Tag Archives: The Federalist

How the Media Care More About Obamacare Than the Constitution

Fewer than 12 months ago, some people—aka, yours truly—raised a warning about Obamacare’s cost-sharing reductions. The text of the law nowhere provided an appropriation for them, meaning that, as I wrote last May, the next President could shut them off unilaterally. At the time, I contacted several reporters, pointing out that such a move could have major implications for the health care law. None showed any interest in writing on the topic, and to the best of my knowledge, few if any reporters did.

Having now under-reacted regarding the issue during most of 2016, the media are compensating by over-reacting now. Since the House failed to pass “repeal-and-replace” legislation, breathless articles in multiple publications have examined the issue, whether the Trump Administration will cut off the subsidies, and whether insurers will bail on the Exchanges en masse as a result.

There’s just one little detail about the issue that many of these articles are missing. You may have heard of it: it’s called the United States Constitution.

What Exactly Is Going On With Obamacare Subsidies?

For the uninitiated, the dispute involves one of two types of Obamacare subsidies: premium subsidies to lower monthly premium costs, and cost-sharing reductions that help with things like deductibles and co-payments. The law requires insurers to reduce cost-sharing for certain low-income individuals, and provides for a system of reimbursements to repay insurers for providing said reductions.

However, Obamacare itself failed to provide any appropriation for the reimbursement payers to insurers. The lack of an explicit appropriation violates Article I, Section 9 of the Constitution, which requires that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” Congress has the “power of the purse,” and Members of Congress believe that the Obama Administration violated that power.

To remedy that violation, the House of Representatives authorized legal action in July 2014, and filed suit in November 2014 seeking to stop the subsidies. Last May, Judge Rosemary Collyer ruled that the Obama Administration had in fact violated the Constitution by spending money without an express appropriation. The case, House v. Price (formerly House v. Burwell), remains on hold; the Obama Administration appealed Judge Collyer’s ruling last year, and the Trump Administration and the House are attempting to resolve the status of that appeal.

Over Obamacare’s first four fiscal years, the disputed payments to insurers would total approximately $20.9 billion—$2.1 billion in fiscal year 2014, $5.1 billion in fiscal year 2015, $6.1 billion in fiscal year 2016, and an estimated $7.6 billion if they continue through fiscal year 2017 (which ends September 30). Over the next 10 years, the Congressional Budget Office estimates that the payments will total $135 billion.

What’s The Media Saying About All This?

Given that background, it’s worth examining press coverage on the issue since Republicans’ “repeal-and-replace” efforts collapsed, bringing questions about the lawsuit, and the subsidy payments, to the fore:

  • Politico noted that the House’s suit argued that the Obama Administration “had paid for [the subsidies] without congressional authority”—but also quoted an expert as saying failure to appropriate funds for the subsidies would “shoot [Obamacare] in the head.”
  • A separate Politico opinion piece said that “if the Republicans want to avoid a major mess, they need to make the suit go away and make sure the subsidies keep flowing.”
  • A Wall Street Journal article said that the House calls the payments “illegal.”

All three of these stories omitted one simple word: “Constitution.” As in, a federal judge said Barack Obama’s Administration violated the Constitution. As in, one analyst thinks the House needs to make a suit protecting its constitutional authority “go away.” As in, the payments weren’t ruled “illegal”—they were ruled unconstitutional.

Granted, other stories have at least mentioned the constitutional element of the dispute. But there haven’t been many stories focusing on the constitutionality of President Obama’s actions (which even Obamacare supporters have questioned), or even how the court ruling could rein in executive unilateralism. Instead of reading about how—by spending money without an appropriation—Barack Obama “sabotaged” the Constitution, or even “shot it in the head,” the public has seen all sorts of articles suggesting that President Trump may “sabotage” Obamacare—by upholding the Constitution.

Thanks For The Double Standard, American Media

Remember: The cost-sharing subsidies involve an issue where a federal judge has already ruled that the Obama Administration violated the Constitution by giving insurers tens of billions of dollars without an appropriation—yet the press seems more focused on whether or not those payments will continue.

That response merits a thought experiment in word substitution: If a federal court had ruled that the George W. Bush Administration violated the Constitution by giving tens of billions of dollars to—let’s pick a company at random here—Halliburton, do you think the press would be more focused on the violation of the rule of law and the unconstitutional payments, or on the chaos that would result if those payments to Halliburton suddenly ceased? If you think the latter, I’ve got some land I want to sell you.

