Monthly Archives: May 2016

An Insight into Division over Administration Authority to Pay Obamacare Subsidies

A federal district judge ruled this month, in a lawsuit brought by House Republicans, that the Obama administration lacks the authority to pay cost-sharing subsidies to health insurers if Congress has not appropriated the funds. Some civil servants in the administration may agree.

The House Ways and Means Committee released a deposition Tuesday of David Fisher, former chief risk officer for the Internal Revenue Service. In it, Mr. Fisher recounts a series of events in late 2013 and early 2014 regarding the source and legality of Obamacare cost-sharing subsidies to insurers. The administration initially argued that the subsidies were subject to the budget sequester. By early 2014, however, it had shifted to the position that the cost-sharing subsidies were not subject to the sequester and could be paid under the appropriation authority for a separate program of premium subsidies created by the Affordable Care Act.

In the deposition, Mr. Fisher describes a January 2014 meeting at the Office of Management and Budget during which OMB staff showed—but did not allow IRS employees to retain—a memo ostensibly giving the federal government legal authority to combine the cost-sharing and premium subsidies. Mr. Fisher said the legal brief lacked a “single, main argument.” It was “almost a commentary on elements that, in total, would draw the conclusion that these payments out of the permanent appropriation would be appropriate.”

Mr. Fisher said he disagreed with OMB’s legal analysis and believed that there was “no clear reference” to an appropriation for the cost-sharing subsidies in the health-care law. He testified that the IRS’s chief financial officer and deputy chief financial officer shared his concerns. IRS Commissioner John Koskinen allowed employees to air those concerns soon after the OMB meeting, he said, but ultimately allowed the payments to proceed. Mr. Fisher testified that it was “a very strong consensus” of people in “fairly senior positions”—then-Attorney General Eric Holder had received a briefing, Mr. Fisher recalled—that the payments should proceed.

There is a notable point in the deposition: “There could be many other people who think this is about health care. To us,” Mr. Fisher said, referring to himself and others who shared his concerns, “this was not about health care.” The issue is abiding by appropriations law, he said, not least because the Anti-Deficiency Act provides criminal penalties for federal employees who spend funds not legally appropriated.

Democrats on the House Ways and Means Committee objected that Mr. Fisher was subpoenaed to testify, with Rep. Sander Levin calling it “another effort by the majority to try to undermine the Affordable Care Act.” Mr. Fisher, though, testified that he views the issue through a different prism.

Shortly before the federal ruling this month, both the House Ways and Means and the Energy and Commerce Committees issued subpoenas for internal documents relating to the cost-sharing subsidies. The panels have sought these documents for 15 months. The internal deliberations and potential conflicts raised by Mr. Fisher’s testimony could be part of the reason the administration has not released all those documents. It appears that there were questions about the legality of the cost-sharing subsidies within as well as outside the Obama administration.

This post was originally published at the Wall Street Journal’s Think Tank blog.

Will Health Insurance Premiums Related to Obamacare Sway Voters?

As candidates in both parties focus on the general election campaign, some Republicans wonder if large premium increases related to the Affordable Care Act could be an “October surprise” that helps propel them to victory in November. The causes of the approaching premium increases vary, but some are rooted in a 2013 Obama administration proposal.

In reporting on premium increases by one Iowa insurer, the Des Moines Register noted that individuals who bought new plans that complied with Affordable Care Act regulations could face premium increases of 38% to 43% next year. “Another 90,000 Wellmark customers who hold older individual insurance plans are expected to face smaller increases, which will be announced in June,” the paper said.

The disparity stems from a policy proposal in late 2013, when HealthCare.gov was not functioning, millions had received insurance cancellation notices, and President Barack Obama was being heavily criticized for pledging, “If you like your health-care plan you can keep it.” The administration allowed states to extend existing plans for one year.

Some states chose not to take this option. Those that implemented it did so for varying lengths of time. After extending the policy twice, the administration said this year that these temporary extensions would expire by the end of 2017.

