Tag Archives: The Federalist

The “Technical” Amendment That Could Affect Millions of Veterans’ Health Coverage

As the House of Representatives steamrolls toward a vote tomorrow on Republicans’ “repeal-and-replace” legislation, lawmakers weighing their vote may wish to consider a few key questions—such as:

  • How did an ostensibly “technical” amendment end up withdrawing refundable tax credits from up to seven million veterans?
  • Does Donald Trump—who released a specific plan early in his campaign to “ensure our veterans get the care they need wherever and whenever they need it”—realize the potentially broad-ranging effects of this “technical” amendment on veterans?
  • And what other supposedly “technical” language will turn out to have unintended consequences should House Republicans rush to put this legislation on the statute books without fully digesting its effects?

Conservatives have their own (justifiable) concerns with the underlying substance of the new tax credit entitlement, but this “technical” amendment provides a microcosm of the problems that result when legislators rush to judgment based on arbitrary deadlines. Just as with Obamacare itself, lawmakers may find they have to pass the bill to find out what’s in it.

The Issue

As I explained last week, the original House bill had a potentially fatal flaw in its tax credit “firewall.” Specifically, language designed to ensure individuals with other forms of health insurance—such as Medicare, Medicaid, Tricare, and VA coverage—did not receive the credit touched upon other committees of jurisdiction in the Senate, such as Armed Services and Veterans Affairs. Under budget reconciliation procedures, a committee—the Senate Finance Committee, in this instance—cannot include subject matter outside its own jurisdiction; doing so could cause the entire bill to lose its procedural privilege as a reconciliation measure.

Due to these procedural concerns, the House released a technical amendment late Monday evening that, according to a summary, “includes the technical restructuring of the new tax credit made as a result of Senate guidance to maintain the privilege of the bill.” However, in restructuring the credit, staff—whether by accident or design—ended up eliminating eligibility for an entire class of veterans.

Pages 97-98 of the original House bill included specific language stating that veterans eligible for, but not enrolled in, VA health benefits would qualify for the credit:

‘‘(2) SPECIAL RULE WITH RESPECT TO VETERANS HEALTH PROGRAMS.—In the case of other specified coverage described in paragraph (1)(F) [i.e., VA coverage], an individual shall not be treated as eligible for such coverage unless such individual is enrolled in such coverage.

However, the “technical” amendment released Monday evening strikes that language. The replacement language, on pages 9-10 of the amendment, states that individuals qualify for the credit only if they are “not eligible for” other types of coverage, including VA coverage:

‘‘(2) The individual is not eligible for—
‘‘(A) coverage under a group health plan (within the meaning of section 5000(b)(1)) other than coverage under a plan substantially all of the coverage of which is of excepted benefits described in section 9832(c), or
‘‘(B) coverage described in section 5000A(f)(1)(A) [which includes VA coverage]

The revised language therefore means that individuals eligible for, but not enrolled in, VA coverage cannot qualify for the new insurance subsidies created by the bill.

The Impact

The most recent estimates suggest about 9.1 million individuals are enrolled in VA health programs. However, a 2014 Congressional Budget Office score of veterans’ choice legislation concluded that “about 8 million [veterans] qualify to enroll in VA’s health system but have not enrolled.” Subtracting for VA enrollment gains since that CBO score leaves approximately seven million veterans eligible for, but not enrolled in, VA health programs, and thus potentially affected by the House’s “technical” change.

At least some of those seven million veterans eligible for but not enrolled in VA health programs may not qualify for the House’s new insurance subsidies for other reasons. For instance, some of those seven million veterans may have other forms of health coverage—from a current or former employer, Medicare, Tricare, etc.—that would render them ineligible for the credit regardless of their VA status.

However, given a universe of seven million veterans potentially affected by the changes, doubtless many veterans would be actually affected by the House language. And as a policy matter, it is unclear why the revised House language, by cutting off access to the credit for those eligible for but not enrolled in VA coverage, seeks to direct more people into a government-run VA health system still suffering from the effects of the wait time reporting scandal.

The Fallout

It is possible, and perhaps even probable, that this “technical” change—which in reality could affect millions of veterans—was entirely unintentional in nature, caused by harried, sleep-deprived congressional staff rushing to complete work on the bill. But it raises the obvious question: What other changes, tweaks, errors, or other unintended consequences might such rushed legislation contain?

We’ve seen this show before. In 2010, the text of Obamacare as passed failed to make clear that VA and Tricare coverage qualified as minimum benefits—making soldiers and veterans subject to taxes for violating the law’s individual mandate. Because of that drafting error, Republicans forced a vote on exempting soldiers and veterans from the mandate, before the issue was eventually resolved.

This week’s “technical” amendment, with potentially wide-reaching implications, reprises the errors of Obamacare, and demonstrates the dangers of House Republicans’ rushed strategy. With a highly compressed timetable seemingly dictating the entire process, unforced errors seem almost inevitable. President Trump has made clear his desire to move to tax reform as soon as possible—but how would he defend disqualifying up to seven million veterans from the bill’s tax credits?

Once finding out about the effects of this “technical” amendment, House leadership will quite probably move to change it—and fast. But what about the other “technical” problems lurking in the bill? Given the rushed process, doubtless more of these “bugs” and “glitches” exist. Who will find them—and when? What if they aren’t found until after the measure’s enactment, and then can’t be fixed legislatively? Lawmakers should think long and hard about these unintended consequences before they vote to assume responsibility for them for a long time to come.

Despite Trump Intervention, House GOP Still Not Repealing Obamacare

President Trump bragged that he won over many new converts to House Republicans’ “repeal-and-replace” legislation following a Friday meeting with Members of Congress at the White House. After the meeting, House leaders scheduled a vote for later this week on the measure, and introduced provisions implementing the agreement in a managers amendment package late last night.

So what tweaks did Trump promise to Congress members on Friday—and will they improve or detract from the legislation itself?

What Changes Were Announced After The Meeting?

The agreement in principle with the House Members includes several components:

  1. Abortion restrictions for Health Savings Accounts (HSAs): RSC Chairman Mark Walker (R-NC) and other pro-life Members asked for further restrictions on abortion funding. As a result, the agreement eliminates language allowing unspent tax credit dollars to get transferred into Health Savings Accounts, for fear those taxpayer dollars moved into HSAs could be used to cover abortions. However, as I noted recently, many of the other restrictions on taxpayer funding of abortion could well get stripped in the Senate, consistent with past precedent indicating that pro-life riders are incidental in their budgetary impact, and thus subject to the Senate’s “Byrd rule” preventing their inclusion on budget reconciliation.
  2. Prohibiting more states from expanding Medicaid: While this provision has been sold as ensuring no new states would expand Medicaid to able-bodied people, it does not do so—it only ensures that states that decide to expand after March 1 will receive the regular federal match levels for their able-bodied populations (i.e., not the 90-95 percent enhanced match). Neither the bill nor the managers package permanently ends the expansion to able-bodied adults—which the 2015/2016 reconciliation bill did—or ends the enhanced federal match for expansion states until January 2020, nearly three years from now.
  3. Medicaid work requirements: The agreement permits—but does not require—states to impose work requirements, a point of contention between some states and the Obama Administration. However, non-expansion states will have comparatively few beneficiaries on which to impose such requirements. Medicaid programs in non-expansion states consist largely of pregnant women, children, and elderly or disabled beneficiaries, very few of whom would qualify for the work requirements in the first place.