If you’re still unconvinced that reporters are in the tank for Obamacare—or at minimum guilty of significant, and quite selective, double standards when it comes to their constitutional outrage—consider this recent Politico piece about a Donald Trump tweet threatening to change libel laws:

Trump’s comments on libel, coupled with his regular attacks on reporters and news organizations, have alarmed First Amendment advocates and his critics, who warned over the course of the campaign that his posture toward news organizations revealed a lack of respect for the role a free press plays in a democracy.

This high-minded rhetoric came one paragraph after Politico, citing various legal experts, pointed out “that there are virtually no steps within the President’s power to ‘open up libel laws,’ as Trump has suggested.”

When President Trump makes an empty threat against the press—one that he has no power to follow through on—the media piles on with all manner of self-righteous indignation about the integrity of the First Amendment and undermining democracy.

But when a federal judge rules that President Obama violated (not threatened to violate, mind you, but actually violated) the Constitution by paying insurers tens of billions of dollars, the media focuses largely on how remedying that violation will impact the health care law. They seem to care more about protecting Obamacare than protecting the Constitution. Is it any wonder why people boo the press?

Spare Me Your Self-Righteousness

Within that double standard lies the major problem: the presumption that Obamacare is “too big to fail,” irrespective of whether or not the Obama Administration’s payments to insurers violated the Constitution. Some could be forgiven for thinking that the press coverage provides a disturbing lesson to future Presidents: If you violate the Constitution long enough and badly enough, it will become a norm, such that people will expect future leaders to accommodate the violation.

To all those reporters worried about President Trump’s attacks on reporters, I’ll simply posit that the Constitution is a binary choice: You either support it—all of it, even or especially the portions you find inconvenient—or you don’t. If you want the public to care about the Trump Administration’s stance towards the First Amendment, then it might be wise to give a damn about the other portions of the Constitution too.

This post was originally published at The Federalist.

What You Need to Know about Invisible High Risk Pools

Last Thursday afternoon, the House Rules Committee approved an amendment providing an additional $15 billion for “invisible high risk pools.” That surprising development, after several days of frenetic closed-door negotiations and a study on the pools released Friday, may have some in Washington trying to make sense of it all.

If you want the short and dirty, here it is: Thursday’s amendment doesn’t resemble the model cited by pool proponents, undermines principles of federalism, relies on government price controls to achieve much of its premium savings, and requires far more taxpayer funding than the amendment actually provided. But other than that, it’s great!

Want more info? Read on.

The Amendment Text Does Not Match Its Maine Model

The legislative text the Rules Committee adopted last week bears little resemblance to the invisible risk pool model the amendment’s proponents have described.

In response to my article last week asking whether the invisible risk pool funding differs from Obamacare’s reinsurance program, supporters cited a blog post highlighting the way such a pool works in Maine. Under Maine’s program, insurers cede their highest risks to the pool prospectively—i.e., when individuals apply for insurance. Insurers also cede to the pool most of those high-risk patients’ premium payments, to help pay for the patients’ health claims.

Conversely, insurers participating in Obamacare’s reinsurance program receive retrospective payments (i.e., after the patients incur high health costs), and keep all of the premium payments those patients make. In theory, then, those two differences do distinguish the Obamacare reinsurance program from the Maine pool.

But there’s one other key distinction: The amendment the Rules Committee adopted last week doesn’t include the parameters of the Maine model. The original version proposed by Rep. Gary Palmer—the amendment language upon which the Milliman study was based—more closely tracked the Maine model. But the Rules Committee instead passed an amendment with generic language leaving much more discretion to the Trump administration. On Friday, Politico explained why:

The [Milliman] study…assumes that insurers would agree up front to surrender most of the premiums paid by high-risk enrollees, in exchange for protection against potentially costly claims down the line… Palmer included those specifics the first time he proposed adding a risk-sharing program to the [American Health Care Act], roughly two weeks ago. But they were stripped out of the final version presented Tuesday, and likely for good reason…Insurers likely wouldn’t be too enthusiastic about having that much skin in the game. Instead, the amendment essentially tells state and federal officials to sort out the details later—and most importantly, after the program is passed into law.

The federal pools may end up looking nothing like the Maine program advocates are citing as the model—because the administration will determine all those critically important details after the fact. Or, to coin a phrase, we have to pass the bill so that you can find out what’s in it.

