Tag Archives: premiums

On Health Care Bill, Federalism to the Rescue

Temporary setbacks can often yield important knowledge that leads to more meaningful accomplishments—a lesson senators should remember while pondering the recent fate of their health-care legislation. This past week, frictions caused by federalism helped create the legislative stalemate, but the forces of federalism can also pave the way for a solution.

Moderates opposed to the bill raised two contradictory objections. Senators whose states expanded Medicaid lobbied hard to keep that expansion in their home states. Those same senators objected to repealing all of Obamacare’s insurance mandates and regulations, insisting that all other states keep adhering to a Washington-imposed standard.

But those Washington-imposed regulatory standards have prompted individual insurance premiums to more than double since Obamacare first took effect four years ago. While the current draft of the Senate bill allows states to waive out of some of those regulations, it outright repeals none—repeat, none—of them.

The High Prices Are The Fault of Too Many Rules

As the Congressional Budget Office score of the legislation indicates, the lack of regulatory relief under the bill would create real problems in insurance markets. Specifically, CBO found that low-income individuals likely would not purchase coverage, because such individuals would face a choice between low-premium plans with unaffordable deductibles or low-deductible plans with unaffordable premiums.

The budget analysts noted that this affordability dilemma has its roots in Obamacare’s mandated benefits package. Because of the Obamacare requirements not repealed under the bill, insurers would be “constrained” in their ability to offer plans that, for instance, provide prescription drug coverage or coverage for a few doctor visits before meeting the (high) deductible.

CBO concluded that the waiver option available under the Senate bill would, if a state chose it, ease the regulatory constraints on insurers “at least somewhat.” But those waivers only apply to some—not all—of the Obamacare regulations, and could be subject to changes in the political climate. With governors able to apply for—and presumably withdraw from—the waiver program unilaterally, states’ policy decisions could swing rapidly, and in ways that exacerbate uncertainty and instability.

If You Want Obamacare, You Can Enact It at the State Level

The Senate should go back to first principles, and repeal all of the Obamacare insurance regulations, restoring the balance of federalism under the Tenth Amendment, and the principle of state regulation of insurance that has existed since Congress passed the McCarran-Ferguson Act in 1947. If Obamacare is as popular as its supporters claim, states could easily reprise all its regulatory structures—as New York, New Jersey, and others did before the law’s passage. Likewise, senators wanting their colleagues to respect their states’ wishes on Medicaid expansion should respect those colleagues’ wishes on eliminating the entire Obamacare regulatory apparatus from their states.

On Medicaid, conservatives have already granted moderates significant concessions, allowing states to keep their expansions in perpetuity. The controversy now stems around whether the federal government should continue to keep paying states a higher federal match to cover childless adults than individuals with disabilities—a proposition that tests standards of fairness and equity.

However, critics of the bill’s changes to Medicaid raise an important point. As CBO noted, states “would not have additional flexibility” under the per capita caps created by the bill to manage their Medicaid programs. Without that flexibility, states might face greater pressure to find savings with a cleaver rather than a scalpel—cutting benefits, lowering reimbursement rates, or restricting eligibility, rather than improving care.

Several years ago, a Medicaid waiver granted to Rhode Island showed what flexibility can do for a state, reducing per-beneficiary spending for several years in a row by better managing care, not cutting it. When revising the bill, senators should give all Medicaid programs the flexibility Rhode Island received from the Bush administration when it applied for its waiver in 2009. They should also work to ensure that the bill will not fiscally disadvantage states that choose the additional flexibility of a block grant compared to the per capita caps.

If senators’ desire to protect their home states helped prompt this week’s legislative morass, then a willingness to allow other senators to protect their home states can help unwind it. Maintaining Obamacare’s regulatory structure at the federal level, while cutting the spending and taxes used to alleviate the higher costs from that structure, might represent the worst of all possible outcomes—an unfunded mandate passed down to millions of Americans. By contrast, eliminating the Washington-based regulatory apparatus and giving states a free choice whether to re-impose it would represent federalism at its best.

This post was originally published at The Federalist.

CBO Analysis of Senate Republican Health Legislation

On June 26, the Congressional Budget Office (CBO) released its score of the Senate Republican Obamacare legislation. CBO found that the bill would:

  • Reduce deficits by about $321 billion over ten years—$202 billion more than the House-passed legislation.
  • Increase the number of uninsured by 15 million in 2018, rising to a total of 22 million by 2026—a slight short-term increase, and slight long-term decrease, of the uninsured numbers compared to the House bill.
  • Generally increase individual market insurance premiums between now and 2020, followed by a reduction in most parts of the country. However, impacts would vary based on states’ decisions regarding benefit structures, as listed below.
  • Reduce Medicaid spending by less than the House-passed measure ($772 billion vs. $834 billion), but have greater net savings with respect to insurance subsidies ($408 billion in deficit reduction vs. $276 billion for the House bill)—calculated as repeal of the Obamacare cost-sharing and premium subsidies, offset by the new spending on “replacement” subsidies.

In its analysis, CBO noted that it continues to use the March 2016 baseline to score the reconciliation legislation (as it did with the House bill). It has done so largely because 1) its updated January 2017 baseline was not available at the time Congress passed the budget resolution in early January and 2) the ten-year timeframe of the March 2016 baseline synchs with the timeframe of the current budget resolution. Had CBO used the January 2017 budget baseline to score the bill, coverage losses would likely have been smaller—CBO has reduced its estimates of Exchange coverage due to anemic enrollment. However, because premiums spiked in 2017, thus raising spending on subsidies, the fiscal effects likely would have been similar.

Premiums:    CBO believes premiums will rise by 20 percent compared to current law in 2018, and by about 10 percent compared to current law in 2019. The increases would stem largely from the effective repeal of the individual mandate (penalty set to $0), which would lead healthy individuals to drop coverage—offset in part by new “stability” funding to insurers.