States that implemented extensions created an actuarial problem for their health-care exchanges, the market where individuals not insured through their employer can buy their own plans. Enrollees seeking the enhanced benefits provided by Obamacare-compliant plans were the most likely to use them, while many people with little need for additional benefits preferred the status quo. In Iowa the problem is particularly acute: 90,000 residents have pre-Obamacare coverage, significantly more than the 55,000 who had signed up on the exchange as of February. By keeping these people, who tend to be healthier than those with ACA plans, out of the exchanges, the “fix” created another problem, laying the groundwork for the larger premium increases for next year.

The issue is more pronounced in Iowa, but other states are affected. This isn’t the only component of Obamacare that could exacerbate premium spikes. One popular feature is that parents can cover their children up to age 26. At the same time, however, this policy point discourages those young people from buying a plan of their own. Enrollment among these “young invincibles” remains well below expectations three years into the exchanges. Data from 2014 had suggested that those young people enrolling in plans were incurring high medical costs—which could also contribute to a trend of premium spikes.

For every action, there is an equal and opposite reaction. Political solutions from years past may materialize in the form of rate hikes this fall–and could generate a distinct reaction among voters on Election Day.

This post was originally published at the Wall Street Journal’s Think Tank blog.

How Hillary Clinton’s Credit for Out-of-Pocket Health Costs Could Backfire

Hillary Clinton said recently that she supports efforts to allow some under 65 to buy into Medicare and suggested that this would help lower health-care costs. A key element of her broader health-care platform could, however, increase them–at a sizable cost to the federal government.

A plan the Clinton campaign unveiled in September would create a refundable tax credit worth as much as $2,500 per individual and $5,000 per family to cover out-of-pocket health-care expenses. The campaign has said that the credit would be “available to insured Americans with qualifying out-of-pocket health expenses in excess of five percent of their income, and who are not eligible for Medicare or claiming existing deductions for medical costs.” This means people eligible for the credit would include not only those who have plans through the Obamacare exchanges but also those insured through their employer. Making the credit refundable could allow individuals with little or no income tax liability to receive a refund from the federal government toward their out-of-pocket health costs.

The potential breadth of this proposal could prove its undoing. For one thing, the most recent Census Bureau survey, published in September, estimates that 175 million Americans are covered by employer plans. That’s nearly 14 times the 12.7 million individuals covered by plans through the Affordable Care Act exchanges. While there have been proposals to increase federal subsidies provides to those enrolled through the ACA exchanges, this is the only plan suggesting new federal subsidies for those with employer coverage.

Extending federal subsidies for out-of-pocket costs incurred by those with employer-provided plans could dramatically remake that market. Companies could opt to increase employee cost-sharing, knowing that workers would recoup some or possibly all of their new costs through the federal program. A Kaiser Family Foundation survey of employer plans last year found that only 19% of workers with single coverage faced a deductible of more than $2,000. The Clinton plan sets the maximum credit for individuals at $2,500. If the federal government provides individuals with high health costs a refundable credit to help subsidize their expenses, employers would have reason to try to offload their costs onto employees—which ultimately could end up costing the U.S. Treasury more.

Details of the Clinton plan are still limited. Should it be implemented, policy makers could attempt to shape or amend the tax credit’s effects. Still, it’s possible that a policy designed to absorb higher health costs would shift them from employers and workers to federal taxpayers. That cost-shifting wouldn’t lower spending–and could increase it. Knowing there is a federal credit might give employees incentive to incur additional expenses to exceed the subsidy threshold. That would mean a credit aimed at mitigating the effects of rising health costs for some families could end up exacerbating the problem on a broader scale.

This post was originally published at the Wall Street Journal’s Think Tank blog.

Is ‘House v. Burwell’ Health Law Case About Statute or the Constitution?

Last Thursday, the Obama administration suffered a legal setback, when a federal judge in Washington ruled that the administration exceeded its authority by paying out cost-sharing subsidies to health insurers under the Affordable Care Act.