The Amendment Undermines State Sovereignty

As currently constructed, the pool concept undermines state sovereignty over insurance markets. Paradoxical as it may sound, the amendment adopted last Thursday is both too broad and too narrow. With respect to the invisible high risk pool concept, the legislation doesn’t include enough details to allow policy-makers and insurers to determine how they will function. As noted above, all of those details were essentially punted to the administration to determine.

But the amendment is also too narrow, in that it conditions the $15 billion on participation in the invisible risk pool model. If a state wants to create an actual high risk pool, or use some other concept to stabilize their insurance markets, they’re out of luck—they can’t touch the $15 billion pot of money.

Admittedly, the amendment the Rules Committee adopted last Thursday isn’t nearly as bad as the original Palmer amendment on invisible pools. That original amendment required all insurers to participate in the invisible pools “as a condition of doing business in a state”—potentially violating both the Fifth Amendment for an unconstitutional taking against insurers, and the Tenth Amendment by undermining states’ sovereignty over their insurance markets and business licensing.

In a post last week, I cited House Speaker Paul Ryan’s February criticism of Obamacare: “They’re subsidies that say, ‘We will pay some people some money if you do what the government makes you do.’” That’s exactly what this amendment does: It conditions some level of funding on states taking some specific action—not the only action, perhaps not even the best action, to stabilize their insurance markets, just the one Washington politically favors, therefore the one Washington will attempt to make all states take.

Ryan was right to criticize the Obamacare insurance subsidy system as “not freedom.” The same criticism applies to the invisible pool funding—it isn’t freedom. It also isn’t federalism—it’s big-government, nanny-state “conservatism.”

The Pools’ Claimed Benefits Derive From Price Controls

Much of the supposed benefits of the pools come as a result of government-imposed price controls. The Milliman study released Friday—and again, conditioned upon parameters not present in the amendment the Rules Committee adopted Thursday—models two possible scenarios.

The first scenario would create a new insurance pool in “repeal-and-replace” legislation, with the invisible pools applying only to the new market (some individuals currently on Obamacare may switch to the new market, but would not have to). The second scenario envisions a single risk pool for insurers, combining existing enrollees and new enrollees under the “replace” plan.

In both cases, Milliman modeled assumptions from the original Palmer amendment (i.e., not the one the Rules Committee adopted last Thursday) that linked payments from the invisible risk pools to 100 percent of Medicare reimbursement rates. The study specifically noted the “favorable spread” created as a result of this requirement: the pool reduces premiums because it pays doctors and hospitals less than insurers would.

Under the first scenario, in which Obamacare enrollees remain in a separate market than the new participants in “replace” legislation, a risk pool reimbursing at Medicare rates would yield total average rate reductions of between 16 and 31 percent. But “if [risk pool] benefits are paid based on regular commercially negotiated fees, the rate reduction becomes 12% to 23%”—about one-third less than with the federally dictated reimbursement levels.

Under the second scenario, in which Obamacare and “replace” enrollees are combined into one marketplace, premiums barely drop when linked to commercial payment rates. Premiums would fall by a modest 4 to 14 percent using Medicare reimbursement levels, and a miniscule 1 to 4 percent using commercial reimbursement levels.

Admittedly, the structure of the risk pool creates an inherent risk of gaming—insurers could try to raise their reimbursement rates to gain more federal funds from the pool. But if federal price controls are the way to lower premiums (and for the record, they aren’t), why not just create a government-run “public option” linked to Medicare reimbursement levels and be done with it?

The Study Says This Doesn’t Provide Enough Money

According to the study, the amendment adopted doesn’t include enough federal funding for invisible risk pools. The Milliman study found that invisible risk pools will require more funding than last Thursday’s amendment provided—and potentially even more funding than the entire Stability Fund. Under both scenarios, the invisible risk pools would require anywhere from $3.3 billion to $17 billion per year in funding, or from $35 billion to nearly $200 billion over a decade.

By contrast, Thursday’s amendment included only $15 billion in funding to last from 2018 through 2026. And the Stability Fund itself includes a total of $130 billion in funding—$100 billion in general funds, $15 billion for maternity and mental health coverage, and the $15 billion specifically for invisible risk pools. If all 50 states participate, the entire Stability Fund may not hold enough money needed to fund invisible risk pools.

