Republican Moves Add to Cost of Obamacare but Won’t Kill It

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U.S. Speaker of the House Paul Ryan (R-Wis.) holds a news conference on Capitol Hill in Washington, D.C., on December 17, 2015. He promised that Republicans would pass a repeal of Obamacare and send it to the president next year. Gary Cameron/REUTERS

If you believe the headlines or Republican rhetoric these days, you might think Democrats’ 2010 health care overhaul, known colloquially as Obamacare, is at death’s door. Just this week, Congress is passing legislation that “blocks several Obamacare provisions,” House Speaker Paul Ryan pointed out in his weekly press conference Thursday. A morning press release from House Majority Leader Kevin McCarthy blared in bolded lettering: “The House Is Dismantling Obamacare.”

Not exactly. Congressional Republicans are certainly weakening sections of the law (in this case, with some Democratic help). But none of the latest steps threaten the long-term viability of the Affordable Care Act, health economists say. Rather, the steps simply add to the deficit and, potentially, to the premiums patients will pay.

In the year-end tax and spending deals lawmakers reached this week, Congress is holding up several taxes that were part of the original Affordable Care Act, including two-year delays on a tax on high-cost (aka “Cadillac”) health plans and one on medical devices. They were designed, at least in part, to help cover the cost of expanding health coverage to millions more people. The tax on Cadillac plans was also intended to discourage overuse of the health care system that comes with very generous insurance coverage, says Alice Rivlin, director at the Center for Health Policy at the Washington, D.C., think tank the Brookings Institution. Most people who have those plans are wealthy, but many labor unions have also negotiated generous health benefits for their members, prompting pushback from a key Democratic constituency. (For a long time, unions pressed harder for health care benefits than for wage hikes.) All three Democratic presidential candidates have now come out in opposition to keeping the Cadillac tax.

Congress also extended a measure, in place for the last year, to restrict how the government reimburses insurance companies participating in the insurance marketplace. The Affordable Care Act created a “very different market than what insurance companies have been used to operating in, and so they were unfamiliar with this population of uninsured people,” explains Rivlin. “They were experimenting for how to set premiums and how to structure their offerings,” which involves a good deal of risk. “The idea of the risk corridors was that the government would share the risk.”

Enter Senator Marco Rubio, now a leading candidate for president. Last year, the Florida Republican declared this risk-sharing to be a “government bailout” and succeeded in passing a one-year limit on the money the Obama administration can use to reimburse insurers who lost money participating in the exchanges. As a result, the pool of money available to cover insurance losses was far smaller this year than the government or insurers expected. And it contributed to the collapse of nearly a third of the state-based nonprofit health plans, known as co-ops, formed in the wake of Obamacare. That’s something Rubio has made a point of trumpeting on the campaign trail this fall. “I’m the only one running that’s actually ever scored a victory against Obamacare,” he told Reuters earlier this month.

Urban Institute Fellow John Holahan says Rubio’s risk-corridor restriction wasn’t the only reason many states’ co-ops have failed, however. “They were probably overly aggressive in pricing low in order to get market share,” Holahan says. And since they were starting networks of health providers from scratch, they had little leverage from doctors, meaning they had to accept higher rates. Rivlin also says many didn’t start with enough funding up front. “They were undercapitalized,” she says.

Moreover, Holahan says, their collapse “has almost no effect” on the new health marketplace Obamacare has created. “The co-ops are not in a large number of markets around the country, and in many where they are, they are not among the lowest-cost plans,” he explains.

Rivlin does worry, however, that Rubio’s risk-corridor gambit means that “in some places, it makes the insurance companies less likely to enter new markets if the government isn’t able to share the risk.” That could ultimately mean less competition and higher rates for patients.

Congress’s tax measures, Rivlin and Holahan agree, will have little impact on the law’s implementation. “I think the delays...for two years probably doesn’t make that much of a difference,” Holahan says. But if they are ended completely, Obamacare opponents can “argue that the law isn’t paying for itself.” In the meantime, it’s “increasing the deficit,” Rivlin says.

What these delays do accomplish is pushing the issue beyond next year’s presidential election, while giving partisans on both sides some red meat to take to their bases. Expect plenty more political jousting on Obamacare next year. At his press conference, Ryan promised that “when we return in January, the House will put an Obamacare repeal bill on the floor and pass it and put it on the president’s desk.” Of course, the new speaker knows as well as anyone that the president will veto such a bill. With Barack Obama in the White House, nothing Congress does this year or next will alter the core trajectory of the Affordable Care Act. That will be determined by the 2016 election.