Compromise and Conceit

After six weeks of waiting and watching the Republicans flail about trying to figure out a way to deliver on their campaign promise to “repeal and replace” Obamacare we have a policy! The Republicans have delivered on their promise to “simultaneously” repeal the law and replace it with something better, wisely choosing not to go down the repeal-now replace-later path that would have made them responsible for two years of madness. Instead they have decided to use the budget reconciliation process to revise the law, pushing their amendments straight into committees without giving anyone a proper chance to assess the law – including the Congressional Budget Office, whose decision on the law is essential in order for it to actually reach the committee stage. Apparently it’s a shocking piece of political cynicism when Democrats push a law through congress before anyone has a chance to read it, even after they spent months hashing out the content in public, but it’s okay for Republicans to push the law straight to the committee stage without any debate or public discussion at all …

Putting aside the dirty politics of the law, the law itself seems to be pretty dirty. Vox has an explainer, but in essence the basic details are:

1. It repeals the mandate, a tax penalty on people who do not take out insurance, and replaces it with a fine applied to the cost of subsequent health insurance. This means that if you drop your plan and don’t take up another one within 63 days you suffer a 30% increase in the cost of your next insurance plan.
2. It replaces Obamacare’s income-based subsidies with age-based subsidies, that are means-tested to disappear above a certain income. These credits are smaller than Obamacare’s and obviously intended to favour the wealthy and Republican voters (younger people are poorer than older people). In combination with the changes to the mandate, these subsidies will push insurance markets into a death spiral (see below) and are vastly more regressive than the Obamacare system (which was far from perfect).
3. It doesn’t undo the Obamacare bans on discrimination against people with pre-existing conditions, but it does relax the rules on higher charges for the elderly, so that insurers can charge the elderly up to 5 times as much as the young
4. It removes regulations on the products insurers can sell, enabling them to again offer insurance which offers no protection against financial catastrophe
5. It retains the Medicaid expansion until 2020, after which it will stop new admissions to medicaid under the expansion rules, basically enabling the Republicans to repeal the Medicaid expansion by stealth and to put off the electoral consequences of the repeal by making sure it doesn’t affect those currently receiving medicaid. The Medicaid expansion probably increased the number of people insured by 10-20 million – this will be reversed slowly over the next 10 years
6. It changes Medicaid funding to block grants for the states, which will mean that states give less funding to Medicaid, further restricting its effectiveness and/or driving more people off Medicaid. It also hands out money to Republican states that did not take the Medicaid expansion, to ensure they are not disadvantaged by their decision not to take the expansion over the past 6 years. Given that this decision was a political decision taken in collaboration with the federal Republican party, and that this decision directly disadvantaged state budgets, the decision to reward these states for their intransigence is breathtakingly cynical
7. It abolishes a range of Obamacare taxes that were crucial to funding Obamacare
8. It delays the so-called “Cadillac tax” (which all health economists agree is a really good policy) until 2025, effectively ensuring that this excellent piece of pro-equity, cost-containing legislation never happens

Aside from the decision to allow young people to stay on their parents’ insurance until the age of 26, there is essentially nothing about this health financing policy that is good. In particular, decisions 1 and 2 are very stupid decisions that will hasten the descent of insurance markets into death spirals. Consider the example of a 26 year old healthy man with no pre-existing conditions who is leaving his parents’ insurance, and is on 150% of the poverty line. This young fellow is not eligible for Medicaid (which is restricted to people earning less than 138% of the federal poverty line) but will get a $2000 subsidy under the new plan. If he does not find himself a plan within 63 days he will be charged 30% extra on the plan he chooses. The internet tells me 150% of the federal poverty line is about $18,000. The average cost of a silver plan for this man would be about $350[1]. Under Obamacare, if this chap didn’t take up insurance he would be faced with a tax penalty every month of his life for the rest of his life until he chose to purchase a plan; but his plan would be subsidized so that he would not be paying much for it, so the difference between the tax penalty and his plan cost would likely be minimal – his decision about whether to take a plan would largely come down to his personal health seeking behavior[2]. In the case of a 26 year old man we can be fairly confident he would choose not to take a plan, but that’s a story for another day. Under the Republican plan, this young man would suffer a 30% penalty on his next plan, for one year. Using Obamacare coverage costs as a guide, he would face a $110 a month penalty for one year, or $1320. Given that this man is healthy with no pre-existing conditions, and can assume that any significant health issues he faces in the next five years will be emergency issues (i.e. being shot) and best handled by free emergency care, he has no special reason to get health coverage. So from his perspective waiting four months with no coverage is no big threat to his health, and saves him more than the fine – and the longer he waits, the more he benefits. The Republican plan actively encourages young, healthy people to avoid taking insurance for as long as possible, because there is a cap on their liabilities that is determined by the price of the insurance they ultimately take. Given that no one in their 20s needs high cost coverage and salaries rise as you get older, a 30% fine is no inducement to take coverage – and the higher this fine gets, the stronger the inducement to delay purchasing coverage. This fine will encourage young people to avoid markets, except for a small group of people who hate taking risks, who will likely already be sick or at risk of getting sick. The healthy will stay away until they are old enough to need coverage – especially if the new deregulation of products enables insurers to remove maternity care from coverage, since maternity care would encourage 30-something women to take insurance.

Furthermore, while the Obamacare mandate returns the penalty for not taking insurance to the tax payer, the Republican plan returns it to the insurer – to use on covering their losses as the death spiral begins. It’s a disaster for insurers and it shows the fundamental silliness of trying to manage a universal health coverage (UHC) system through a classical private market place governed by Republican ideology – these market places rely on a large pool of low risk individuals, but Republican ideology opposes forcing anyone to spend their money in any specified way. So on the one hand you have a classical market demanding a certain pattern of expenditure that can only be guaranteed through government coercion, and a ruling party that fundamentally opposes that coercion, on both moral and practical grounds.

Madness.

It’s worth noting that a lot of right-wing commentators are angry at this new plan, calling it Obamacare lite and objecting to the subsidies and the mandate. Eric Erickson at The Resurgent opposes the mandate and sees the Republican plan as no different, giving a clear example of the fundamental conflict between modern Republicanism and basic health care policy. You can’t have a functioning health insurance system if healthy low-risk people don’t opt in, but they will never have an incentive to opt in if they aren’t forced to. Sensible systems (i.e. all the rest of the developed world) force people to opt in through the tax system, using government coercion to ensure the risk pool works; if you don’t do this you get a shrinking risk pool and sick people preferentially buying in, leading to escalating costs and a death spiral. That Republicans don’t understand this fundamental aspect of health policy makes them as stupid as their orange shitgibbon president, who just noticed that health policy is “unbelievably complicated.” They’ve had 6 years to figure this out, and they still don’t understand a single thing about one of the most crucial aspects of modern policy.

Fortunately, this bill won’t pass – the Freedom Caucus will sink it from the right, and the Medicaid expansion states from the left. The Republicans have had 6 years to sort this shit out, and they have failed in every way. Truly, Americans are uniquely poorly served by their elected representatives!

fn1: My god American health stuff is so complex. In every other developed country you just pay a certain predetermined proportion of your income as part of your tax and get coverage. How in any way is this market-based stuff better?!

fn2: Because under Obamacare costs and subsidies depend on age, sex and location (to the nearest zip code) it’s impossible to give precise numbers to any of these issues. Suffice it to say that in Japan or Australia no one earning $18,000 would have to pay anything resembling $350 for their insurance (or even $35, I suspect). But we don’t even have free access to guns, so don’t listen to us about healthcare policy!