Remember too that the Milliman study assumes that 1) insurers will cede most premium payments from risk pool participants to help finance the pool’s operations and 2) the pool will pay claims using Medicare reimbursement rates. If either or both of those two assumptions do not materialize—and insurers and providers will vigorously oppose both—spending for the pools will increase still further, making the Milliman study a generous under-estimate of the program’s ultimate cost.

Let States Take the Reins

All of the above notwithstanding, the invisible high risk pool model could work for some states—emphasis on “could” and “some.” If states want to explore this option, they certainly have the right to do so.

But, as Obamacare itself has demonstrated, Washington does not represent the source and summit of all the accumulated wisdom in health care policy. States are desperate for the opportunity to innovate, and create new policies in the marketplace of ideas—not have more programs foisted upon them by Washington, as the Rules Committee amendment attempts to do. Moving in the direction of the former, and not the latter, would represent a true change of pace. Here’s hoping that Congress finally has the courage to do so.

This post was originally published at The Federalist.

The Binary Choices of “Repeal-and-Replace”

During the run-up to the aborted vote on House Republicans’ Obamacare “repeal-and-replace” legislation, Speaker Paul Ryan repeatedly called the vote a “binary choice”: Republicans could support the leadership-drafted legislation, or, by failing to do so, effectively choose to keep Obamacare in place.

The rhetoric led to criticism of the speaker for attempting to bully or rush members of Congress into supporting legislation despite policy concerns and political unpopularity. That said, health care policy does involve several largely binary choices. They do not break down along the political fault lines the speaker proposed—support the leadership bill, or support Obamacare—but they demonstrate how health policy involves significant trade-offs that should be made very explicit as part of the policy-making process. Here are just three.

1: Obamacare’s Regulations Are (Mostly) All-or-Nothing

Just prior to the scheduled vote, Republican leadership and the Trump administration found themselves in trouble when they proposed eliminating Obamacare’s essential health benefits, for both legal and policy reasons. A more clearly drafted policy could minimize the former, but likely not the latter.

Here’s the problem: As long as insurers are required to accept all applicants regardless of health status or pre-existing conditions—a requirement known as guaranteed issue, and included in Obamacare—removing at least three other important Obamacare regulations would likely lead to unsustainable and perverse outcomes:

Community rating: Theoretically, insurers would have little problem with a requirement to accept all applicants, so long as they can charge those applicants an actuarially fair rate. However, “offering” a cancer patient an insurance policy priced at $50,000 per month would likely yield few acceptances (and would be politically unsustainable).

Obamacare allowed insurers to vary premiums only by age, family size, geography, and tobacco use. The House bill expanded the permissible rating variation, but only with respect to age. While this change would lower premiums for younger applicants, encouraging them to purchase insurance, it might not change insurers’ underlying assumption that applicants will be sicker-than-average.

Essential benefits: Requiring insurers to accept all applicants regardless of health status, but allowing them to vary benefit packages, would create incentives for insurers to structure their policies in ways that discourage sick people from applying.

For instance, no rational insurer would provide much (if any) coverage of expensive chemotherapy drugs, because doing so would prompt a flood of cancer patients to purchase coverage and run up large bills. Since Obamacare’s passage, HIV patients have already faced discrimination because of these inherent flaws in the law, even with the essential benefit requirements in place. Removing them would only accelerate a “race to the bottom.”

Actuarial value: Here again, removing the requirement that plans cover a certain percentage of expenses would lead to a rapid downsizing of generous plans from the marketplace—again, so insurers can avoid sick patients. Platinum plans have already become a rare breed on the Obamacare exchanges; removing the requirements would likely cause gold and silver plans to disappear as well.

These four major regulations—guaranteed issue, community rating, essential health benefits, and actuarial value—are inextricably linked. Repealing only one or two without repealing all of them, particularly the guaranteed issue requirements, would at best fail to lower premiums (largely what the Congressional Budget Office, or CBO, concluded about the House bill) and at worst could severely disrupt the market, while making the sickest individuals worse off.

The CBO largely agrees with this analysis. In a January document, CBO noted that Obamacare included major regulatory changes that require insurers to: “Provide specific benefits and amounts of coverage”—essential health benefits (the types of services covered) and actuarial value (the amount of that coverage), respectively; “Not deny coverage or vary premiums because of an enrollee’s health status or limit coverage because of pre-existing medical conditions”—guaranteed issue; and “Vary premiums only on the basis of age, tobacco use, and geographic location”—community rating.