In 2020, premiums would decline by about 30 percent compared to current law, and by 2026, premiums would be about 20 percent lower than current law (premium reductions declining slightly as “stability” funding declines in years after 2021). The premium reductions would come largely because of a decrease in the actuarial value (i.e., the average percentage of health expenses covered by insurance) of plans.

CBO believes that “few low-income people would purchase coverage” despite subsidies provided under the bill, because in its estimation, deductibles for low-premium plans would be prohibitively expensive for low-income individuals—and premiums for low-deductible plans would also be prohibitively expensive. In general, CBO believes out-of-pocket expenses would rise for most individuals purchasing coverage on the individual market.

Changes in Insurance Coverage:               CBO believes that under the bill, the number of uninsured would rise by 15 million in 2018, and 22 million in 2026. Moreover, “the increase [in the uninsured] would be disproportionately larger among older people with lower income—particularly people between 50 and 64 years old” with income under twice the poverty level. With respect to Medicaid, 15 million fewer people would have coverage than under current law; however, about five million of those individuals “would be among people who CBO projects would, under current law, become eligible in the future as additional states adopted” Medicaid expansion.

CBO believes that the individual insurance market would decline by 7 million in 2018, 9 million in 2020, and 7 million in 2026. The estimate notes CBO’s belief that “a small fraction of the population” will reside in areas where no insurers would participate. A reduction in subsidies would 1) make insurers’ fixed costs a higher percentage of revenues, discouraging them from participating, and 2) reduce the overall percentage of subsidized enrollees—giving some markets a disproportionate number of unsubsidized enrollees with higher health costs. However, in these cases, CBO believes that states could take steps to restore the markets within a few years, whether by obtaining waivers and/or “stability fund” dollars.

CBO believes that effectively repealing the individual mandate would, all things equal, increase premiums in the individual market; lead some employers not to offer employer-based coverage; and discourage individuals from enrolling in Medicaid. However, CBO “do[es] not expect that, with the [mandate] penalty eliminated under this legislation, people enrolled in Medicaid would disenroll.”

Waivers:         With respect to the state waivers for insurance regulations—including essential health benefits and other Obamacare requirements—CBO believes that “about half the population would be in states receiving substantial pass-through funding” under the Obamacare Section 1332 waiver provision, which the bill would revamp. States could receive pass-through funding to reflect savings to the federal government from lower spending on insurance subsidies from the waivers. Those pass-through funds could be used to lower premiums or cost-sharing for individuals.

While CBO believes that many states would apply for waivers with respect to insurance regulations or other requirements, few would “make significant changes” to the subsidy regime, to avoid administering said regime themselves—leaving this task to the Internal Revenue Service instead. However, CBO believes that about one-fifth of the total subsidy dollars available will be provided through the waiver pass-through, rather than directly to individuals.

CBO believes that, particularly in the first few years of the waiver regime, these waivers would actually increase the budget deficit—despite a requirement in the legislation that they not do so. CBO believes that states with waivers currently pending—who can choose whether their waiver would apply under the current regime or the “new” one created by the bill—would use this arbitrage opportunity to pick the more advantageous position for their state. Likewise, the agency notes that states would use overly optimistic data estimates when defining “budget-neutrality”—and that in the first few years of the bill, “the Administration would not have enough data about experience under this legislation to fully adjust [sic] for that incentive.”

In its analysis, CBO concludes that “the additional waivers would have little effect on the number of people insured, on net, by 2026.” Most waivers would be used to narrow the essential health benefits, lowering premiums and giving savings to states as pass-through funds. While lower premiums would increase individual market coverage, it would in CBO’s estimate encourage some employers to drop coverage. Moreover, “people eligible for subsidies in the non-group market would receive little benefit from the lower premiums, and many would therefore decline to purchase a plan providing fewer benefits.” A small fraction of individuals might live in states that “substantially reduce the number of people insured,” either by re-directing subsidy assistance to those who would have purchased coverage even without a subsidy, or by taking pass-through funds and re-directing them for purposes other than health insurance coverage.

CBO believes that, in cases where states use waivers to narrow essential health benefits, “insurance covering certain services [could] become more expensive—in some cases, extremely expensive.” While states could use pass-through funding to subsidize coverage of these services, CBO “anticipate[s] that the funding available to help provide coverage for those high-cost services would be insufficient.”

Other Regulatory Changes:            CBO notes the two “stability funds”—the one short-term fund for insurers, and the second longer-term fund for states—and believes that about three-quarters of the $62 billion provided to states from 2019 through 2026 would go to arrangements with insurers to reduce premiums in the individual market—whether reinsurance, direct subsidies, or some other means.

CBO believes the six-month waiting period added to the legislation would “slightly increase the number of people with insurance, on net, throughout the 2018-2026 period—but not in 2019, when the incentives to obtain coverage would be weak because premiums would be relatively high.”

The changes in age-rating rules—allowing states to charge older applicants five times as much as younger ones, unless a state chooses another ratio—“would tend to reduce premiums for younger people and increase premiums for older people, resulting in a slight increase in insurance coverage, on net—mainly among people not eligible for subsidies,” as the subsidies would insulate most recipients from the effects of the age rating changes. However, net premiums for older individuals not eligible for subsidies would rise significantly.

CBO believes that about half the population will reside in states that will reduce or eliminate current medical loss ratio requirements. “In those states, in areas with little competition among insurers, the provision would cause insurers to raise premiums and would increase federal costs for subsidies,” CBO expects. However, this provision “would have little effect on the number of people coverage by health insurance.”

Insurance Subsidies:           In general, average subsidies under the bill “would be significantly lower than the average subsidy under current law,” despite some exceptions. For instance, while net premiums would be roughly equal for a 40-year-old with income of 175 percent of poverty, “the average share of the cost of medical services paid by the insurance purchased by that person would fall—from 87 percent to 58 percent,” thereby raising deductibles and out-of-pocket expenses. The changes “would contribute significantly to a reduction in the number of lower-income people” obtaining coverage under the bill when compared to current law.