Medicaid: Block Grant vs. Per Capita Cap

The fourth component—allowing states to take their federal payments from a reformed Medicaid program as a block grant, instead of a per capita cap—warrants greater examination. In general, per capita caps have been viewed as a compromise between the current Medicaid program and a straight block grant fixed allotment. In the 1994-95 budget showdown with then-House Speaker Newt Gingrich, President Clinton proposed per capita caps for Medicaid as an alternative to the Republican House’s block grant plan.

A block grant and a per capita cap differ primarily in how the two handle fluctuations in enrollment: the latter adjusts federal matching funds to reflect changes in enrollment, whereas the former does not. Supporters of per capita caps often cite economic recessions as the rationale for considering their approach superior to block grants. Medicaid’s counter-cyclical nature—more people enroll during economic downturns, after losing employer-sponsored coverage—coupled with states’ balanced budget requirements, means that during recessions, states often contend with a “double whammy” of rising Medicaid rolls and declining tax revenues. Medicaid per capita caps would mitigate the effects of the first variable, giving states more latitude during tough economic times.

On the other hand, per capita caps give states a greater incentive to enroll more beneficiaries—and a greater disincentive to scrutinize potentially fraudulent applicants—because every new enrollee means greater revenue for the state (albeit capped per beneficiary).  Most notably, the per capita caps in the House bill grow at a faster rate than the block grant proposal in the managers package—per capita caps would grow at medical inflation, whereas block grants would grow with general inflation.

In general, while conservatives would support block grants to reduce the federal Medicaid commitment and encourage state economies, it remains unlikely that many states would embrace them—because it is not in their fiscal self-interest to do so,because it is not in their fiscal self-interest to do so, particularly given the disparity in the inflation measures in the House language. If true, this language may end up meaning very little.

Will This Be A Good Deal For Americans?

If Medicaid reforms comprised the entirety of the bill, they would likely be worth supporting, despite the complexities associated with the debate between expansion and non-expansion states. The move to per capita caps represents significant entitlement reform, and is consistent with the principles of federalism.

As a repeal bill, however, the measure as currently constituted falls short. The agreement on Friday made zero progress on repealing any other insurance benefit mandates in Obamacare—the primary drivers of higher premiums under the law. That’s one reason why CBO believes premiums will actually rise by 15-20 percent over the next two years. House leadership claims that the mandates must remain in place due to the procedural strictures of budget reconciliation in the Senate. But the inconsistencies in their bill—which repeals one of the mandates, modifies others, and leaves most others fully intact—contradict that rhetoric.

Moreover, by modifying rather than repealing some of the Obamacare mandates, the bill preserves the Washington-centered regulatory structure created by the law, undermining federalism and Tenth Amendment principles.

AHCA Leaves Much To Be Desired

From a fiscal standpoint generally, the bill also leaves much to be desired. It creates at least one new entitlement: refundable tax credits to purchase health insurance. It may create a second new entitlement, this one for insurance companies in the form of a “Patient and State Stability Fund,” totaling $100 billion over 10 years, which insurers will no doubt attempt to renew in a decade’s time. (The bill also does not repeal Obamacare’s risk corridor and reinsurance bailout provisions, allowing them to continue to disburse billions of dollars in claims owed to insurers.)

While CBO claimed the bill would reduce the deficit by $337 billion, the managers amendment goes to great lengths to spend all of that supposed savings—accelerating the repeal of Obamacare’s tax increases, and increasing the inflation measure for some of the per capita caps.

Moreover, it remains unclear whether the “transition” from Obamacare to the new tax credit regime will take place in January 2020 as scheduled. The CBO tables analyzing the bill’s fiscal impact clearly delineated how most of the measure’s spending reductions will hit in fiscal years 2020 and 2021—right in the middle of the presidential election cycle.

AHCA Doesn’t Fully ‘Repeal And Replace’

If President Trump or Republicans in Congress flinch on letting the transition take place as scheduled, the bill’s supposed deficit savings will disappear rapidly. Instead, conservatives could be left with “Obamacare Max”—the House bill actually expands and extends Obamacare insurance subsidies for 2018 and 2019—in perpetuity.

The bill’s lack of full repeal, the premium increases scheduled to take effect over the next two years, and the spending “cliff” hitting in 2020 leave the bill with little natural political constituency to support it. The way in which the bill falls short of repeal—by keeping Medicaid expansion, keeping Obamacare’s insurance regulations, and creating a new entitlement—makes it difficult to support from a policy perspective as well. Friday’s meeting may have brought new concessions at the margins, but it did not alter the bill’s fundamental structure, leaving it short of the repeal conservatives had been promised—and voted for mere months ago.

This post was originally published at The Federalist.

Summary of House Republicans’ Managers Amendment

UPDATE: On March 23, the Congressional Budget Office released an updated cost estimate regarding the managers amendment. CBO viewed its coverage and premium estimates as largely unchanged from its original March 13 projections. However, the budget office did state that the managers package would reduce the bill’s estimated savings by $187 billion — increasing spending by $49 billion, and decreasing revenues by $137 billion. Of the increased spending, $41 billion would come from more generous inflation measures for some of the Medicaid per capita caps, and $8 billion would come from other changes. Of the reduced revenues, $90 billion would come from lowering the medical care deduction from 7.5 percent to 5.8 percent of income, while $48 billion would come from accelerating the repeal of Obamacare taxes compared to the base bill.

Updated ten-year costs for repeal of the Obamacare taxes include:

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2026 (lowers revenue by $66 billion);
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications (lowers revenue by $5.7 billion);
  • Increased penalties on non-health care uses of Health Savings Account dollars (lowers revenue by $100 million);
  • Limits on Flexible Spending Arrangement contributions (lowers revenue by $19.6 billion);
  • Medical device tax (lowers revenue by $19.6 billion);
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage (lowers revenue by $1.8 billion);
  • Limitation on medical expenses as an itemized deduction (lowers revenue by $125.7 billion)
  • Medicare tax on “high-income” individuals (lowers revenue by $126.8 billion);
  • Tax on pharmaceuticals (lowers revenue by $28.5 billion);
  • Health insurer tax (lowers revenue by $144.7 billion);
  • Tax on tanning services (lowers revenue by $600 million);
  • Limitation on deductibility of salaries to insurance industry executives (lowers revenue by $500 million); and
  • Net investment tax (lowers revenue by $172.2 billion).