CBO views these four interlinked changes as at the heart of the Obamacare regulatory regime. While lawmakers could repeal piecemeal other mandates beyond the “Big Four,” such as the requirement to cover “dependents” under age 26, or the preventive services mandate, doing so would have a much smaller effect on reducing premiums than the four changes referenced above.

2: Keeping Obamacare Regulations Requires Significant Insurance Subsidies

The January CBO analysis of the 2015 repeal bill passed under reconciliation illustrates the second binary choice. Because that 2015 reconciliation bill repealed Obamacare’s insurance subsidies (after a delay) and mandate to purchase coverage, but not its regulatory requirements on insurers, CBO concluded that the bill would severely damage the individual health insurance market. By 2026, premiums would double, and about three-quarters of the country would have no insurers offering individual insurance coverage, in CBO’s estimate.

The analysis revealed one big reason why: Eliminating subsidies for insurance would result in a large price increase for many people. Not only would enrollment decline, but the people who would be most likely to remain enrolled would tend to be less healthy (and therefore more willing to pay higher premiums). Thus, average health-care costs among the people retaining coverage would be higher, and insurers would have to raise premiums in the non-group market to cover those higher costs.

In short, CBO believed repealing Obamacare’s subsidies while retaining its insurance regulations would lead to an insurance “death spiral.”

By contrast, CBO concluded that this year’s House Republican bill, which (largely) retained Obamacare’s regulations and included a new subsidy for insurance, would lead to a stable marketplace: “Key factors bringing about market stability include subsidies to purchase insurance, which would maintain sufficient demand for insurance by people with low health care expenditures…”

The obvious conclusion: While the individual health insurance market remained relatively stable without subsidies prior to Obamacare, and repealing both the law’s subsidies and its regulations would restore that sustainable market, as long as the regulatory changes wrought by the law remain in place, the market will require heavy insurance subsidies to remain stable.

3: Banning Pre-Existing Condition Consideration Versus Repealing Obamacare

This binary choice follows from the prior two. If the “Big Four” insurance regulations are so interlinked as to make them a binary proposition, and if a market with those “Big Four” requires subsidies to remain stable, then Republicans have a choice: They can either retain the ban on pre-existing condition discrimination—and the regulations and subsidies that go with it—or they can fulfill their promise to repeal Obamacare.

Consider, for instance, Ryan’s response to a reporter on February 16 questioning the similarities between the refundable tax credits in the House plan (later the House bill) and Obamacare: “They call them refundable tax credits—they’re subsidies. And they’re subsidies that say ‘We will pay some people some money if you do what the government makes you do.’ That is not a tax credit. That is not freedom. A tax credit is you get the freedom to do what you want, and buy what you need—and your choice.”

Based on Ryan’s own definition, the House bill qualifies as an Obamacare-esque subsidy, and not a tax credit. It gives some people (those with employer coverage or other insurance do not qualify) some amount—the credits had to be means-tested to solve major CBO scoring issues—if they buy insurance that meets government requirements.

For an individual “buy[ing] what [they] need,” the option to purchase health insurance without under-26 “dependent” coverage, or without maternity coverage for males, did not exist. So it’s not that others derided the House bill as “Obamacare Lite,” it’s that the bill qualifies as such under Ryan’s own definition.

Much of the problem lies in House Republicans’ Better Way proposal released last summer, which stated a desire to retain Obamacare’s pre-existing condition provision. The import of this proposal was not clear at the time. There are other, simpler ways to provide coverage to individuals with pre-existing conditions (such as high-risk pools), and as Yuval Levin has pointed out, prior conservative health proposals did not include promises on pre-existing conditions. But Republicans’ unwillingness to upset the Obamacare standards for pre-existing conditions has significantly boxed in the party’s policy options regarding repeal.

To Govern Is To Choose

As with Barack Obama in 2008, Republicans face a self-inflicted dilemma, having over-promised voters by claiming they could keep the popular portions of Obamacare (pre-existing condition protections) while repealing the law.

But Republicans face what looks increasingly like a binary choice: going back to the status quo ante on pre-existing conditions, or breaking their seven-year-long pledge to repeal Obamacare. As the saying goes, to govern is to choose—but in this case, failing to govern may be the worst choice of all.

This post was originally published in 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.