The administration will doubtless appeal the case, which was brought by the Republican-led House of Representatives, but whether those appeals succeed may well depend on whether courts view the case as one of statutory interpretation, or one with constitutional implications.

In its briefs in the case, the administration tried to portray House v. Burwell as a successor case to King v. Burwell, another lawsuit surrounding Obamacare subsidy payments, which the Supreme Court decided in June 2015.

In upholding Obamacare subsidies in King v. Burwell, the Supreme Court ruled last year that courts should not interpret conflicting sections of a statute in such a way that would lead to absurd consequences.

In the current case, government attorneys write that the Affordable Care Act statute, which includes an explicit appropriation for subsidized premium payments to insurers, provides enough authority for the administration likewise to disburse a separate program of subsidies to cover discounts for low-income consumers.

The administration attorneys say ending those subsidies would be a similar absurd outcome.

In her decision against the administration, Judge Rosemary Collyer of the U.S. District Court for the District of Columbia disagreed on both counts. Calling House v. Burwell “fundamentally different” from King v. Burwell, she framed the issue as “a failure to appropriate, not a failure in drafting.” Whereas King centered on mutually contradictory language under which “the statute could not function if interpreted literally,” in House the case revolves around the absence of language—namely, lack of a specific appropriation for the cost-sharing subsidies, as required by Article I of the Constitution. And while consequences might result if the House does not provide an explicit appropriation for the cost-sharing subsidies, “that is Congress’ prerogative; the Court cannot override it” by finding an appropriation where it is clear that none exists.

Judge Collyer’s decision last week echoes her procedural ruling last September. In ruling that the House had standing to bring its suit, she dismissed other portions of the House’s original case, relating to the administration’s unilateral delay of Obamacare’s employer mandate. She distinguished any disputes arising from the implementation or interpretation of a statute as quite different from the administration spending funds not appropriated—a constitutional injury worthy of court intervention, to protect the House’s “power of the purse” and separation of powers among the branches.

Such a distinction could prove crucial at the appellate stage. If viewed as a case of two parties differing on the interpretation of a statute, the House could lose its case on standing grounds—and the Supreme Court, having already heard multiple challenges to Obamacare, may decline to consider the case entirely. Conversely, if viewed as the executive exceeding its constitutional prerogatives, the Court of Appeals and Supreme Court may look more kindly on the House’s argument. Both for the political branches and for Obamacare, much hangs in the balance.

This post was originally published at the Wall Street Journal’s Think Tank blog.

The Problem with Health Care Costs: Third Party Payment

Several recent studies have illustrated the root of health care’s cost problem: In most cases, no one person—let alone one organization—bears sole responsibility for paying the bill. Slowing the growth of health costs may well involve changing those financial incentives—but also requires changing the culture that supports the status quo.

Two examples: A paper by University of Pennsylvania researchers found that 2,300 physicians “submitted claims for service codes that would translate into more than 100 hours per week on services” for Medicare beneficiaries alone; 600 doctors submitted claims totaling more than 168 hours per week—alleging to Medicare that they were working more than 24 hours per day, seven days per week. When it comes to drug costs, another researcher noted an interesting discrepancy: While pharmaceutical prices have increased by double-digit margins the past three years, drug prices net of rebates—that is, drug spending after discounts provided from manufacturers to pharmaceutical benefit managers (PBMs), have grown at much slower rates.

In both cases, the opacity of health care finance—individuals and businesses not knowing what things cost, and benefits not getting passed to consumers—results in hidden gains for intermediaries. In the drug scenario, PBMs negotiate rebates with manufacturers—rebates which they may or may not pass on to insurers, and which insurers may or may not ultimately pass on to consumers. Likewise, the Medicare insurance system—in which most seniors pay little-to-nothing out-of-pocket—can encourage some physicians to “up-code” their claims, knowing their patients will not incur any direct financial penalty.

Additional price transparency would help reveal the pricing disparities created by this “middle-man” issue. For instance, a recent Health Affairs article showed wide variations within states for common medical procedures such as ultrasounds. But transparency alone might not change behavior—or could even push it in the wrong direction.