 

Original post follows:

On the evening of March 20, House Republicans released two managers amendments to the American Health Care Act—one making policy changes, and the other making “technical” corrections. The latter amendment largely consists of changes made in an attempt to avoid Senate points-of-order fatal to the reconciliation legislation.

In general, the managers amendment proposes additional spending (increasing the inflation measure for the Medicaid per capita caps) and reduced revenues (accelerating repeal of the Obamacare taxes) when compared to the base bill. However, that base bill already would increase the deficit over its first five years, according to the Congressional Budget Office.

Moreover, neither the base bill nor the managers amendment—though ostensibly an Obamacare “repeal” bill—make any attempt to undo what Paul Ryan himself called Obamacare’s “raid” on Medicare, diverting hundreds of billions of dollars from that entitlement to create new entitlements. Given this history of financial gimmickry and double-counting, not to mention our $20 trillion debt, some conservatives may therefore question the fiscal responsibility of the “sweeteners” being included in the managers package.

Summary of both amendments follows:

Policy Changes

Medicaid Expansion:           Ends the enhanced (i.e., 90-95%) federal Medicaid match for all states that have not expanded their Medicaid programs as of March 1, 2017. Any state that has not expanded Medicaid to able-bodied adults after that date could do so—however, that state would only receive the traditional (50-83%) federal match for their expansion population. However, the amendment prohibits any state from expanding to able-bodied adults with incomes over 133% of the federal poverty level (FPL) effective December 31, 2017.

With respect to those states that have expanded, continues the enhanced match through December 31, 2019, with states receiving the enhanced match for all beneficiaries enrolled as of that date as long as those beneficiaries remain continuously enrolled in Medicaid. Some conservatives may be concerned that this change, while helpful, does not eliminate the perverse incentive that current expansion states have to sign up as many beneficiaries as possible over the next nearly three years, to receive the higher federal match rate.

Work Requirements:           Permits (but does not require) states to, beginning October 1, 2017, impose work requirements on “non-disabled, non-elderly, non-pregnant” beneficiaries. States can determine the length of time for such work requirements. Provides a 5 percentage point increase in the federal match for state expenses attributable to activities implementing the work requirements.

States may not impose requirements on pregnant women (through 60 days after birth); children under age 19; the sole parent of a child under age 6, or sole parent or caretaker of a child with disabilities; or a married individual or head of household under age 20 who “maintains satisfactory attendance at secondary school or equivalent,” or participates in vocational education.

Medicaid Per Capita Caps:              Increases the inflation measure for Medicaid per capita caps for elderly, blind, and disabled beneficiaries from CPI-medical to CPI-medical plus one percentage point. The inflation measure for all other enrollees (e.g., children, expansion enrollees, etc.) would remain at CPI-medical.

Medicaid “New York Fix:”               Reduces the federal Medicaid match for states that require their political subdivisions to contribute to the costs of the state Medicaid program. Per various press reports, this provision was inserted at the behest of certain upstate New York congressmen, who take issue with the state’s current policy of requiring some counties to contribute towards the state’s share of Medicaid spending. Some conservatives may be concerned that this provision represents a parochial earmark, and question its inclusion in the bill.

Medicaid Block Grant:        Provides states with the option to select a block grant for their Medicaid program, which shall run over a 10-year period. Block grants would apply to adults and children ONLY; they would not apply with respect to the elderly, blind, and disabled population, or to the Obamacare expansion population (i.e., able-bodied adults).

Requires states to apply for a block grant, listing the ways in which they shall deliver care, which must include 1) hospital care; 2) surgical care and treatment; 3) medical care and treatment; 4) obstetrical and prenatal care and treatment; 5) prescription drugs, medicines, and prosthetics; 6) other medical supplies; and 7) health care for children. The application will be deemed approved within 30 days unless it is incomplete or not actuarially sound.

Bases the first year of the block grant based on a state’s federal Medicaid match rate, its enrollment in the prior year, and per beneficiary spending. Increases the block grant every year with CPI inflation, but does not adjust based on growing (or decreasing) enrollment. Permits states to roll over block grant funds from year to year.

Some conservatives, noting the less generous inflation measure for block grants compared to per capita caps (CPI inflation for the former, CPI-medical inflation for the latter), and the limits on the beneficiary populations covered by the block grant under the amendment, may question whether any states will embrace the block grant proposal as currently constructed.

Implementation Fund:        Creates a $1 billion fund within the Department of Health and Human Services to implement the Medicaid reforms, the Stability Fund, the modifications to Obamacare’s subsidy regime (for 2018 and 2019), and the new subsidy regime (for 2020 and following years). Some conservatives may be concerned that this money represents a “slush fund” created outside the regular appropriations process at the disposal of the executive branch.

Repeal of Obamacare Tax Increases:             Accelerates repeal of Obamacare’s tax increases from January 2018 to January 2017, including:

  • “Cadillac tax” on high-cost health plans—not repealed fully, but will not go into effect until 2026, one year later than in the base bill;
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications;
  • Increased penalties on non-health care uses of Health Savings Account dollars;
  • Limits on Flexible Spending Arrangement contributions;
  • Medical device tax;
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage;
  • Limitation on medical expenses as an itemized deduction—this provision actually reduces the limitation below prior law (Obamacare raised the threshold from expenses in excess of 7.5% of adjusted gross income to 10%, whereas the amendment lowers that threshold to 5.8%);
  • Medicare tax on “high-income” individuals;
  • Tax on pharmaceuticals;
  • Health insurer tax;
  • Tax on tanning services;
  • Limitation on deductibility of salaries to insurance industry executives; and
  • Net investment tax.

“Technical” Changes

Retroactive Eligibility:       Strikes Section 114(c), which required Medicaid applicants to provide verification of citizenship or immigration status prior to becoming presumptively eligible for benefits during the application process. The section was likely stricken for procedural reasons to avoid potentially fatal points-of-order, for imposing new programmatic requirements outside the scope of the Finance Committee’s jurisdiction and/or related to Title II of the Social Security Act.

Safety Net Funding:              Makes changes to the new pool of safety net funding for non-expansion states, tying funding to fiscal years instead of calendar years 2018 through 2022.

Medicaid Per Capita Cap:   Makes changes to cap formula, to clarify that all non-Disproportionate Share Hospital (DSH) supplemental payments are accounted for and attributable to beneficiaries for purposes of calculating the per capita cap amounts.

Stability Fund:          Makes technical changes to calculating relative uninsured rates under formula for allocating Patient and State Stability Fund grant amounts.

Continuous Coverage:         Strikes language requiring 30 percent surcharge for lack of continuous coverage in the small group market, leaving the provision to apply to the individual market only. With respect to the small group market, prior law HIPAA continuation coverage provisions would still apply.

Re-Write of Tax Credit:      Re-writes the new tax credit entitlement as part of Section 36B of the Internal Revenue Code—the portion currently being used for Obamacare’s premium subsidies. In effect, the bill replaces the existing premium subsidies (i.e., Obamacare’s refundable tax credits) with the new subsidies (i.e., House Republicans’ refundable tax credits), effective January 1, 2020.