CBO believes that the high cost of premiums and/or deductibles under the bill would discourage many low-income individuals eligible for Medicaid under current law, and who would instead be eligible for subsidies under the bill, from enrolling. “Some people with assets to protect or who expect to have high use of health care would” enroll, but many would not.

CBO also notes that “it is difficult to design plans” that might be “more attractive to people with low income” because of the mandated benefit requirements under Obamacare. For instance, it would be difficult to design plans that provide prescription drugs with low co-payments, or services below the plan’s high deductible, while meeting the 58 percent actuarial value benchmark in the bill. However, waivers could lessen these constraints somewhat, potentially yielding more attractive benefit designs.

While the bill eliminates eligibility for subsidies for individuals making between 351-400 percent of poverty, CBO believes that net premiums for individual (but not necessarily for family) coverage would be relatively similar under both current law and the bill. With respect to age, CBO believes that the addition of age as a factor in calculating subsidies, coupled with the changes to age rating in the bill, would mean that a larger share of individual market enrollees will be younger than under current law.

Medicaid Per Capita Caps and Block Grants:                         CBO believes that, in the short term (2017 through 2024), per capita caps would reduce outlays for non-disabled children and non-disabled adults, because spending would grow faster (4.9 percent) than the medical inflation index prescribe in the law (3.7 percent). However, spending on disabled adults or seniors would grow much more slowly (3.3 percent) than medical inflation plus one percent (4.7 percent). “In 2025 and beyond, the differences between spending growth for Medicaid under current law and the growth rate of the per capita caps for all groups would be substantial,” as CBO projects general inflation will average 2.4 percent.

With respect to the block grant option, CBO believes it “would be attractive to a few states that expect to decline in population (and not in most states experiencing population growth, as it would further constrain federal reimbursement).” Therefore, CBO considers the block grant to have little effect on Medicaid enrollment.

In CBO’s opinion, “states would not have substantial additional flexibility under the per capita caps. Under the block grant option, states would have additional flexibility to make changes to their Medicaid program—such as altering cost sharing and, to a limited degree, benefits.” In the absence of flexibility, CBO believes states facing the per capita caps would reduce provider reimbursements, eliminate optional services, restrict enrollment through work requirements, and/or deliver more efficient care. Specifically, “because caps on federal Medicaid spending would shift a greater share of the cost of Medicaid to state over time,” states would use work requirements to “reduce enrollment and the associated costs.”

Over the longer term, “CBO projects that the growth rate of Medicaid under current law would exceed the growth rate of the per capita caps for all groups covered by the caps starting in 2025.” As a result, CBO believes Medicaid enrollment would continue to decline after 2026 relative to current law.

Medicaid Expansion:           Currently, about half of the population resides in the 31 states (plus the District of Columbia) that have expanded Medicaid. CBO believes that, under current law, that percentage will rise to 80 percent of the newly eligible population by 2026. Under the bill, CBO believes that no additional states will expand Medicaid—resulting in coverage “losses” compared to current law, albeit without individuals actually losing coverage. Moreover, as the enhanced federal matching rate for the Medicaid expansion declines under the bill CBO believes the share of the newly eligible population in states that continue their Medicaid expansion will decline to 30 percent in 2026.

The Senate Health Care Bill and Premiums

When the Congressional Budget Office (CBO) releases its estimate of Senate Republicans’ Obamacare discussion draft this week, it will undoubtedly state that the bill will lower health insurance premiums. A whopping $65 billion in payments to insurers over the next three years virtually guarantees this over the short-term.

Indeed, Senate Republican staff have reportedly been telling members of Congress that the bill is designed to lower premiums between now and the 2020 election—hence the massive amounts of money for plan years through 2021, whose premiums will be announced in the heat of the next presidential campaign.

But conservatives should focus on two important “stories behind the story.” First, CBO likely will conclude that the bill will reduce premiums by much less than a bill repealing all of Obamacare’s insurance regulations. Taken on their own, the massive amounts of funding to insurers should lower premiums by at least 15 percent. If CBO does not estimate a premium reduction of at least that much, it would likely be because the bill keeps most of Obamacare’s health insurance mandates in place.

Second, conservatives should consider what will happen four years from now, once the $65 billion has been spent. Ultimately, throwing taxpayer money at skyrocketing premiums—as opposed to fixing it outright—won’t solve the problem, and will instead just create another entitlement that health insurers will want to make permanent.

Where That Figure Comes From

Section 106 of the bill creates two separate “stability funds,” one giving payments directly to insurers to “stabilize” state insurance markets, and the second giving money to states to improve their insurance markets or health care systems. The insurer stability fund contains $50 billion—$15 billion for each of calendar years 2018 and 2019, and $10 billion for each of calendar years 2020 and 2021. The fund for state innovation contains $62 billion, covering calendar years 2019 through 2026.

Some have stated that the bill provides $50 billion to stabilize health insurance markets. That actually underestimates the funds given to health insurers in the bill. A provision in the state innovation fund section—starting at line 21 of page 22 of the discussion draft and continuing through to line 7 of page 23—requires states to spend $15 billion of the $62 billion allotted to them—$5 billion in each of calendar years 2019, 2020, and 2021—on stabilizing health insurers. (So much for state “flexibility” from Republicans.)

Therefore, the bill spends not $50 billion, but $65 billion, on “market stabilization”—$50 billion from the insurer fund, and $15 billion from the state fund. By year, the insurer funding in the Senate bill would total $15 billion in 2018, $20 billion in 2019, $15 billion in 2020, and $15 billion in 2021. (It also appropriates an unlimited amount—estimated at roughly $25 billion—for cost-sharing reduction payments to insurers between now and January 2020.)