A JAMA study released last week found that, among patients exposed to a price transparency tool, spending actually increased. As an accompanying editorial noted, “If patients are comparing services based on price for which their share of the cost is $0, the use of a price transparency tool may lead directly to patients selecting the higher-cost options given their likely perception that higher price is a proxy for higher quality and the lack of an incentive to price shop.”

Much of the problem with rising health costs stems from system actors—doctors, insurers, employers, and even patients—all believing that they’re spending other people’s money. Fixing that requires changing incentives so that patients can receive financial benefits from acting as smart purchasers of health care. But it also requires changing the culture, such that patients do not automatically equate the most expensive option as “best.”

This post was originally published at the Wall Street Journal’s Think Tank blog.

A Victory for the House — And the Constitution

This afternoon Judge Rosemary Collyer dropped another mess into the Obama administration’s continuing Obamacare quagmire. Her ruling in House of Representatives v. Burwell jeopardizes a major source of funding for health-insurance marketplaces, which were already barely sustainable at best. Perhaps more important, however, it represents a major defeat for the administration’s constant pattern of executive unilateralism by preserving the House’s most important constitutional prerogative, the power of the purse.

The case centers around Obamacare’s cost-sharing subsidies, which provide additional assistance to help low-income individuals pay for things like co-payments and deductibles. While the Obamacare law explicitly appropriated funds to subsidize premiums on insurance exchanges, it did not provide such an appropriation for these cost-sharing subsidies. The Obama administration acknowledged this in 2013, requesting such an appropriation from the House of Representatives. But months later, the administration did an about-face and proceeded to start paying cost-sharing subsidies to insurers. The House viewed this action as a unilateral usurpation of its most important constitutional prerogative — to fund, or refuse to fund, government programs.

Today Judge Collyer unequivocally agreed:

Paying out [cost-sharing subsidies] without an appropriation thus violates the Constitution. Congress authorized reduced cost sharing [in Obamacare] but did not appropriate monies for it, in the [Fiscal Year] 2014 budget or since. Congress is the only source for such an appropriation, and no public money can be spent without one.

In so deciding, Judge Collyer rejected what she called the “extra-textual arguments” put forth by the administration, which claimed that an appropriation in Obamacare for premium subsidies meant that Congress had also appropriated funds for cost-sharing subsidies. In her view, the law creates two separate and distinct programs. An appropriation for cost-sharing subsidies doesn’t exist in Obamacare and hasn’t been included in any other subsequent legislation, and therefore the House has every right to obtain injunctive relief from any further cost-sharing subsidies’ being paid — unless or until Congress enacts such a specific appropriation.

Insurers will take little solace in the fact that Judge Collyer stayed her injunction pending an expected appeal from the administration. At a time when insurance marketplaces already face sustainability issues, her ruling creates another major element of uncertainty. For them, the timing couldn’t be worse, coming one day after the deadline to submit 2017 bids for healthcare.gov offerings. If Judge Collyer’s ruling is upheld on appeal, the policy landscape facing insurers could prove far different than they envisioned when submitting their plans for next year.

But the bigger winner in this case is the Constitution. In attempting to defend the money it was shoveling toward insurers, the administration took positions both dangerous and absurd. In its briefs, the administration’s attorneys argued that because the House did not pass legislation explicitly defunding the cost-sharing subsidies, the administration was permitted to fund them — a contention that would turn the Constitution on its head. Judge Collyer rightly rejected this brazen attempt by the executive to arrogate the spending power to itself.

No doubt the D.C. Court of Appeals, and perhaps the Supreme Court, will weigh in on the topics addressed by House v. Burwell in due course. But while Judge Collyer’s ruling inflicts another defeat on an already wobbly Obamacare regime, it more importantly represents a victory for the separation of powers and the rule of law. That’s an outcome all conservatives can cheer.

This post was originally published at National Review.

