Pacific Research Institute

The Senate Health Care Bill Is Just Obamacare Lite

Fortune

After weeks of closed-door negotiations, the Senate Republican leadership on Thursday released its bid to repeal and replace Obamacare. It’s the product of a 13-member Senate working group.

The bill is a disappointment. It's little more than repeal in name only. And its ideas for replacement are almost indistinguishable from the Obamacare status quo.

The Senate bill—officially known as the Better Care Reconciliation Act—would leave much of Obamacare's architecture in place. The state-based exchanges would stay, as would many of its regulations on insurance. Insurers would still be required to sell coverage to all comers and would not be allowed to charge people more based on their health status or history. They could charge old people five times more than they charge the young—up from Obamacare's three-to-one age-rating ratio.

The new bill also scraps the hated individual mandate requiring people to secure coverage or pay a fine. But it doesn't require consumers to maintain coverage continuously in order to qualify for the regulated age- and community-rated premiums. Young or healthy people would have no incentive to purchase coverage until they became ill. That would leave the insurance pool comprised almost exclusively of sick patients who knew that their medical expenses would exceed whatever they would pay out of pocket in premiums or deductibles. Insurers could not eat those excess costs indefinitely. So they'd raise premiums and deductibles further. Eventually, the individual insurance market would implode.<u1:p></u1:p>

Obamacare's scheme of income-based tax credits subsidizing the purchase of insurance would also survive, albeit with minor tweaks. At present, those with incomes of up to 400% of the poverty level, or $98,400 for a family of four, are eligible for credits. Starting in 2020, the Senate would dial that back to 350% of the poverty level, or $86,100 for a family of four.

The Senate plan would even provide billions of dollars to insurers to cover out-of-pocket expenses for low-income shoppers on the exchange. Never mind that the House sued to stop those payments in 2014, arguing that Congress never formally appropriated them and that they were little more than handouts to the insurance industry. The Senate would explicitly fund them, to the tune of $7 billion a year through 2019.

Then there's the Senate bill’s approach to Medicaid. It would preserve Obamacare's expansion of the program to anyone making up to 138% of the poverty level in the 31 states that opted for it through 2020. After that, the bill would gradually phase out federal funding for the expansion population. Following the three-year extension for those states that expanded, there will be a three-year phase out period. And starting in 2025, it would limit the growth of federal spending on Medicaid to the general inflation rate.

These changes may never take place. If Democrats retake the White House in 2020, their first order of business will be to restore funding for the Medicaid expansion. Even Republicans may be loath to roll it back in an election year. After all, a number of moderate Republican governors and senators have called for preserving the expansion indefinitely.

The Senate's proposal to rein in the growth of Medicaid spending is a good one. But it's eight years—and two presidential elections—away. Every single Senate seat will be up for grabs in that time—33 of them twice. The chances of this reform surviving are slim. 

There are a few other positives within the bill. The mandate requiring employers with more than 50 full-timers to provide coverage would join the individual mandate on the scrap heap. The bill would also end the multi-billion-dollar taxes on health insurance, medical devices, and prescription drugs, all of which raise costs for patients. Meanwhile, it almost doubles the amount that individuals and families can set aside tax-free in a Health Savings Account for routine medical expenses.

Senate Majority Leader Mitch McConnell has promised a quick vote on his bill on Thursday, June 29. If it passes, the House and Senate would need to reconcile their competing bills in a conference committee before sending a unified version to the president for his signature.

But as of today, it looks like McConnell is heading for a humiliating defeat.

Within hours of the bill’s release, four Republican senators—Rand Paul, Ted Cruz, Mike Lee, and Ron Johnson—said that they could not support it in its current form. Several others from across the party's ideological spectrum have reacted tepidly but stopped short of rejecting the bill outright. It will not pass if any more than two Republicans defect.

McConnell and company can only blame themselves for this predicament. Republicans have promised to repeal and replace Obamacare for seven years. This bill doesn't do that.

Any bill that does not fully repeal Obamacare and replace it with market-oriented, patient-centered reforms deserves to be rejected.

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