The amendment was likely added for procedural reasons, attempting to “bootstrap” on to the eligibility verification regime already in place under Obamacare. Creating a new verification regime could 1) exceed the Senate Finance Committee’s jurisdiction and 2) require new programmatic authority relating to Title II of the Social Security Act—both of which would create a point-of-order fatal to the entire bill in the Senate.

In addition, with respect to the “firewall”—that is, the individuals who do NOT qualify for the credit based on other forms of health coverage—the amendment utilizes a definition of health insurance coverage present in the Internal Revenue Code. By using a definition of health coverage included within the Senate Finance Committee’s jurisdiction, the amendment attempts to avoid exceeding the Finance Committee’s remit, which would subject the bill to a potentially fatal point of order in the Senate.

However, in so doing, this ostensibly “technical” change restricts veterans’ access to the tax credit. The prior language in the bill as introduced (pages 97-98) allowed veterans eligible for, but not enrolled in, coverage through the Veterans Administration to receive the credit. The revised language states only that individuals “eligible for” other forms of coverage—including Medicaid, Medicare, SCHIP, and Veterans Administration coverage—may not qualify for the credit. Thus, with respect to veterans’ coverage in particular, the managers package is more restrictive than the bill as introduced, as veterans eligible for but not enrolled in VA coverage cannot qualify for credits.

Finally, the amendment removes language allowing leftover credit funds to be deposited into individuals’ health savings accounts—because language in the base bill permitting such a move raised concerns among some conservatives that those taxpayer dollars could be used to fund abortions in enrollees’ HSAs.

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.

Will the “Byrd Bath” Turn Into a Tax Credit Bloodbath?

While most of official Washington waits for word—expected early this week—from the Congressional Budget Office (CBO) about the fiscal effects of House Republicans’ “repeal-and-replace” legislation, another, equally critical debate is taking place within the corridors of the Capitol. Arcane arguments behind closed doors about the nuances of parliamentary procedure will do much to determine the bill’s fate in the Senate—and could lead to a final product vastly altered compared to its current form.

In recent days, House leaders have made numerous comments highlighting the procedural limitations of the budget reconciliation process in the Senate. However, those statements do not necessarily mean that the legislation released last week comports with all of those Senate strictures. Indeed, my conversations with more than half a dozen current and former senior Senate staff, all of whom have long expertise in the minutiae of Senate rules and procedure, have revealed at least four significant procedural issues—one regarding abortion, two regarding immigration, and one regarding a structural “firewall”—surrounding the bill’s tax credit regime.

Those and other procedural questions explain why, according to my sources, Senate staff will spend the coming week determining whether they will need to write an entirely new bill to substitute for the House’s proposed language. The stakes involved are high: Guidance from the parliamentarian suggesting that the House bill contains fatal procedural flaws, meaning it does not qualify as a reconciliation bill, could force the House to repeat the process, starting again with a new, “clean” reconciliation measure.

It is far too premature to claim that any of these potential flaws will necessarily be fatal. The Senate parliamentarian’s guidance to senators depends on textual analysis—of the bill’s specific wording, the underlying statutes to which it refers, and the CBO scores (not yet available)—and arguments about precedent made by both parties. Senate staff could re-draft portions of the House bill to make it pass procedural muster, or make arguments to preserve the existing language that the parliamentarian accepts as consistent with Senate precedents. Nevertheless, if the parliamentarian validates even one of the four potential procedural problems, Republicans could end up with a tax credit regime that is politically unsustainable, or whose costs escalate appreciably.

In 2009, Democratic Senator Kent Conrad famously opined that passing health care legislation through budget reconciliation would make the bill look like “Swiss cheese.” (While Democrats did not pass Obamacare through reconciliation, they did use the reconciliation process to “fix” the bill that cleared the Senate on Christmas Eve 2009.) In reality, it’s much easier to repeal provisions of a budgetary nature—like Obamacare’s taxes, entitlements, and even its major regulations—through reconciliation than to create a new replacement regime. The coming week may provide firsthand proof of Conrad’s 2009 axiom.

“Byrd Rule” and Abortion

The Senate’s so-called “Byrd rule” governing debate on budget reconciliation rules—named after former Senate Majority Leader and procedural guru Robert Byrd (D-WV)— in fact consists of not one rule, but six. The six points of order (codified here) seek to keep extraneous material out of the expedited reconciliation process, preserving the Senate tradition of unlimited debate, subject to the usual 60-vote margin to break a filibuster.

The Byrd rule’s most famous test states that “a provision shall be considered extraneous if it produces changes in outlays or revenues which are merely incidental to the non-budgetary components of the legislation.” If the section in question primarily makes a policy change, and has a minimal budgetary impact, it remains in the bill only if 60 senators (the usual margin necessary to break a filibuster) agree to waive the Byrd point of order.

One example of this test may apply to the House bill’s tax credits: “Hyde amendment” language preventing the credits from funding plans that cover abortion. Such language protecting taxpayer funding of abortion coverage occurs several places throughout the bill, including at the top of page 25 of the Ways and Means title.

Over multiple decades, and numerous parliamentarians, Republican efforts to enact Hyde amendment protections through budget reconciliation have all failed. It is possible that Republicans could in the next few weeks find new arguments that allow these critical protections to remain in the House bill—but that scenario cannot be viewed as likely.

The question will then occur as to what becomes of both the credit and the Hyde protections. Some within the Administration have argued that the Department of Health and Human Services (HHS) can institute pro-life protections through regulations—but Administration insiders doubt HHS’ authority to do so. Moreover, most pro-life groups publicly denounced President Obama’s March 2010 executive order—which he claimed would prevent taxpayer funding of abortion coverage in Obamacare—as 1) insufficient and 2) subject to change under a future Administration. How would those pro-life groups view a regulatory change by the current Administration any differently?

Immigration

A similarly controversial issue—immigration—brings an even larger set of procedural challenges. Apart from the separate question of whether the current verification provisions in the House bill are sufficiently robust, ANY eligibility verification regime for tax credits faces not one, but two major procedural obstacles in the Senate.

Of the six tests under the Byrd rule, some are more fatal than others. For instance, if the Hyde amendment restrictions outlined above are ruled incidental in nature, then those provisions merely get stricken from the bill unless 60 Senators vote to retain them—a highly improbable scenario in this case.

But two other tests under the Byrd rule—provisions outside a committee’s jurisdiction, and provisions making changes to Title II of the Social Security Act—are fatal not just to that particular provision, but to the entire bill, potentially forcing the process to begin all over again in the House. The eligibility verification regime touches them both.

Page 37 of the Ways and Means title of the bill requires creation of a verification regime for tax credits similar to that created under Sections 1411 and 1412 of Obamacare. As Joint Committee on Taxation Chief of Staff Tom Barthold testified last week during the Ways and Means Committee markup, verifying citizenship requires use of a database held by the Department of Homeland Security’s Bureau of Citizenship and Immigration Services (CIS).