For Presidential Candidates, Some Inconvenient Truths on Entitlements

News coverage regarding Hillary Clinton’s proposal to allow individuals under age 65 to buy into Medicare has focused largely on describing how her plan might work, or how it fits into her Democratic primary battle with socialist Bernie Sanders — the left hand trying to imitate what the far left hand is doing. But these political stories mask a more important policy paradigm: While Sanders and Clinton both want to expand Medicare, the program is broke — and neither Sanders, nor Clinton, nor Donald Trump have admitted that inconvenient truth, or have proposed any specific solutions to fix the problem.

Astute readers may note the verb tense in the preceding sentence. It’s not that Medicare will become insolvent in ten or twenty years’ time — it’s practically insolvent now. The program’s Part A (hospital insurance) trust fund lost a whopping $128.7 billion between 2008 and 2014, according to the program’s trustees. The Congressional Budget Office projected earlier this year that the trust dund would become insolvent within the decade.

But in reality, the only thing keeping Medicare afloat at present is the double-counting budget gimmicks created by Obamacare. In the year prior to the law’s enactment, the program’s trustees estimated that the Part A trust fund would become insolvent by 2017 — just a few short months from now. But within months after Obamacare became law, the trustees pushed back their insolvency estimate twelve years, from 2017 to 2029.

The trustees’ estimates notwithstanding, Medicare hasn’t become more solvent under President Obama — far from it. Instead, the Medicare payment reductions and tax increases used to fund Obamacare are simultaneously giving the illusion of improving Medicare’s insolvency. When former Health and Human Services secretary Kathleen Sebelius was asked at a congressional hearing whether those funds were being used “to save Medicare, or#…#to fund health care reform [Obamacare],” Sebelius replied, “Both.”

The Madoff-esque accounting schemes included in Obamacare do not improve Medicare’s solvency one whit. In fact, they undermine the program, because the illusion of solvency has encouraged politicians to ignore Medicare’s financial shortfalls until it’s too late.

And ignore it they have. Sanders has proposed a “Medicare for all” plan that a liberal think tank this week estimated would cost the federal government $32 trillion over ten years. Hillary Clinton has proposed creating another new entitlement — this one a refundable tax credit of up to $5,000 per family to cover out-of-pocket medical expenses, for which many of the 175 million Americans with employer-sponsored coverage could qualify. And Donald Trump has run ads, in states including Pennsylvania, claiming he will “save Social Security and Medicare without cuts.”

But none of them have provided specifics about how they would reform our existing entitlements to prevent a fiscal collapse and preserve them for current seniors and future generations. The collective silence might stem from the fact that Medicare alone faces unfunded obligations of $27.9 trillion over the next 75 years — and that’s after the Obamacare accounting gimmicks that make Medicare’s deficits look smaller on paper. Shortfalls that large will require making tough choices; greater economic growth will make the deficits more manageable, but we can’t grow our way out of a $28 trillion shortfall.

Reaction to Speaker Paul Ryan’s comments about Trump last week has largely focused on the latter’s tone and temperament in his presidential campaign. But if Ryan has stood for anything in Washington, it is fiscal responsibility and entitlement reform. Conversely, by claiming he can “save Social Security and Medicare without cuts,” Trump is effectively signing Republicans up for a $28 trillion tax increase to “save Medicare” — and more besides for Social Security. Little wonder, then, that the Speaker expressed his reluctance to endorse Trump; at their meeting today, they could well address this topic in detail.

Four decades ago, as Britain plunged into its Winter of Discontent, Prime Minister James Callaghan returned from a South American summit and denied any sense of “mounting chaos.” The next day, the Sun’s famous headline shouted “Crisis? What Crisis?” Clinton, Trump, and Sanders should take note. For while the remaining candidates for president seem more interested in creating new entitlements than in making existing ones sustainable, ultimately voters will not look kindly on those who fiddled while our fiscal future burned.

This post was originally published at National Review.

In Britain’s Elections, A Message for Paul Ryan and Donald Trump?

