(By Frank D. Francone, Centennial Institute)
November 2016 was an historic election—and historians may spend decades figuring out what it meant. But one message from the voters was clear: “Repeal the Affordable Care Act (‘Obamacare’).” The 2016 election followed the 2010 and 2014 midterm elections in which the same clear message was sent by the voters, “Repeal Obamacare.”
Congress and the President have an historic opportunity to do that now. Obamacare can now be repealed with only 51 votes in the Senate (cloture is not required) as part of the 2017 budget reconciliation process. The options being bandied about are: (1) Repeal using reconciliation or (2) Repeal and replace simultaneously—what comprises replace being very poorly defined; or (3) Keep Obamacare but “fix” the objectionable parts piecemeal (for example, repeal the penalty levied by the IRS for not buying health insurance).
Congress should repeal Obamacare as part of the 2017 reconciliation process. If all or part of “replace” can be cobbled together as part of this repeal, so be it. But repeal, either alone or in conjunction with replace must occur—and soon. Compelling political and policy reasons support this conclusion.
The Political Case for Repeal
Repeal. The political calculus is fairly obvious. Voters delivered Republicans the power to repeal. If they fail to do so before the 2018 midterm elections, Republicans should expect very substantial losses in the House and Senate. Democrats understand this math and will do everything in their power to prevent Republicans from delivering on their campaign promise before the midterm elections. Given the Republican’s thin margin in the Senate, reconciliation is the only way repeal can pass before then.
Repeal and Replace. If repeal, for which there is broad public support, is conflated with the “replace” issue, it is likely that nothing will be passed, leaving Obamacare intact. The longer Republicans delay repeal, the harder it will be to repeal.
Fix the Objectionable Parts of Obamacare. The author has read substantial portions of the Affordable Care Act. Bluntly, it is extremely complex and every part relies on the others both textually and in functionality. The popular parts of the bill are major contributors to the deeply unpopular parts (for example, the preexisting conditions provisions contribute in a major way to skyrocketing premiums and deductibles). And, removing the deeply objectionable parts (for example, the mandate and the extremely and unnaturally high premiums for young Americans) would make the ongoing financial meltdown of the health care exchanges faster and more extreme and would push premiums and deductibles for the middle class even higher than their currently unacceptable level. Trying to fix Obamacare piecemeal would be akin to “fixing” the Gordian knot by tugging on few chunks of rope.
More cynically, it is doubtful that the voters who just put one party in charge of all three branches based, in part, on a promise to repeal will accept tinkering with Obamacare as having fulfilled that promise. Bluntly, citizens are ready to believe the worst of their elected representatives and social media is too extensive for elected officials to pretend, successfully, that a tweak here and a jigger there to Obamacare fulfills their promise to repeal.
On the other hand, a clean repeal reverses the pressure in Congress. Passing an alternative system along the lines proposed by President Trump’s nominee for Secretary of Health and Human Services suddenly becomes imperative and the Democrats political calculus also changes. Unable to prevent Republicans from fulfilling their promise to repeal, having a say in the form replacement takes may lure enough minority members to participate so Congress can pass a genuinely bipartisan bill.
While the political calculus points to a clean repeal, so too do fundamental policy reasons. Obamacare is fundamentally flawed because: (1) It is a crushing financial burden on the disenfranchised parts of the middle class; (2) It is fundamentally unfair to young Americans; (3) The mandate is profoundly un-American; and (4) It empowers unelected bureaucrats to dictate deeply divisive moral decisions to unwilling Americans.
Obamacare Is a Crushing Financial Burden on Disenfranchised Middle-Class Americans
Since the 1940’s and until Obamacare, most middle-class Americans received their health insurance through their employer. The system was not perfect but it provided most middle class Americans with reasonably affordable health insurance and reasonably good healthcare. Some of the poor were provided through Medicaid and the elderly through Medicare.
Obamacare changed all that. It is important to recognize Obamacare for what it is—a massive income redistribution program that lands most cruelly on politically disenfranchised portions of the middle class. Obamacare massively expanded Medicaid. So, for example in Colorado, free Medicaid healthcare is available as an entitlement to any resident who makes less than almost twice the poverty level. For those better off than that, government subsidized premiums are available through the healthcare exchanges.
Of course, someone has to pay for the dramatic expansion of health care spending by the poor, near-poor and lower middle class. Some of that is paid for by the tax increases in Obamacare. But a large part is paid for by the American middle class in the form of rapidly rising premiums and skyrocketing deductibles. “The middle class are getting squeezed,” said Larry Levitt, senior vice president at the Kaiser Family Foundation. “They aren’t getting subsidies and these deductibles are hard to afford.”
But the squeeze is only on the politically unprotected parts of the middle class. When speaking with a friend recently about healthcare he said, “My wife works for the government, so we have a great plan with low deductibles and affordable premiums.” Similarly, Obamacare was written so that unions and employees of Google, Facebook, General Electric and other Fortune 500 companies were considerably protected from the more extreme burdens of Obamacare.
But the rest of the middle class has not fared so well – for example, workers at smaller companies, the unemployed, and the self-employed. The promise that we could keep our plan if we liked it turned out to be false. The promise that our premiums would go down by $2,500 a year likewise. Instead, “grandfathered” insurance plans fell by the wayside, forcing individuals without government, union or Fortune 500 protection off their preexisting plan into the exchanges, the individual market, or the small business market—more than two million Americans lost their insurance in 2013 alone. Premiums in those markets have increased rapidly, especially in 2016. HHS has projected additional rate increases for 2017 of 25%. The result: in 2015, 46% of Americans without insurance tried to get coverage but couldn’t afford it.