That admission creates a big problem: The tax credit lies within the jurisdiction of the Senate Finance Committee—but CIS lies within the jurisdiction of the Senate Homeland Security and Governmental Affairs Committee. And because the Finance Committee’s portion of the reconciliation bill can affect only programs within the Finance Committee’s jurisdiction, imposing programmatic requirements on CIS to verify citizenship status could exceed the Finance Committee’s scope—potentially jeopardizing the entire bill.

The verification provisions in Sections 1411 and 1412 of Obamacare also require the use of Social Security numbers—triggering another potentially fatal blow to the entire bill. Senate sources report that, during when drafting the original reconciliation bill repealing Obamacare in the fall of 2015, Republicans attempted to repeal the language in Obamacare (Section 1414(a)(2), to be precise) giving the Secretary of HHS authority to collect and use Social Security numbers to establish eligibility. However, because Section 1414(a)(2) of Obamacare amended Title II of the Social Security Act, Republicans ultimately did not repeal this section of Obamacare in the reconciliation bill—because it could have triggered a point of order fatal to the legislation.

If both the points of order against the verification regime are sustained, Congress will have to re-write the bill to create an eligibility verification system that 1) does not rely on the Department of Homeland Security AND 2) does not use Social Security numbers. Doing so would create both political and policy problems. On the political side, the revised verification regime would exacerbate existing concerns that undocumented immigrants may have access to federal tax credits.

But the policy implications of a weaker verification regime might actually be more profound. Weaker verification would likely result in a higher score from CBO and JCT—budget scorekeepers would assume a higher incidence of fraud, raising the credits’ costs. House leaders might then have to reduce the amount of their tax credit to reflect the higher take-up of the credit by fraudsters taking advantage of lax verification. And any reduction in the credit amounts would bring with it additional political and policy implications, including lower coverage rates.

Firewall Concerns

Finally, the tax credit “firewall”—designed to ensure that only individuals without access to other health insurance options receive federal subsidies—could also present procedural concerns. Specifically, pages 27 and 28 of the bill make ineligible for the credit individuals participating in other forms of health insurance, several of which—Tricare, Veterans Administration coverage, coverage for Peace Corps volunteers, etc.—lie outside the Finance Committee’s jurisdiction.

If the Senate parliamentarian advises for the removal of references to these programs because they lie outside the Finance Committee’s jurisdiction, then participants in those programs will essentially be able to “double-dip”—to receive both the federal tax credit AND maintain their current coverage. As with the immigration provision outlined above, such a scenario could significantly increase the tax credits’ cost—requiring offsetting cuts elsewhere, which would have their own budgetary implications.

Senate sources indicate that this “firewall” concern could prove less problematic than the immigration concern outlined above. While the immigration provision extends new programmatic authority to the Administration to develop a revised eligibility verification system, the “firewall” provisions have the opposite effect—essentially excluding Tricare and other program recipients from the credit. However, if the parliamentarian gives guidance suggesting that some or all of the “firewall” provisions must go, that will have a significant impact on the bill’s fiscal impact.

Broader Implications

Both individually and collectively, these four potential procedural concerns hint at an intellectual inconsistency in the House bill’s approach—one Yuval Levin highlighted in National Review last week. House leaders claim that their bill was drafted to comply with the Senate reconciliation procedures. But the bill itself contains numerous actual or potential violations of those procedures—and amends some of Obamacare’s insurance regulations, rather than repealing them outright—making their argument incoherent.

Particularly when it comes to Obamacare’s costly insurance regulations, there seems little reason not to make the “ol’ college try,” and attempt to repeal the major mandates that have raised premium levels. According to prior CBO scores, other outside estimates, and the Obama Administration’s own estimates when releasing the regulations, the major regulations have significant budgetary effects. Republicans can and should argue to the parliamentarian that the regulations’ repeal would be neither incidental nor extraneous—their repeal would remove the terms and conditions under which Obamacare created its insurance subsidies in the first place, thus meeting the Byrd test. If successful, such efforts would provide relief on the issue Americans care most about: Reducing health costs and staggering premium increases.

When it comes to the tax credit itself, Republicans may face some difficult choices. Abortion and immigration present thorny—and controversial—issues, either one of which could sink the legislation. When it comes to the bill’s tax credits, the “Byrd bath,” in which the parliamentarian gives guidance on what provisions can remain in the reconciliation bill, could become a bloodbath. If pro-life protections and eligibility verification come out of the bill, a difficult choice for conservatives on whether or not to support tax credits will become that much harder.

Why House Republicans Are Re-Writing Their Obamacare “Replacement”

On Friday, Politico reported that Republicans were considering ways to amend their Obamacare “replacement” legislation, by placing income limits on the bill’s new refundable tax credit for health insurance. The Politico story implied the income cap sought to prevent wealthy individuals like Warren Buffett from obtaining federal subsidies for health insurance, but in reality House staff are re-writing their legislation to correct a major flaw in its structure.

Based on my conversations with multiple sources close to the effort, the Congressional Budget Office (CBO) had indicated to congressional staff that the prior House framework could see at least 10 million, and potentially up to 20 million, individuals losing employer-sponsored health insurance. Further, CBO stated that that House framework, even after including a refundable tax credit for health insurance, would not cover many more people than repealing Obamacare outright.

By comparison, Obamacare led to about 7 million plan cancellation notices in the fall of 2013. While those cancellations caused a major political firestorm, the framework the House released prior to the recess could cause a loss of employer coverage of several times that number. What’s more, that framework as described looks for all intents and purposes like a legislative orphan appealing to no one—neither moderates nor conservatives—within the Republican party:

  • A significant erosion of up to 10-20 million individuals with employer-provided health coverage;
  • A new entitlement—the refundable tax credits—that by and large wouldn’t expand coverage, but instead cause individuals currently in employer plans to switch to the credits;
  • More federal spending via the refundable tax credits;
  • A tax increase—a cap on the current exclusion for employer-provided health coverage—to pay for the new spending on the credits; and
  • An increase in the uninsured (compared to Obamacare) of at least 15 million—nearly as much as repealing the law outright.

Details of the bill are changing constantly, and no doubt House leadership will claim these figures pertain to prior drafts of the legislation. But even if those numbers reflect outdated drafts, the combination of major re-writes to the bill and the lack of a CBO score at any point in the process thus far should cause significant pause on Capitol Hill. Members are being asked to vote on legislation before knowing its full effects, or even how it will look in its final version.

Coverage Quicksand

According to CBO, the combination of a cap on the exclusion for employer-provided health insurance, coupled with an age-rated tax credit for insurance, created a dynamic where expanding health insurance coverage was all but impossible.