Those surprised that House Speaker Paul Ryan said he is “not ready” yet to support Donald Trump might look at results of the election taking place in Britain as Mr. Ryan spoke on Thursday.

In the U.K.’s first local and regional elections since Jeremy Corbyn became Labour Party leader in September, Labour’s results ranged from mediocre to morose. In its traditional stronghold of Scotland—birthplace of party founder Keir Hardie as well as the last two Labour prime ministers, Tony Blair and Gordon Brown—Labour came in a shocking third, behind the Scottish National Party and the Conservative Party. The Labour candidate won the London mayor’s race, but results in England were a net loss of seats to Prime Minister David Cameron’s Conservative Party.

Generally parties out of power pick up seats in “off-year” elections, whether in the U.S. or in the U.K. (The Labour Party last lost seats in midterm local elections in 1985, The Wall Street Journal noted.) The results will intensify focus on Mr. Corbyn’s leadership, a tenure that has been controversial at times and sparked unhappiness among some Labour members of Parliament.

Mr. Corbyn, an avowed socialist, has an unorthodox style that, while greatly differing from Donald Trump in substance, has its own vocal fans and critics. Some of Mr. Corbyn’s off-the-cuff comments on policy issues have sparked criticism outside and within his party: He pledged last fall to cut back on using military force and opposes nuclear weapons. He was heavily criticized over a recent intraparty battle about anti-Semitism that raised fears he had alienated potential donors and voters. Mr. Corbyn’s appearance and manners, what many consider the optics of party leadership, have also spurred debate.

Last year one of the members of Parliament who nominated Mr. Corbyn to compete for party leader told the BBC that “At no point did I intend to vote for Jeremy myself–nice as he is–nor advise anyone else to do it. … We were being urged as MPs to have a field of candidates.” A politics professor at the University of Nottingham was less subtle, calling Mr. Corbyn’s election as party leader “an act of stupidity unparalleled since Caligula appointed his horse to the Roman Senate.”

In Washington, Paul Ryan faces a situation not unfamiliar to some in Britain’s Parliament: a party leader with whom some members do not agree–in the case of Mr. Corbyn, one with whom some have said they will not serve–and someone who they fear would lead them to electoral defeat. Labour experienced losses this week, but Mr. Corbyn’s position as leader is unchanged. After Mr. Ryan said Thursday that the onus is on Mr. Trump to bring the party together, Mr. Trump fired back that he had won the Republican Party with millions of votes. The two are scheduled to meet next week. When it comes to the split between the Republican establishment and “tea party” lane, it’s not clear which faction will win out, or how they might ultimately move forward together. Mr. Ryan has incentive to maintain his independence—not least to try and protect his members.

This post was originally published at the Wall Street Journal’s Think Tank blog.

What if the Next President Cuts Off Obamacare Subsidies for Insurers?

Humana’s announcement Wednesday that it is considering raising premiums and changing or eliminating plans makes it only the latest insurer to say it might scale back involvement on the Affordable Care Act exchanges next year. Here’s the $9 billion question those insurers that remain on the ACA marketplaces ought to consider: What happens if Donald Trump is elected–and cuts off their access to Obamacare cost-sharing subsidies?

Subsidies related to the 2010 health-care law aim to help reduce co-payments and deductibles for low-income individuals who meet certain criteria. House Republicans challenged the subsidies in court in late 2014, arguing that because the text of the Affordable Care Act does not include a specific appropriation for the subsidies, the executive branch cannot spend money Congress never disbursed. The Obama administration has counterargued that a separate program subsidizing health insurance premiums gives it the necessary authority to spend funds on the cost-sharing subsidies. A ruling from U.S. District Judge Rosemary Collyer could come at any time.

But let’s consider an outcome not tied to a federal court ruling. The next president could easily wade into this issue. Say a Republican is elected and he opts to stop the Treasury making payments related to the subsidies absent an express appropriation from Congress (the remedy the House has requested in court). Such an action could take effect almost immediately, without the notice-and-comment period required for most regulatory rulemaking. The Congressional Research Service noted in a May 2013 memo on the budget sequester that should the cost-sharing subsidies be affected–so, reduced or halted–“Insurers presumably will still have to provide required coverage to qualifying enrollees, but they will not receive the full subsidy to cover their increased costs.”

