medicaid patients at the higher payment rate and add more subsidized individuals to the exchanges who stand to lose some funding (especially younger enrollees) under the new system that won’t be enacted until 2019.
4. Backdoor tax increase on employer-based plans
This plan would cap the size of the tax exemption an employer can receive for providing his employees with health insurance. Coupled with keeping the insurance regulations, which will keep prices high, and getting rid of the employer mandate, which will set employers free to not purchase insurance, the cap on the tax exemption will exacerbate the incentive for employers to dump their plans.
To be clear, while conservatives are very much in favor of equal tax treatment and having more people join the individual market, this should not be done from a position of weakness — with tax increases and higher prices. It should be done from a position of strength — by making the private market so attractive with lower costs and portability or by converting the employer tax exemption to an across-the-board business tax cut.
Thus, in summary, this plan would maintain a system of taxes, regulations, mandates, and subsidies. It embodies the classic GOP response to whatever Democrats enact on a given policy. A faint echo instead of a bold choice. Trump would be wise to disavow this plan.