An age-rated credit provides much greater incentive for firms to drop coverage, because all workers, not just low-income ones, can qualify for the credit. Moreover, because an age-rated credit provides the same subsidy to all individuals, regardless of income, low-income enrollees—the only individuals who have enrolled on exchanges in significant numbers—would have much less financial incentive to purchase insurance than they do under Obamacare, hence the lower coverage numbers overall.

On their bill, House Republicans put themselves in coverage quicksand. The more they thrashed to get out of the quicksand—by increasing the subsidies or adjusting the cap on the employer exclusion, or both—the deeper they sank, by increasing the erosion of employer-sponsored insurance.

Means-Tested Credit

Moving to a means-tested credit would create the same disincentives to work—individuals taking fewer shifts, or working fewer hours, for fear of losing their subsidies—as Obamacare itself. Here’s what Speaker Ryan’s Better Way document, released last summer, said about the current law:

Obamacare penalizes work. The law’s employer mandate and definition of a ‘full-time’ employee play a significant role in reduced hours, wages, and jobs. Even more critically, Obamacare’s subsidies themselves are riddled with cliffs and phase-outs, and the law includes a direct tax on work. Taken as a whole, CBO found that the law’s policies discourage work in such a way that it will be as if 2 million full-time jobs vanish from the economy by 2025. Our plan would repeal those taxes and work disincentives and implement a flat, simple form of assistance that would grow the economy and ensure work pays.

If House Republicans have turned on a dime, and re-embraced means-tested credits after criticizing them for several years, their plan will have at least some of the same work disincentives as Obamacare. Moreover, a means-tested credit also creates administrative complexities—reconciling payments made based on estimated income with actual income at the end of the year—that make it tougher to implement, as the Obamacare experience has demonstrated.

Obamacare’s Moment of Truth

On Thursday, Sen. Rand Paul sparked a Twitter meme, searching through the Capitol for copies of House Republicans’ current version of “replace” legislation. While Paul raised a valid point about the need for a transparent process, he might have been better served to search for a CBO score of the legislation, for that will show where the rubber meets the road on the bill’s fiscal effects.

House leadership has yet to release any budgetary scores of their legislation, yet apparently plan on marking up the bill this week—before a CBO score becomes available. Given the ways in which several drafts have prompted CBO to warn about a massive erosion of employer-sponsored health coverage, the phrase Caveat emptor applies. Members who vote for a bill without knowing its full fiscal effects, yet will be held politically responsible for said effects, do so entirely at their own risk.

This post was originally published at The Federalist.

Memo to Congress on Obamacare: Take My Coverage–Please!

Last week, Vox ran a story featuring individuals covered by Obamacare, who live in fear about what the future holds for them. They included people who opened small businesses because of Obamacare’s coverage portability, and worry that the “career freedom” provided by the law will soon disappear.

Unfortunately, but perhaps unsurprisingly, Vox didn’t ask this small business owner—who also happens to be an Obamacare enrollee—for his opinions on the matter. Like the enrollees in the Vox profile, I’m also incredibly worried about what the future holds, but for a slightly different reason: I’m worried for our nation about what will happen if Obamacare ISN’T repealed.

What Obamacare Hasn’t Done For Me

Unlike many of the individuals in the Vox story, I am a reluctant Obamacare enrollee—literally forced to buy coverage on the District of Columbia’s Exchange because Washington, D.C. abolished its private insurance market. (While I did contemplate moving to Virginia, where I could at least purchase an Obamacare-compliant plan without going through an Obamacare-mandated website, such changes aren’t easy when one owns one’s own home.)

While in generally decent health, I have some health concerns: mild hypertension (controlled by medications), mild asthma, and allergies that have worsened in the past few years. I’ve gone through two reconstructive surgeries on my ankle, which I’ve chronicled in a prior article. Under “research” previously published by the Obama Administration, my health conditions classify me as one of the 129 million people with a pre-existing condition supposedly benefiting from the law.

Yet while my health hasn’t changed much since Obamacare passed and was implemented, my health insurance policy has already been cancelled once. The replacement I was offered this year included a 20 percent premium increase, and a 25 percent increase in my deductible.

If Obamacare was repealed, or if insurers stopped offering coverage, it would be an inconvenience, no doubt. I don’t know what options would come afterwards. That would depend on actions by Congress, the District of Columbia, and the insurance community. But having already lost my coverage once, and gone through double-digit premium and deductible increases, how much worse can it really get?

Obamacare Will Raise the Deficit

Conversely, I am greatly worried about what will happen if Congress doesn’t repeal Obamacare. Our nation is nearly $20 trillion in debt—yet Obamacare would spend nearly $2 trillion more on health coverage in the next 10 years.

I know what liberals are saying: “But Obamacare will reduce the deficit!” Yes, the Congressional Budget Office did issue a score saying the law will lower the deficit. But consider all the conditions that must be met for Obamacare to lower the deficit. If:

  • Annual Medicare payment reductions that will render more than half of all hospitals unprofitable within the next 10 years keep going into effect; and
  • Provisions that will, beginning in 2019, reduce the annual increase in Exchange insurance subsidies—making coverage that much more unaffordable for families—go into effect; and
  • An unpopular “Cadillac tax” that has already been delayed once—and which the Senate voted to repeal outright on a bipartisan 90-10 vote in December 2015—actually takes effect in 2020 (which just happens to be an election year); then

The Congressional Budget Office estimates that the law will reduce the deficit by a miniscule amount. But if any of those conditions aren’t met, then the law becomes a budget-buster. And if you think all those conditions will actually come to pass, then I’ve got some land to sell you.

Obamacare’s Unspoken Opportunity Costs

Even if you believe in raising taxes to reduce the deficit, Congress has already done that. Except that money wasn’t used to lower the deficit—it’s been used to pay for Obamacare. Even some liberals accept that you can only tax the rich so much, at which point they will stop working to avoid paying additional income in taxes. Obamacare brought us much closer to that point, without doing anything to put our fiscal house in order.

Likewise, the law’s Medicare payment reductions are being used to both pay for Obamacare and extend the life of the Medicare trust fund (at least on paper, if not in reality). If it weren’t for the gimmick of this Obamacare double-counting, the Medicare trust fund would have become insolvent this year. Instead, budgetary smoke-and-mirrors have allowed Democrats to postpone the day of fiscal reckoning—making the day that much worse when it finally arrives.

We Just Can’t Afford Obamacare

Whether they’re liberal websites, Democratic leaders, or Republican politicians attempting to cover as many Americans as Obamacare in their “replacement,” no one dares utter the four words that our country will soon face on any number of fronts: “We can’t afford it.”

But the fact of the matter is, we can’t afford Obamacare. Not with trillions of dollars in debt, 10,000 Baby Boomers retiring every day, and the Medicare trust fund running over $130 billion in deficits the past eight years. Our nation will be hard-pressed to avoid all its existing budgetary and financial commitments, let alone $2 trillion in spending on yet more new entitlements.