In other words, whether or not the federal government is helping to make up the difference, insurers still must lower costs for certain enrollees. It’s a consideration as carriers submit their bids for next year that come January 2017, the policy landscape for insurers could look far different.

There are sizeable sums at stake. The Congressional Budget Office forecasts that spending on cost-sharing subsidies will total $9 billion in the fiscal year ending Sept. 30, 2017, and $45 billion over the four fiscal years of the next administration. These sums dwarf the amounts insurers lost on Obamacare plans in 2014$4 billion by one estimate–and the $1.1 billion in losses incurred just by UnitedHealth Group, the nation’s largest insurer, in 2015 and 2016.

Insurers seeking to sell coverage through the federally run exchanges must submit their bids by next Wednesday. Many are weighing the cost of participating in the exchanges and the potential for change. Some may assume that Mr. Trump’s rhetoric about his knowledge of business concerns and about not being beholden to special interests would make him an ally of business as president. But the House Republican leadership has said these health-coverage subsidies are unconstitutional. It’s not clear whether Mr. Trump would allow Obamacare subsidies to be paid, which could greatly impact insurers’ bottom lines. Any outcome could have major repercussions.

This post was originally published at the Wall Street Journal’s Think Tank blog.

The Republican Party Split That Donald Trump’s Nomination Won’t Resolve

The general election campaign has not begun, but preliminary polling suggests that Donald Trump is a decided underdog against Hillary Clinton. For the Republican Party, there is an issue beyond the Election Day outcome–and one that, at least right now, looks unlikely to be resolved no matter who wins in November.

More so than reports of John Kasich suspending his campaign, it was Sen. Ted Cruz‘s withdrawal from the Republican primary race Tuesday night that sparked reactions from Republicans ranging from begrudging acceptance to continued hostility. Mr. Trump’s ascendance illustrates a split within the Republican Party, between the “establishment” and the “tea party” lanes, that has been widening for years. It is likely to persist, as both factions disagree on the elements that led to Mr. Trump’s meteoric rise.

A core point in the internal GOP dispute is whether political confrontation or ideological conservatism most motivates voters, including the party’s base. Steve Schmidt, a consultant to John McCain‘s presidential campaign in 2008, said on MSNBC Tuesday night that Mr. Trump’s rise was fueled by voter frustration stoked by the tea-party wing. He and other establishment figures view anger as a poor substitute for substantive policy solutions and a dead-end political strategy in general.

On the other hand, those aligned with tea-partyers view the Trump phenomenon as rising from discontent with an insufficiently conservative leadership. They see voters’ frustration and anger rooted in an establishment that overpromised and underdelivered, for example by promising to fight President Barack Obama’s executive orders on immigration “tooth and nail” in November 2014 but, just a few months later, ruling out a partial government shutdown over the issue as “not an option.”

A Cruz nomination would have left little doubt about the party’s ideological direction. Mr. Cruz often echoed Ronald Reagan’s desire to speak “in bold colors, not pale pastels,” and relying on motivated conservatives to help drive general election turnout. A Cruz-Clinton match-up would have made clear the potential, and potential limits, of a “base strategy.”

Conversely, Trump’s ideological heterodoxies—on health careabortion and even about Hillary Clinton herself—reshuffle the political landscape. Mr. Trump falls outside the “establishment” and “tea party” labels, as neither side fully embraced his ascent. Mr. Trump said Wednesday that “As far as the Republican Party coming together, it will, maybe not 100%, but it’ll come together 99% and the 1% I don’t want and it won’t have any impact.” What shape the GOP takes as some elements rally behind him and others consider different directions will definitely have an impact on the Republican Party as we have known it.

This post was originally published at the Wall Street Journal’s Think Tank blog.