To add insult to injury, those Americans who could not afford even the least expensive Obamacare policy, the Bronze Plan, are then punished by the IRS for being unable to buy insurance. For a family of three with income under $38,000, the IRS penalty would be $1,895.
On the other hand, Americans who cobble together enough to pay these greatly increased premiums strongly tend to purchase the “bronze plan” insurance. It is the least expensive of the Obamacare plans but has the highest deductible. And high deductibles are the ticking time bomb for unprotected Americans. “For plans with the lowest premium costs, the so-called bronze plans, the average deductible for single coverage is $6,000 annually, while family coverage climbs to more than $12,000.”
Many American families are deferring essential medical expenses because of the high deductible. Worse, few families are able to afford a trip to the emergency room without risking bankruptcy. A recent Federal Reserve study reports that 47% of middle class Americans would NOT be able to pay an unexpected expense of $400 without selling something or borrowing money. One trip to the hospital will likely cost $12,000 out-of-pocket for a bronze plan family. This is a path to collection agencies and bankruptcy for a large part of our nation because that trip to the hospital will happen to almost everyone at some point.
This is not a problem to be fixed with tweaks to portions of Obamacare. The increased premiums and out-of-sight deductibles are a natural and predictable consequence of the entire Obamacare scheme. To fix it, we have to get rid of Obamacare entirely and replace it with a market-based system that will drive health care costs and premiums down.
In deciding whether to repeal, repeal and replace or just fix Obamacare, Our political class should remember that President Trump was just elected in part because of American’s sense that the system is rigged against them. For middle-class Americans who do not have the protection of government or unions, the health care system is unambiguously rigged against them. This gross unfairness must be corrected. Failure to repair it quickly will put many politicians out of office.
Obamacare Unfairly Burdens Young Americans
One of the key decisions in the design of Obamacare was to make young Americans pay a lot more for their insurance so older Americans did not have to. That decision was implemented in the Obamacare 3-1 ratio between older people’s premiums and younger people’s premiums. That costs young Americans, on average, about $1,100 in extra premium costs per year over what they would pay in a free market situation.
Like the politically disenfranchised parts of the middle class, high premiums are causing many millennials to go without insurance. So they pay the IRS penalty for failure to do as their masters in Washington demand.
This problem too cannot be fixed with a simple change to the ratio. That ratio is key to the solvency of the Obamacare Health Care Exchanges. Without overcharging millennials, the exchanges go insolvent even faster than they are now. So fixing the overcharge on millennials requires completely overhauling or eliminating the exchanges. But to do that requires Obamacare as a whole to be repealed. Again, the whole system must be fixed starting with a repeal.
The Obamacare Mandate—the IRS Penalty for not Buying Insurance Is Offensive and Un-American
If you don’t buy an insurance plan acceptable to the department of Health and Human Services, the IRS assesses a penalty against you and collects it as part of your taxes. To make that happen, you are required to file proof with the IRS that you had an acceptable insurance plan every year. The penalty is substantial—often in the thousands of dollars a year. Penalizing Americans for not buying something is offensive and Un-American. There is no difference between the mandate for health insurance and a requirement that all women over 55 buy birth control or face a penalty from the IRS. This is a road America should not go down.
But eliminating the IRS penalty cannot be done in isolation. Eliminate the penalty and you eliminate an incentive for healthy people to buy overpriced insurance (this was one of the goals of the penalty). If healthy people aren’t forced to buy insurance, the health care exchanges are left insuring older, unhealthy people. Premiums and deductibles continue to climb as the actuarial risk of the remaining older and unhealthier population in the exchange increases and a financial death spiral in the exchanges destroys the entire Obamacare system.
So the mandate—the IRS Penalty—cannot be isolated and fixed without repealing all of Obamacare.
Obamacare Gives too much Power to Unelected Bureaucrats
In the enabling act, Congress gave the Secretary of Health and Human Services “discretion” to make up rules about healthcare in over 1,500 places. This power was exercised unwisely in many cases—leading in one case to the spectacle of the Department of Health and Human Services suing elderly nuns (the Little Sisters of the Poor) to force them to pay for contraceptives. Not only is this a ridiculous thing to require, it offends the core religious beliefs of the Little Sisters. While this issue is being litigated, the power remains and will be abused again if not undone.
And again, one cannot solve this excess grant of power by fixing Obamacare piecemeal. Obamacare is itself the excessive grant of power—1,500 times. We could perhaps amend the act to say that elderly nuns cannot be required to buy contraceptives. But if the power remains, we have not fixed the 1,499 sources of mischief remaining for our bureaucratic ruling class to abuse.
The Affordable Care Act – Obamacare – was drafted as one big Gordian knot. Most parts are deeply interrelated with many others. A change in one place creates ripples through the rest in unpredictable ways. Fixing one injustice (e.g. the millennial overcharge or the IRS mandate) breaks the system down financially elsewhere. Keeping a popular provision (preexisting conditions) makes it impossible to sell affordable plans to folks who do not have preexisting conditions. Removing bureaucrat’s discretion to do harm eliminates the discretion needed to keep the system from falling apart. So a piecemeal fix is likely to be worse than Obamacare – but in unexpected ways as this complex system unwinds and breaks down.
The problem we face is the Gordian knot itself – Obamacare – not where or how a particular exposed length of rope on the surface of the knot falls. Pulling on one exposed length of rope or another only makes the knot tighter and more intractable. Alexander’s was the correct solution for Obamacare. Get rid of it with one swift cut. Then work to put the market back into healthcare.