So, to paraphrase Henny Youngman, take my health coverage—please. Repeal Obamacare,  even if it means I lose my health coverage (again). Focus both on reducing health costs and right-sizing our nation’s massive entitlements.

Failing to do so will ultimately turn all 300-plus million Americans into the “faces of Obamacare”—victims of a debt crisis sparked by politicians and constituents who want more government than the public wants to pay, and our nation can afford.

This post was originally published at The Federalist.

How A Meghan Trainor Song Explains the Obamacare Debate

Meghan Trainor may not be known as a policy wonk, but her lyrics could prove surprisingly useful for health care analysts. In constructing an Obamacare alternative, the debate really is all about that base—or, to be more specific, multiple baselines.

Despite the lyrics to Trainor’s famous hit, the intersection of those baselines—the coverage and fiscal baselines, along with the beliefs of the Republican Party base—has caused “treble” in replacing the health law.

Health Insurance Versus Health Care Prices

The first baseline—and the one currently driving the discussion—involves the number of Americans with health insurance. Right now, many Republicans believe they must try to extend coverage to the 20 million individuals Obamacare has supposedly provided with insurance.

Of course, some of those Americans—such as yours truly—had lost their prior coverage and were forced to buy exchange policies, or obtained coverage through Obamacare’s mandate for coverage of young adults under age 26, a provision ancillary to the law’s main entitlements. Moreover, other studies suggest the 20 million number is both inflated and driven largely by Obamacare’s massive expansion of Medicaid, not individuals purchasing policies on state insurance exchanges.

The alternative to Obamacare released by America Next nearly three years ago, which I helped draft, decided to focus on what bothers Americans most about the health care system: rising costs. Any Republican alternative to Obamacare that excludes an individual mandate or employer mandate likely will not cover as many individuals as Obamacare, perhaps by a good number. That’s one reason the America Next plan centered on controlling health costs, not implementing a coverage expansion designed to compete with Obamacare.

Although conservatives would historically focus on how their policies will lower health costs, right now many Republicans appear fixated on chasing coverage numbers. House Speaker Paul Ryan and Health and Human Services Secretary Tom Price both support refundable, advanceable tax credits, a policy Ryan has supported for many years. While incorporating a refundable tax credit into an Obamacare alternative will result in more Americans with health coverage—mitigating the first baseline issue—it could have other ramifications.

The Tax and Spend Baseline

The second baseline to consider when talking about Obamacare alternatives is the tax and spending baseline. If a replacement plan pre-supposes repeal of the law, should an alternative be viewed as raising or lowering taxes and spending relative to what existed with the law, or relative to what existed prior to the law?

For instance, the Congressional Budget Office estimated in 2015 that Obamacare will raise nearly $1.2 trillion in taxes over a decade. If an alternative to Obamacare would change that $1.2 trillion number to $800 billion, should that be viewed as a $400 billion tax cut relative to Obamacare itself, or a $800 billion tax increase, because Obamacare should be assumed as fully repealed?

Then There’s the Republican Base

On this front, the third base involved in this discussion, the Republican political base, has made its voice clear. Asked in a March 2014 poll conducted by America Next whether “any replacement of Obamacare must repeal all of the Obamacare taxes and not just replace them with other taxes,” 55 percent of the general public agreed. More concerning for Republican members of Congress, self-identified Republicans and conservatives agreed by much larger margins, approaching three to one. They would view any attempt to leave some of the law’s taxes or spending intact as inconsistent with pledges to repeal the law entirely.

Therein lies Republicans’ dilemma. Some Republicans believe that any credible Obamacare alternative must offer some insurance subsidy to those newly covered by the law. Several Republican alternatives already released would re-direct the funds raised by the law—whether through taxes, spending, or both—to finance new subsidy options.

However, based on the polling available, Republican voters disagree with this strategy. With Obamacare little discussed during the presidential campaign, and President Trump sending decidedly un-conservative signals about his policy priorities, Tea Party supporters may be more than a little surprised if an alternative to the law ends up retaining chunks of its spending and taxes.

This interplay among the base of new insureds, the spending and tax baselines, and the beliefs of the conservative base will define the House Republican alternative to Obamacare, and the legislative debate that continues to unfold. Meghan Trainor may never serve as a Washington policy analyst, but her mantra that it’s all about that base will ring true in the debate surrounding Obamacare.

This post was originally published at The Federalist.

The Good, The Bad, and the Ugly of House Republicans’ Obamacare “Replacement”

On Thursday, prior to lawmakers returning home for the President’s Day recess, House leadership gave them a brief outline of policies likely to be included in “repeal-and-replace” legislation introduced next month. While this “full replace” strategy likely will encounter additional obstacles and delays, as I outlined last week, it’s worth analyzing the specific policies being proposed at this point, to see how they shape up.

The Good

State Innovation Grants: While sounding new to some, this concept was first introduced in 2009 in the House Republican alternative to Obamacare, and later reprised in an Obamacare alternative introduced by America Next and then-Gov. Bobby Jindal (R-LA) that I helped draft. The program provides federal incentives for states to reform their insurance markets in ways that will lower premiums, expand access, and ensure coverage for individuals with pre-existing conditions (i.e., high-risk pools).

While on the one hand it’s regrettable that the federal government essentially has to bribe states to eliminate the benefit mandates that drive up insurance premiums, the Congressional Budget Office in 2009 concluded that the Innovation Grant incentives would work, helping drive down premiums by as much as 10 percent. Staff for Rep. Dave Camp (R-MI), then ranking member of the House Ways and Means Committee, did yeoman’s work compiling this proposal back then, and House Republicans are smart to revive the concept.

Health Savings Accounts (HSAs): In recent years, health savings accounts have become a popular and effective way to reduce health care costs. In addition to making other minor reforms, the Republican plan would roughly double HSA contribution limits. This change would allow individuals—particularly those just establishing HSAs—to save more for medical expenses, while not sparking the over-consumption that an unlimited HSA might incentivize.

Medicaid: With respect to Obamacare’s expansion of Medicaid to the able-bodied, the House document says expansion states “could continue to receive enhanced federal payments for currently enrolled beneficiaries for a limited period of time” (emphasis mine). This language would effectively adopt my earlier proposal of freezing enrollment in the Medicaid expansion—perhaps the most effective way to unwind the Obamacare entitlement. Unfortunately, other changes (described below) might have the opposite effect.

The Bad (or Questionable)

More Obamacare? In discussing the transition period between Obamacare and the new regime they seek to establish, the House document states “the Obamacare subsidies are adjusted slightly [sic] to provide additional assistance for younger Americans and reduce the over-subsidization older Americans are receiving.”

This language could mean one of two things: Either 1) a change in Obamacare’s age-rating bands—which currently prohibit insurers from charging older Americans more than three times what younger Americans pay—to allow greater variability and flexibility for insurers; or 2) some change in the subsidy regime that would have the same effects as 1).

Regardless, it seems questionable whether the answer to Obamacare’s problems lies in either more spending or another federal regulation that would only slightly ease the current micromanagement of health insurers. The focus should remain on repealing Obamacare, not fixing Obamacare.