The Potential Impact on Premiums

What kind of per-person subsidy would these billions generate? That depends on enrollment—the number of people buying individual insurance policies, both on the exchanges and off. Earlier this month, the administration revealed that just over 10 million individuals selected a plan and paid their first month’s premium this year, and that an average 10 million Americans held exchange plans last year. Off-exchange enrollment data are harder to come by, but both the Congressional Budget Office and blogger Charles Gaba (an Obamacare supporter) estimate roughly 8 million individuals purchasing individual market plans off of the exchange.

On an average enrollment of 10 million—10 million in exchanges, and 8 million off the exchanges—the bill would provide an $833 per enrollee subsidy in 2018, 2020, and 2021, and $1,111 per enrollee in 2019. In all cases, those numbers would meet or exceed the average $833 per enrollee subsidy insurers received under Obamacare’s reinsurance program in 2014, as analyzed by the Mercatus Center last year.

How much would these subsidies lower premiums? That depends on the average premium being subsidized. For 2018 and 2019, premium subsidies would remain linked to a “benchmark” silver plan, which this year averages $5,586 for an individual. However, in 2020 and 2021, the subsidy regime would change. Subsidies would be linked to the median plan with a lower actuarial value—roughly equivalent to a bronze plan, the cheapest of which this year averages $4,392.

Using a rough estimate of an average $6,000 premium in 2018 and 2019, and a $5,000 average premium in 2020 and 2021 (reflecting the change in the subsidy formula in January 2020) yields annual premium reductions of 14 to 19 percent, as outlined below:

The bill therefore should—all else equal—reduce premiums by at least 15 percent or so, solely because of the “stability” payments to insurers. However, other changes in the bill may increase premiums. Effectively repealing the individual mandate by setting the penalty for non-compliance to $0, while not repealing most of the major Obamacare regulations will encourage healthy individuals to drop coverage, causing premiums to rise.

If CBO finds that the bill won’t reduce premiums by at least 15 percent, it’s because it doesn’t actually repeal the insurance mandates and regulations driving up premiums. The “stability” funding is simply using government funding to mask the inflationary effects of the regulations, at no small cost to taxpayers.

What About After the Presidential Election?

In a few years, the “stability” fund payments drop off a proverbial cliff. While the bill provides $15 billion in funding for insurers in calendar year 2021 and another $9 billion states can use however they like, in 2022 the bill provides only $6 billion to states, and nothing to insurers. As noted above, it’s not lost on the bill’s authors that calendar year 2021 premiums will likely be announced in the fall of 2020—just prior to that November’s election.

But what happens in years after 2021, when “stability” funding drops off by 75 percent? How “stable” is a bill creating such a dramatic falloff in insurer payments? How will such a falloff not create pressure to create a permanent new entitlement for insurers, just like insurers have pressured Republicans to create the “stability” funds after Obamacare’s “temporary” reinsurance program expired last year?

More than four decades ago, Margaret Thatcher properly pointed out that the problem with socialism is that it eventually runs out of other people’s money. Throwing money at insurers may in the short term bail them out financially and bail Republicans out politically. But it’s not sustainable—nor is it a substitute for good policy.

This post was originally published at The Federalist.

Don’t Blame Trump When Obamacare Rates Jump

Insurers must submit applications by next Wednesday to sell plans through HealthCare.gov, and these will give us some of the first indicators of how high Obama Care costs will skyrocket in 2018. ObamaCare supporters can’t wait to blame the coming premium increases on the “uncertainty” caused by President Trump. But insurers faced the same uncertainty last year under President Obama.

Consider a recent press release from California Insurance Commissioner Dave Jones. He announced that “in light of the market instability created by President Trump’s continued undermining of the Affordable Care Act,” he would authorize insurers to file two sets of proposed rates for 2018—“Trump rates” and “ACA rates.” Among other sources of uncertainty, Mr. Jones’s office cited the possibility that the Trump administration will end cost-sharing reduction payments.

Those subsidies reimburse insurers for discounted deductibles and copayments given to certain low-income individuals. Congress has never enacted an appropriation for the payments, but the Obama administration began disbursing the funds in 2014 anyway.

Thus the uncertainty: The House filed a lawsuit in November 2014, alleging that the unauthorized payments were unconstitutional. Judge Rosemary Collyer ruled in the House’s favor and ordered a stop to the payments. As the Obama administration appealed the ruling, the cost-sharing reduction payments continued.

The House lawsuit and the potential for a new administration that could cut off the payments unilaterally should have been red flags for regulators when insurers were preparing their rate filings for 2017. I noted this in a blog post for the Journal last May.

To maintain a stable marketplace regardless of the uncertainty, regulators should have demanded that insurers price in a contingency margin for their 2017 rates. It appears that Mr. Jones’s office did not even consider doing so. I recently submitted a Freedom of Information Act request to his office requesting documents related to the 2017 rate-filing process, and “whether uncertainty surrounding the cost-sharing reduction payments was considered by the Commissioner’s office in determining rates for the current plan year.” Mr. Jones’s office replied that no such documents exist.

What does that mean? At best, not one of the California Insurance Commission’s nearly 1,400 employees thought to ask whether a federal court ruling stopping an estimated $7 billion to $10 billion in annual payments to insurers throughout the country would affect the state’s health-insurance market. At worst, Mr. Jones—a Democrat running for attorney general next year—deliberately ignored the issue to avoid exacerbating already-high premium increases that could have damaged Hillary Clinton’s fall campaign and consumers further down the road.

The California Insurance Commission is not alone in its “recent discovery” of uncertainty as a driver of premium increases. In April the left-liberal Center for American Progress published a paper claiming to quantify the “Trump uncertainty rate hike.” The center noted that the “mere possibility” of an end to cost-sharing payments would require insurers to raise premiums by hundreds of dollars a year.

