Members of Congress will return on September 5 from their recess. They have a lot on their agenda: reforming the tax code, repairing the nation’s crumbling infrastructure, and raising the debt ceiling.
President Trump wants to add another item to that agenda. He recently implored Congress to “keep its promise, live up to its word, and repeal and replace ObamaCare.”
Sens. Lindsey Graham, R-S.C., Bill Cassidy, R-La., and Dean Heller, R-Nev., have offered up a measure that they say would do just that. Unfortunately, it falls short of true repeal and replace.
Their plan would let states alter some of Obamacare’s provisions but leave significant portions of the law intact. Sen. Cassidy justified the compromises, saying that the plan is “the only game left in town.”
The plan essentially outsources health reform to the states. It would repeal Obamacare’s individual and employer mandates, as well as its income-based subsidies for individuals to purchase health insurance.
To its credit, the Graham-Cassidy-Heller plan takes steps to reform the broken Medicaid program. Obamacare allowed states to expand the program to able-bodied, childless adults earning up to 138% of the poverty line. That is costing the 31 expansion states and D.C. a fortune. Last year, states spent $4.5 billion on the expansion. Next year, they’ll spend nearly double that.
Graham-Cassidy-Heller would phase out the Medicaid expansion starting in 2020. And it would give states per-capita grants for their Medicaid-eligible populations. States would be free to adjust the program to the specific needs of their populations.
But it would preserve Obamacare’s guaranteed issue and community rating mandates, which require insurers to sell policies to all comers at the same rates, with allowances for age, geography, and tobacco use.
Guaranteed issue and community rating are the chief culprits behind Obamacare’s skyrocketing premiums, according to a recent analysis conducted by McKinsey for the Department of Health and Human Services. The plan from Graham and company could drive premiums even higher, as it contains no provision for encouraging people to maintain continuous coverage. That virtually guarantees that the insurance pool will be disproportionately sick — and costly.
In addition, the plan keeps Obamacare’s taxes on health insurance and prescription drugs.
The plan takes funding from these taxes to spend on a new federal welfare block-grant program to the states starting in 2020 at a cost of about $140 billion and steadily increasing to $158 billion in 2026. States would initially provide a 3% match, which would rise to 5% by 2026. The proposal would transfer power to state bureaucrats so they can micromanage health care.
It also implements the Cadillac tax, a 40% tax on high-cost employer-sponsored health plans, in 2025.
Employer-sponsored health benefits should be taxed. The decades-old tax exclusion for health insurance has privileged health spending and accelerated the long-term growth of health costs.
But the Cadillac tax is regressive. Capping the value of health insurance that is exempt from tax is preferable. Under the latter approach, moderate-income people with generous workplace plans would pay tax on the value of anything that exceeded the cap at their marginal tax rate, which is lower than the 40% Cadillac tax. Wealthy people with expensive health insurance would do the same, at their higher marginal tax rates.
Graham-Cassidy-Heller also retains Obamacare’s medical loss ratio rules, which require insurers to spend 80 cents of every individual-market premium dollar on medical care. The rule raises that threshold to 85 cents of every premium dollar in the large-group market.
But insurance companies can’t just wish away administrative costs and the need for profits. So the rule has forced companies to hike rates. In Obamacare’s first year, the medical loss ratio was responsible for raising premiums by 2% to 15%, according to the liberal Urban Institute.
Further, the Graham-Cassidy-Heller plan only offers partial regulatory relief. It gives states the option to eliminate Obamacare’s requirement that health plans cover certain essential health benefits. Red states would likely take advantage of this opportunity. But that does nothing to help the millions of Americans in blue states struggling with higher health costs and fewer plan choices because of Obamacare.
In liberal New York, exchange plan enrollees face a 14% premium hike next year. Nationwide, 2.4 million Obamacare enrollees will have a “choice” of one insurance provider in 2018.
Republicans shouldn’t settle for Graham-Cassidy-Heller. They need to do what they’ve been promising for seven years — repeal and replace Obamacare with a free-market alternative that empowers doctors and patients.