Medicaid: At minimum, the House paper leaves more questions than it answers here, providing few specifics on the formula for a reformed Medicaid program (either block grants or per capita caps) in the future. In last year’s Better Way plan, House leadership proposed creating a “base year” for a reformed program of 2016, but that specific policy point did not appear in last week’s document.

Since release of the Better Way plan last year, new data from actuarial reports on Medicaid have shown how states that expanded Medicaid have “gamed the system” to increase their federal funding. Specifically, participants in the Medicaid expansion have averaged 14 percent higher costs than non-expansion enrollees—exactly the opposite of the actuary’s projections prior to the law’s implementation. That’s because states have used the prospect of the up to 100 percent federal match for expansion populations—so-called “free money” from Washington—to pay higher physician reimbursements.

Any reformed Medicaid formula must not disadvantage states that declined Obamacare dollars to expand the program to the able-bodied. However, because spending was higher for expansion enrollees than for non-expansion enrollees last year, using 2016 as the “base year” for Medicaid reform would do just that. Congressional staff are aware of the updated data showing how Medicaid expansion states have abused the Obamacare reimbursement formulae. But it will require both careful planning and a public vetting of the details to determine whether the funding formulae for Medicaid reform will perpetuate the current inequities.

Health Savings Accounts: While increasing contribution limits will increase HSA take-up, one other change should take precedence: Allowing HSA funds to be used to pay for insurance premiums, which is currently prohibited in most cases (except for COBRA continuation coverage, during periods of unemployment, and other limited circumstances). Allowing account funds to pay for premiums would represent a quantum leap forward in consumer-driven health care, by creating a defined-contribution model: Small businesses that cannot afford to purchase coverage for their workers can make predictable HSA contributions, which employees can then use to pay for health expenses, or to fund their own health insurance.

It is possible that the budgetary cost of ending the restrictions on premium payments prompted leadership staff to work instead on increasing the contribution limits. But the former should come before the latter, for multiple reasons: Allowing people to use account funds to pay premiums will create greater political movement to increase the contribution limits, while increasing the contribution limits now will make ending the premium restrictions more costly later. Both are positive reforms, but for multiple strategic reasons, ending the premium payment restrictions should take precedence over increasing the contribution limits.

The Ugly

New Entitlement (Funded by New Taxes?): The linchpin of the House plan lies in its system of advanceable, refundable tax credits—a new program of spending that would see the federal government writing “refund” checks to individuals with no income tax liability. However, the proposal likely will not receive a favorable score from the Congressional Budget Office (CBO) about the number of individuals covered by health insurance, at least compared to Obamacare.

That said, the new government spending will impose a fiscal cost. While Republicans did not mention a “pay-for” in their policy brief, press reports suggest the party may raise taxes to fund the new spending. Specifically, House Republicans are looking at capping the current exclusion for employer-provided health coverage, a policy included in their Better Way plan last year.

Most economists agree that the tax treatment of employer-provided health insurance encourages over-consumption of health insurance and health care. However, there are better ways to reform the tax treatment of health coverage—and provide parity between employer-sponsored and individually purchased insurance—without raising taxes overall. The American people do not support repealing Obamacare’s revenue increases only to replace them with other tax hikes.

Therein lies the great disappointment of the House proposal. While in 2008 Barack Obama campaigned for his plan by saying it would reduce health-care costs, he governed with a singular focus on increasing the number of individuals with health insurance, and in so doing raised costs and premiums for millions of Americans. Going down the same failed Obamacare approach of more taxes and more spending will not lower health costs. That, and not repealing and replacing Obamacare’s taxes and spending, should be House Republicans’ ultimate objective.

This post was originally published at The Federalist.

How HHS’ Proposed Rule Would Slightly Improve Obamacare

This morning, the Department of Health and Human Services (HHS) released a rule proposing several changes to Obamacare insurance offerings. The regulations are intended to help stabilize insurance markets and hopefully pave the way for a repeal and transition away from Obamacare.

Worth noting before discussing its specifics: The rule provides a period of notice-and-comment (albeit a shortened one) for individuals who wish to weigh in on its proposals. This decision to elicit feedback compares favorably to the Obama administration, which rushed out its 2018 Notice of Benefit and Payment Parameters without prior public comment during the “lame duck” post-election period. Because the Obama administration wanted that regulation to take effect before January 20—so President Trump could not withdraw the regulation upon taking office—HHS declined to allow the public an opportunity to weigh in before the rules went into effect.

Today’s proposed rule contains reforms designed to bring relief and stability to insurance markets:

  • A shortening of next year’s open enrollment period from three months to six weeks—a solution included in my report on ways the new administration can mitigate the effects of Obamacare. In theory, the rule could (and perhaps should) have proposed an even shorter open enrollment window, to prevent individuals from signing up after they develop health conditions.
  • A requirement for pre-enrollment verification of all special enrollment periods for people signing up on the federal exchange, healthcare.gov—again outlined in my report, and again to cut down on reports that individuals are signing up for coverage outside the annual open enrollment period, incurring costly expenses, then dropping coverage.
  • Permitting insurers to require individuals who have unpaid premium bills to pay their debts before enrolling in coverage—an attempt to stop the gaming of Obamacare’s 90-day “grace period” provision, which a sizable proportion of enrollees have used to avoid paying their premiums for up to three months.
  • Increasing the permitted range of actuarial value variation—also outlined in my report—to give insurers greater flexibility.
  • Additional flexibility on network adequacy requirements, both devolving enforcement to states and allowing insurers greater flexibility in those requirements. Some might find this change ironic—critics of Obamacare have complained about narrow physician networks, and this change will allow insurers to narrow them even further. Yet the problem with Obamacare and physician access is that insurers have been forced to narrow networks. The law’s new benefit mandates have made increasing deductibles, or cutting provider reimbursements, the only two realistic ways of controlling costs. Unless and until those statutory benefit requirements are repealed, those incentives will remain.

One key question is whether these changes by themselves will be enough to stabilize markets, and keep carriers offering coverage in 2018. Given that Aetna CEO Mark Bertolini this morning called Obamacare in a “death spiral,” and Humana announced yesterday it will exit all exchanges next year, that effect is not certain.

As my report last month outlined, the new administration can go further with regulatory relief for carriers, from further narrowing open enrollment, to reducing exchange user fees charged to insurers (and ultimately enrollees), to providing flexibility on medical loss ratio and essential benefits requirements, to withdrawing mandates to provide contraception coverage. All these changes would further improve the environment for insurers, and could induce more to remain in exchanges for 2018.

However, as my post this morning noted, the ultimate action lies with Congress. The Trump administration, and HHS under new Secretary Tom Price, have started to lay a foundation providing relief from Obamacare. Now it’s time for the legislature to take action, and deliver on their promise to the American people to repeal Obamacare.

This post was originally published at The Federalist.