Following insurers’ June 21 deadline, expect a raging blame game over next year’s premium increases. Conservatives shouldn’t hesitate to ask regulators and liberal advocates now pointing the finger at uncertainty where they were this time last year when the future of those payments was equally uncertain.

This post was originally published in The Wall Street Journal.

Top Ten Conservative Concerns with the American Health Care Act

1.     Doesn’t Improve Care.  Obamacare expanded the federal bureaucracy at the expense of quality care. Tax dollars were taken from providers and used to pay administrators, consultants, lobbyists, insurers, and regulators. The House bill does nothing to change that dynamic.

2.     Raises Insurance Premiums.  The Congressional Budget Office believes that the bill will raise insurance premiums by 15-20 percent on average in the next two years, with even higher spikes in some areas. Americans care most about lowering health costs and making coverage affordable—yet the bill falls short on that count, retaining all but one of Obamacare’s costly mandated benefits and insurance regulations.

3.     Doesn’t Repeal Obamacare.  Lost in the question of whether or not the bill’s replacement provisions represent “Obamacare Lite” is the fact that the bill as currently drafted represents “Repeal Lite”—when compared not only to full repeal, but even to the 2015 reconciliation bill that passed both houses of Congress. The bill retains all but one of Obamacare’s benefit mandates, some of its taxes, and keeps Medicaid expansion to the able-bodied in perpetuity.

4.     Expands Obamacare.     Rather than repealing all of the law, the House Republican bill instead expands Obamacare’s subsidy regime—extending it to millions of individuals off of insurance Exchanges for 2018 and 2019—and revises the subsidy regime for 2019. Some conservatives may question the need to “fix” Obamacare, when House Republicans’ legislation should revolve around repealing Obamacare.

5.     Creates New Entitlement.  Beginning in 2020, the bill creates an entirely new entitlement—advanceable, refundable tax credits—replacing Obamacare’s form of subsidized health insurance with another.

6.     Fiscal Gimmicks?  Under the bill, the transition from the Obamacare subsidy regime to the new system of tax credits, and a reformed Medicaid program, will take place beginning in January 2020—a presidential election year. If Congress or the Administration delay or abandon the transition due to political blowback, the cost of the House bill will soar.

7.     Permanent Bailout Fund for Insurers?    While failing to repeal Obamacare’s risk corridors and reinsurance bailouts, the bill also creates a new “Patient and State Stability Fund,” designed to provide most of its $100 billion in grants to subsidize health insurers. Some conservatives may question whether this grant program will end in 2026 as scheduled under the bill, or whether health insurers instead will make claims on Washington for federal bailouts to the tune of billions of dollars annually.

8.     Federally Controlled, Not Patient-Centered.    Notwithstanding some important structural changes to Medicaid that respect states, the House bill claims to be patient-centered but still denies a 60-year-old the ability to opt out of paying for maternity benefits. Supporters of the House bill talk about giving more flexibility to states, but leave all but one of the federal insurance mandates in place.

9.     Perpetuates Medicaid Expansion.    The House Republican bill allows states to keep their Medicaid expansion to the able-bodied in perpetuity—a major change compared to the 2015 repeal bill. CBO concluded that many states will in fact keep their expansions, diverting funds from covering the most vulnerable to expand Medicaid to able-bodied adults. Moreover, the House bill maintains Obamacare’s enhanced Medicaid match for nearly three years, encouraging expansion states to sign up more able-bodied adults between now and January 2020 to receive additional federal funding.

10.  Inadequate Verification.  By relying on Obamacare’s system of verifying eligibility for the new tax credit entitlement, the bill requires verification of citizenship but not identity—continuing Obamacare’s problems of fraudulent applicants obtaining subsidies. In addition, some conservatives may be concerned that even these inadequate verification provisions could be stripped due to procedural concerns in the Senate.

A PDF version of this document is available on the Texas Public Policy Foundation website.

Four Questions Following CBO’s Score

Yesterday’s Congressional Budget Office (CBO) analysis of House Republicans’ “repeal-and-replace” legislation lead to widespread news coverage of its health coverage numbers. However, several other questions reveal the “story behind the story,” which could help determine the bill’s ultimate fate:

Who Wants to Run on Premium Increases?     While some may tout eventual premium savings under the bill (about which more below), the most immediate headline involves the estimated 15-20 percent premium increases that will hit in both 2018 and 2019, because CBO believes fewer healthy individuals will sign up for coverage. As with Obamacare’s Exchanges over the past few years, that projected national average may mask significant regional differences; some areas could see premium increases well in excess of 20 percent. These premium increases (possibly coupled with insurer exits) would be the first tangible impact of Obamacare repeal many constituents face heading into the 2018 elections—not a welcome sign for conservatives who ran for years on the promise of Obamacare repeal yielding lower premiums.

Spend More Now, Save More Later—Really?            While some Republican leaders touted the bill’s supposed deficit savings, a closer look reveals significant flaws. Notably, the bill will increase the deficit in its first five years by a net of $9.4 billion, while lowering the deficit by over $345 billion in its second five years. A look at Table 3 in the score—which shows the net budgetary effects of the bill’s major coverage provisions—gives important signals as to why. Take a look at the net spending on coverage—that is, reductions in Medicaid and Obamacare subsidy spending, offset by increases in spending on the bill’s new tax credits—by fiscal year:

Fiscal Year 2017: $8 billion spending reduction
Fiscal Year 2018: $29 billion spending reduction
Fiscal Year 2019: $42 billion spending reduction
Fiscal Year 2020: $100 billion spending reduction
Fiscal Year 2021: $137 billion spending reduction

Note that these numbers above are NOT cumulative totals—they represent annual reductions in entitlement/subsidy spending. The numbers mean that, even after taking into account the new refundable tax credits (which would start on January 1, 2020, the day after the Obamacare subsidy regime expires), net spending would decline by nearly an additional $60 billion in the fiscal year ending September 30, 2020—i.e., roughly six weeks before the next presidential election.

