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Republicans’ Grim Health-Care Fairy Tale

Michael D. Tanner

Once upon a time in the far-off land of Washington, Republicans
swore a mighty oath that, if they ever had the power, they would
repeal Obamacare. Sometimes they added the word “replace,” but
mostly, every Republican running for anything from president to the
Tupelo school board vowed to rip the health-care law out by the
roots, drive a stake through its heart, and shred it. Republicans
in Congress even voted some 58 times to repeal all or part of the
law. Sure, they knew that either Senate Democrats or President
Obama would block their repeal attempts, but it was important to
show everyone that they really, really, really hated this law. This
was, after all, a very bad law that was driving up health-care
costs, destabilizing health markets, and depriving Americans of
their choice of insurance plan and sometimes their doctor.

Then, behold, a wondrous thing happened. Republicans won control
not just of Congress but the presidency itself. Now, nothing stood
in the way of their efforts to get rid of Obamacare. So, quickly
they … oh, never mind.

The health-care bill released by Senate Republicans last week
does many things. Repealing Obamacare is not one of them. In fact,
this bill not only preserves the core of Obamacare, it may actually
accomplish the difficult feat of making the health-care law’s many
failures worse.

Republicans looked at a
health-care law that was rapidly spiraling into oblivion and
decided that what they really needed to do was to preserve and
expand it.

In fairness, Republicans face a daunting task, complicated by
interparty ideological rifts, complex Senate rules on
reconciliation, and a president who neither understands the policy
nor has done anything to help sell an Obamacare-replacement plan to
the public. But no one expected a combination of bad policy and bad
politics as bad as this.

At the heart of Obamacare lies a devil’s bargain: The law
expands the number of people with insurance coverage at the cost of
driving up insurance premiums for those who already had coverage,
which is to say the vast majority of people. Republicans apparently
decided that the answer to this is to cut back on the increased
coverage, while doing nothing to bring down premiums. That may not
be “mean,” in the words of President Trump, but at the very least
it is dumb.

For example, the law keeps in place all of the “essential
benefits” that Obamacare requires every insurance plan to cover.
Those required benefits, including maternity coverage for elderly
men and child dental and vision care for childless adults, add
considerably to the cost of a policy and prevent individuals from
buying the insurance that best meets their needs or those of their
families. True, states would be able to apply for a waiver from
some of those mandates, but the reality is that most Americans will
still be forced to buy a high-priced insurance plan designed by
Washington bureaucrats, not by individual consumers.

Worse, the Senate bill preserves Obamacare’s rules regarding
pre-existing conditions. Those regulations, really a form of price
controls, drive up costs for the young and healthy in order to
subsidize those who are already sick. Moreover, this attempt to
shoehorn people who are by definition “uninsurable” into the
traditional insurance market has destabilized those markets,
leading companies to pull out, jack up premiums, and restrict their
provider networks.

The Senate bill doesn’t fix this. In fact, by simultaneously
dropping the individual mandate, which forces the young and healthy
to buy overpriced coverage, this bill could accelerate the
“adverse-selection death spiral” whereby healthy people drop out of
the insurance pool, leaving an ever sicker and more costly
population of the insured. The Republicans do try to cut down on
people gaming the system by imposing a six-month waiting period for
people who fail to buy or maintain insurance while healthy (call it
a soft mandate), but because the wait applies equally to the
healthy and sick, it will likely prove ineffective.

The Congressional Budget Office does conclude that the
Republican plan would ultimately reduce accumulated deficits by
$321 billion over the next ten years. However, most of those
savings occur in the last few years of that period. “Don’t worry,
we may not be cutting now, but we double pinky swear to cut in the
future” is something we’ve heard before. Indeed, Senate Majority
Leader Mitch McConnell is already hinting that he plans to use some
of those savings to increase subsidies and Medicaid spending in an
effort to bring Republican moderates on board.

Speaking of subsidies, the Senate bill would continue
Obamacare’s extension of the welfare state well into the middle
class, covering families that earn as much as $86,000 per year. And
despite the outcry over slowing the growth in Medicaid spending
(not actual cuts as has been so often misreported), this bill would
still keep Obamacare’s expansion in place until 2025, five years
longer than in the bill that passed the House earlier. To be fair,
unlike the House version, the Senate bill would prohibit states
that haven’t implemented Medicaid expansion from doing so. But it
then turns around and expands Obamacare’s “premium-assistance tax
credits” to 2.6 million people in those states, effectively
expanding Medicaid without saying so.

The Senate bill does take tentative steps toward Medicaid
reform, a program that has proven itself both ineffective and
fiscally unsustainable, but those changes, like the spending cuts,
are put off into the future where they are imminently reversible by
future congresses.

Of course, no Obamacare capitulation would be complete without a
little corporate welfare. Accordingly, the bill retroactively funds
“cost-sharing subsidies” for insurance companies. The subsidies
would be eliminated in the future, but insurers will now be paid
for expenses that they have already incurred. This bailout of the
big insurers effectively undoes one of the biggest Republican
victories on Obamacare in recent years, a federal court ruling that
such subsidies were illegally financed.

Senate Republicans even flinched on taxes. While the bill
repeals most Obamacare tax hikes, including a number of taxes that
hit the middle class hardest, it simply postpones the infamous
“Cadillac tax” on high-priced insurance plans.

Somehow, Republicans looked at a health-care law that was
rapidly spiraling into oblivion and decided that what they really
needed to do was to preserve and expand it.

At this point, the bill seems unlikely to pass. Either way, this
is one fairy tale that probably won’t end happily ever after.

Michael
Tanner
is a senior fellow at the Cato Institute, a free-market
oriented think tank.