With numbers like these, it’s not hard to argue that the new refundable tax credit will not take effect in a presidential election year—or possibly ever. Congress may instead act to perpetuate Obamacare’s existing subsidy regime, which the House Republican bill actually expands for the supposed “transition” period, into an enhanced, entrenched, and therefore permanent, entitlement.

What Will Premiums Look Like in 2027? CBO claims that “by 2026, average premiums for single policy-holders in the non-group market under the legislation would be roughly 10 percent lower than under current law.” If accurate, that estimate means that—more than 15 years after the law’s enactment—premiums might recover most (but perhaps not all) of the average $2,100 per family premium spike CBO attributed to Obamacare.

Even then, however, initial appearances can deceive. CBO noted that premiums would decline in 2026 in part because of the new, $100 billion Patient and State Stability Fund. CBO concluded that fund grants would likely be used for reinsurance payments to insurers; “if those funds were devoted to other purposes, then premium reductions would be smaller.”

That CBO analysis raises the obvious question: What happens to premiums in 2027—when the stability fund created by the legislation would expire? Or have House Republicans created in the Stability Fund what amounts to a perpetual bailout machine, a new entitlement for health insurers that they hope will keep premiums low—albeit at taxpayers’ expense?

Why Not Repeal?      Even with a new refundable tax credit entitlement, the overall CBO coverage numbers were little higher than those associated with enacting the 2015 repeal/reconciliation bill. In fact, if that 2015 reconciliation bill had repealed Obamacare’s major insurance regulations—the major drivers of rising premiums, all of which have a clear budgetary nexus—it may have achieved coverage levels higher than this “repeal-and-replace” bill.

House leadership will now face the difficult task of mustering up votes for a plan with no natural constituency. It’s the kind of legislation that leads to cynical blandishments to win votes—arguing to conservatives that the refundable tax credit is a relatively innocuous entitlement, because no one will use it; and arguing to moderates that, while many of their constituents will lose coverage under the bill, they can extend to their constituents the promise of the new tax credits, even though few will utilize them.

Instead of passing legislation that some may vote for, but few truly support, House leadership would be wiser instead to focus on enacting a bill that Members can both vote for and support. Repealing Obamacare—including the costly regulations emanating from Washington—would lower premiums, encouraging individuals to purchase coverage, and begin the process of restoring state sovereignty over health care and health insurance, an outcome for which conservatives could be proud.

This post was published at The Federalist.

House Republicans’ Health Care Bill By the Numbers

The Texas Public Policy Foundation has compiled a list of important numbers relevant to House Republicans’ Obamacare “repeal-and-replace” legislation:

27-30 Percent—Extent to which Obamacare’s insurance mandates would raise premiums, according to a 2009 Congressional Budget Office estimate

50 Percent—Actual increase in average premiums in 2014 when Obamacare was implemented, with another 25% increase expected in 2017

15-20 Percent—Estimated increase in individual market premiums in 2018 and 2019, according to the Congressional Budget Office under GOP plan

1—Number of Obamacare insurance mandates actually repealed in the Obamacare “repeal” bill; the actuarial value mandate would end, beginning in January 2020

1,031—Number of days between the bill’s introduction (March 6, 2017) and the date on which the enhanced federal match for states that expanded Medicaid to able-bodied adults would finally end

Never—Date when the Medicaid expansion ends; Section 112(a) of the bill explicitly allows states to keep their expansion of Medicaid to able-bodied adults—a change from the 2015 reconciliation bill, which repealed expansion outright

1,762—Approximate number of days until the bill may begin to reduce the deficit; the bill actually increases the deficit in its first five years, relying on budgetary savings in the “out years” that may or may not ever materialize

7,000,000—Estimated loss in employer-sponsored health coverage by 2026, according to the Congressional Budget Office, in part because “fewer employers would offer health insurance to their workers”

$100,000,000,000—Spending on the Patient and State Stability Fund, a new program that some may believe could turn into a permanent bailout fund/entitlement for insurers

$361,000,000,000—Spending on the new tax credit entitlement in the Obamacare “repeal” bill

$20,000,000,000,000—Approximate level of total federal debt, which may lead some to question the wisdom of the spending on the two new programs outlined above

1411—Section of Obamacare regarding eligibility determinations; the House Republican bill would replicate that program to test eligibility for its own new insurance subsidies, even though Republicans have previously criticized Obamacare for enabling fraud and giving taxpayer subsidies to undocumented immigrants

A PDF of this document can be found at the Texas Public Policy Foundation website.

How to Repeal Obamacare–And What Comes Next

Secretary of Health and Human Services Tom Price’s confirmation early Friday morning marks both an end and a beginning. While his installation after a bitter nomination battle formally begins the Trump administration’s work on healthcare, Price will also seek to bring about the end of former President Barack Obama’s unpopular and unaffordable healthcare law.

Dismantling Obamacare should be a three-fold process, involving coordination among HHS, the rest of the administration, and the Republican-led Congress. The steps can occur concurrently, but all must take place to prevent people from suffering any further from Obamacare’s ill effects.

Having assumed his post, Price should use the regulatory apparatus at his disposal to bring immediate relief from Obamacare. Press reports indicate the administration has already taken steps in that regard, sending a package of insurance stabilization rules to the Office of Management and Budget for clearance prior to their release, potentially as soon as Friday afternoon.

The reports suggest the administration is considering many of the proposals to provide regulatory flexibility that I included in a report analyzing repeal last month. Specifically, the administration may reduce the length of the annual open enrollment period and require verification of individuals seeking special enrollment periods outside of open enrollment. These are two critical steps to prevent individuals from signing up for insurance after they become sick.

The administration is also considering additional flexibility with regards to Obamacare’s benefit mandates, allowing additional variation in the expected percentage of health costs plans cover, for instance.

In many cases, the administration and Price have significant latitude to provide flexibility, but that latitude is not unlimited. Until Congress acts, Obamacare remains on the statute books. While regulators can reinterpret the law, they cannot ignore it. Already, the liberal-leaning AARP has threatened legal action over one of the new administration’s rumored regulatory changes.

These legal constraints illustrate why Congress should act, preferably sooner rather than later, in passing legislation repealing Obamacare. Congress should use as the basis for action the repeal bill it passed in the fall of 2015, which Obama vetoed early last year. That bill repealed all of the law’s tax increases, and sunset the law’s coverage expansions after a two-year period to allow for an appropriate transition.

While the 2015 legislation should represent the initial template for Obamacare’s repeal, Congress can and should go further. Legislators should also seek to repeal the law’s insurance regulations, which have raised premiums and caused millions to receive cancellation notices.

Although some assume Congress cannot repeal the regulations using budget reconciliation — the special process that allows legislation to pass with a 51-vote majority, rather than the usual 60 votes, in the Senate — that may not be accurate. The Congressional Budget Office and others have made estimates showing the significant budgetary impact of these costly regulations. Republicans should use those cost estimates, and past Senate precedent, to enact repeal of the major insurance provisions using the special budget reconciliation procedures.

While adding repeal of the insurance regulations to the 2015 measure, Congress should also ease the transition away from Obamacare by freezing enrollment in the law’s new entitlements upon enactment of the repeal bill. It makes no sense to allow millions of individuals to continue enrolling in a program Congress has just voted to end. Especially with respect to the law’s massive expansion of Medicaid to the able-bodied, freezing enrollment would allow individuals currently on Obamacare to retain their coverage, while starting a process to transition away from the law’s spending and allow individuals to transition off the rolls and into employer-based coverage.

When thinking about a post-Obamacare world, Congress and the new administration should have three priorities: lowering costs, lowering costs and lowering costs.

Americans of all political stripes view lowering health costs as their number-one priority, and it isn’t even close. While candidate Obama promised in 2008 that his health plan would lower costs by an average $2,500 per family per year, the bill he signed into law instead raised costs and premiums for millions.

The answer to the top health concern lies not in new spending and taxes to subsidize health insurance (the failed Obamacare formula) but in reducing the underlying costs of care.

Reducing costs involves equalizing the tax treatment of health insurance, limiting current tax preferences that encourage over-consumption of health insurance and health care. But this must be done in a way that does not raise tax burdens overall. Lowering costs should include incentives for wellness and promote health savings accounts, the expansion of which could reduce health expenditures by billions of dollars.

States have a big role to play in the health debate, both in lowering costs and protecting individuals with pre-existing conditions.

Congress can and should provide states with incentives to reduce insurance benefit mandates that drive up the cost of care. Congress should guarantee that individuals with pre-existing conditions have access to coverage, but give states funding, and let them decide the best route — whether through high-risk pools, or some other risk transfer mechanism — to ensure access to care. While not the panacea President Trump and others have claimed, Congress should allow individuals to shop across state lines for the coverage that best suits their needs.

These changes will not require a 2,700-page piece of legislation like Obamacare. They should not even be considered a “replacement” for Obamacare. But they would have an impact in reducing health costs, the issue Americans care most about. They would represent a new beginning after the canceled policies and premium spikes associated with Obamacare.

 This post was originally published in the Washington Examiner.

Three Points CBO Omitted from Its Report on Obamacare Repeal

This morning, the Congressional Budget Office (CBO) released a report analyzing the effects of Obamacare repeal. Specifically, CBO claimed that enacting a reconciliation bill that the last Congress passed, but President Obama vetoed, would increase the number of uninsured (even relative to pre-Obamacare numbers) while raising insurance premiums appreciably. CBO believes that leaving Obamacare’s major insurance regulations in place—which last year’s reconciliation bill did—while repealing the law’s subsidies, and effectively repealing the individual mandate, will destabilize insurance markets, cause insurers to exit the marketplace, and raise premiums.

However, there are three important facts the CBO report didn’t address:

CBO Has Gotten Previous Estimates Wrong

While no forecaster has a perfect batting average, CBO’s track record with respect to Obamacare is perhaps less ideal than most. CBO thought that the CLASS Act—which Democratic Senator Kent Conrad infamously called “a Ponzi scheme of the first order, the kind of thing for which Bernie Madoff would be proud of—could be implemented in an actuarially sound manner. The Obama Administration eventually had to admit that the CLASS Act was not a fiscally sound program. And CBO failed to conduct enough analysis that could have predicted the CLASS Act’s failure prior to Obamacare’s passage—a point former Director Doug Elmendorf has publicly refused to admit.

With respect to enrollment, CBO significantly over-estimated the number of individuals that would sign up for Obamacare. In March 2010, as Democrats were ready to pass the law, CBO claimed that in 2016, 21 million individuals would sign up for coverage on insurance Exchanges. The reality has proven far different: Less than half as many individuals (10.4 million) had Exchange coverage as of June 30, 2016. And this much lower enrollment comes despite the 2012 Supreme Court ruling making Medicaid expansion optional for states—which actually increased Exchange enrollment in states that have declined to expand Medicaid.

CBO claimed in 2010 that the individual mandate would cause tens of millions of individuals to sign up for coverage. It hasn’t happened. Now CBO claims that effectively repealing the mandate while leaving insurance regulations in place will cause healthy individuals to cancel coverage en masse. Could that happen? Absolutely. But given their recent track record on this specific issue, should one really take CBO’s word as gospel…?

The Solution Is More Repeal, Not Less

In a paradoxical way, the CBO report actually makes a strong case for expanding the scope of last year’s reconciliation bill. The paper notes on several occasions that repealing Obamacare’s insurance subsidies, and effectively repealing the individual mandate, while leaving its insurance regulations in place, would harm insurance markets. For instance, CBO notes that:

The number of people without health insurance would be smaller if, in addition to the changes in [last year’s reconciliation bill], the insurance market reforms mentioned above were also repealed.

Congress chose not to litigate the question of whether Obamacare’s major insurance mandates were budgetary in nature, and thus could be included in a budget reconciliation bill, last year. It should do so now. The findings of this CBO paper, along with other scoring estimates, give ample ammunition to those who consider it entirely consistent with past Senate precedents to include repeal of the major insurance regulations in budget reconciliation.

The Trump Administration Can Mitigate Repeal’s Effects

Even if Congress cannot or will not expand the scope of the reconciliation bill to include the major insurance regulations under Obamacare, the Trump Administration can act to mitigate against the kinds of concerns outlined in the CBO paper. A report I released just this morning outlines some of them. The Administration can significantly shorten—to just a few weeks, or even shorter—the annual open enrollment period, which can protect against individuals signing up for coverage after they get sick. It can reduce special enrollment periods outside of open enrollment, and require verification for all special enrollment. And it can take other administrative actions to mitigate the effects of a spike in premiums.

John Cornyn Illustrates Republicans’ Obamacare Problem in One Tweet

As the Senate’s second-ranking Republican, John Cornyn holds significant sway in policy-making circles. In his third term, and serving on both the judiciary and finance committees—the latter of which has jurisdiction over Medicare and Medicaid—Cornyn should have a good working knowledge of health policy.

All of that makes this tweet, sent Friday from his account, so surprising:

How can advocates tout Obamacare a success when, among many other flaws, it leaves 30 million people uninsured?

The tweet essentially complains that Obamacare wreaked massive havoc on the health care system, while leaving 30 million uninsured. It’s similar to the Catskills joke cited by Woody Allen in “Annie Hall”: “The food at this place is really terrible—and such small portions!”

Observers on Twitter noted the irony. Some asked Cornyn to support more government spending on subsidies; some asked him to have his home state of Texas expand Medicaid; some asked for a single-payer system that would “end” the problem of uninsurance entirely.

For that matter, increasing the mandate tax to thousands of dollars, or putting people in jail if they do not purchase coverage, would also reduce the number of uninsured. Does that mean Cornyn would support those efforts?

It’s the Costs, Stupid!

There are many reasons conservatives should not remain fixated on the number of people with health insurance when designing an Obamacare alternative.

Insurance Does Not Equal Access: The narrow networks and high deductibles plaguing Obamacare exchange plans—imposed because federally mandated benefits force insurers to find other ways to cut costs—impede access to care, making finding an in-network physician both more difficult and more costly.

Similarly for Medicaid—the prime source of Obamacare’s coverage expansions—beneficiaries themselves don’t even consider a Medicaid card “real insurance,” because they cannot find a physician who will treat them: “You feel so helpless thinking, something’s wrong with this child and I can’t even get her into a doctor….When we had real insurance, we would call and come in at the drop of a hat.”

Insurance Does Not Equal Better Health: The Oregon Health Insurance Experiment compared a group of individuals selected from a random lottery to enroll in Medicaid with similarly situated individuals who did not win the lottery and did not enroll in coverage. It found that Medicaid coverage brought no measurable improvement in physical health outcomes. Likewise, prior studies have suggested that, for health outcomes Medicaid coverage may be worse than having no health insurance at all.

Beneficiaries Do Not Value Health Insurance: Another study from the Oregon Health Insurance Experiment released last year found that most Medicaid beneficiaries valued their health insurance at between 20 and 40 cents on the dollar. In other words, if given a hypothetical choice between a Medicaid insurance policy valued at $3,000, and cash in the amount of $1,500, most beneficiaries would choose the cash.

Obama Promised to Lower Costs—And Failed to Deliver: During his 2008 campaign, Barack Obama didn’t promise to reduce the number of uninsured by a certain amount. He did, however, promise to cut the average family’s health insurance costs and premiums by an average of $2,500 per year. On that count, his health law failed miserably. Since the law passed, employer-sponsored coverage has risen by more than $4,300 per family. Exchange policies spiked dramatically in 2014, when the law’s mandated benefits took effect, and are set to rise again this coming year.

Voters Care Most About Costs: Prior polling data indicates that, by a more than two-to-one margin, voters prioritize the cost of health care (45 percent) over the lack of universal coverage (19 percent). Likewise, voters prefer a health plan that would lower costs without guaranteeing universal coverage to a plan that would create universal coverage while increasing costs by a 13-point margin.

Buying into a Liberal Shibboleth

The responses from liberals to Cornyn’s tweet indicate the extent to which health coverage has become a shibboleth on the Left. There are few things liberals will not do—from spending more money on subsidies, to creating a single-payer system, to expanding coverage to illegal immigrants—to ensure everyone has a health insurance card. (Some liberals might object to putting people in jail for not buying health coverage. Might.)

The liberal fixation—some would call it an obsession—over the number of people with health insurance comes despite evidence suggesting insurance coverage does not necessarily equate with access or improved health outcomes. Over the past 40 years, 90 percent of the growth in safety net spending has come in the form of higher spending on health programs. That spending could have been more effective in alleviating poverty by improving the education system, changing transportation patterns, or enhancing nutritional options in poor communities, all of which also could foster better health outcomes. But because liberals remain singularly focused on the number of Americans with insurance cards, that’s where they want to focus all the federal government’s time and energy.

So, apparently, does John Cornyn. Rather than pledging to lower health costs—Americans’ top health care goal—or questioning the effectiveness of Democrats’ focus on health insurance above all else, his tweet looks like pure kvetching about a problem he has no interest in solving. If one wants to understand Republicans’ problems on health care—both their poor messaging, and their single-minded policy focus on replicating liberal solutions in a slightly-less-costly manner—they need look no further than this one tweet.

This post was originally published at The Federalist.