The GOP Platform’s Language on Health Care and Options for a Republican President

The platform approved Monday at the Republican National Convention suggests that a future Republican administration could dismantle Obamacare using regulatory authority. A Republican president could not waive portions of the law, but he could act to stop controversial payments that are being made to insurers.

In its section on health care, the platform pledged of Obamacare: “a Republican president, on the first day in office, will use legitimate waiver authority under the law to halt its advance and then, with the unanimous support of Congressional Republicans, will sign its repeal.” The waiver concept echoes language used by 2012 Republican nominee Mitt Romney, who pledged that “If I were president, on Day One I would issue an executive order paving the way for Obamacare waivers to all 50 states.”

The “legitimate waiver authority” provided under the law is unlikely to grant the type of relief the Republican delegates or Mr. Romney envisioned. Language in section 1332 of the Affordable Care Act addresses the waiver of some provisions of the law. The waivers, however, apply only to states, not to individuals. They also apply only to a few delineated sections of the law, including the individual and employer mandates.

As I wrote last July, the waiver authority in the law allows changes in just one direction. States can cover more people or provide more generous insurance coverage than Obamacare does, but they cannot make changes that deviate from the law’s objectives—such as implementing health savings accounts or consumer-directed health plans. This amounts to the administration and Obamacare offering little flexibility to states whose leaders’ philosophical objectives differ from their own. A Republican administration is likely to bring in regulators with a different philosophy, but the statutory strictures would not change unless and until Congress acted.

It’s worth noting, however, that the Obama administration has made several unilateral decisions about a series of supplemental payments to insurers—regarding reinsurance, risk corridors, and cost-sharing subsidies. Because these payments were provided without the usual notice-and-comment period in rule-making, a Republican administration could take its own steps to end the billions of dollars in payments to insurers. If a future president wants to “waive” portions of Obamacare on Day One, these controversial payments would be the most feasible objective.

This post was originally published at the Wall Street Journal Think Tank blog.

Will Medicare Premium Increases Be an Issue in November?

Buried in the Medicare trustees report released Wednesday are a few lines that could cause political controversy. “In 2017 there may be a substantial increase in the Part B premium rate for some beneficiaries,” the actuaries write—which means seniors will find out about increases shortly before Election Day.

Higher-than-expected Medicare spending in 2014 and 2015 set the stage for a large premium adjustment in 2016. But, notably, the absence of inflation thanks to the drop in energy prices last year meant that seniors receiving Social Security benefits did not receive an annual cost-of-living adjustment.

The Medicare statute has a “hold harmless” provision that prevents Part B premiums from rising by more than the amount of a Social Security cost-of-living adjustment. For most beneficiaries, the provision meant that in 2016, they received no such adjustment—but also did not pay a higher Part B premium. However, nearly one-third of beneficiaries—new Medicare enrollees, “dual eligibles” enrolled in both Medicare and Medicaid (in places where state Medicaid programs pay the Medicare Part B premium), and wealthy seniors subject to Medicare means-testing—do not qualify for the provision.

The New York Times noted last fall that the hold-harmless provision, by protecting most beneficiaries, exposed some to higher increases: “If premiums are frozen for 70 percent of beneficiaries, premiums for the other 30 percent must be raised more to cover the expected increase in overall Medicare costs. In other words … the higher Medicare costs must be spread across a smaller group of people.”

Congress, seeing a dynamic in which some seniors could face a nearly 50% increase in premiums, crafted a provision to forestall such a high and sudden spike. The Bipartisan Budget Act capped Part B premium increases for 2016, paid for by a loan from the Treasury that would be repaid by seniors in future years.

The legislative language used, however, allows premium spikes to come back with a vengeance. The Bipartisan Budget Act provided that the Medicare Part B “smoothing” provision would be renewed in 2017—but only if Social Security beneficiaries received no cost-of-living adjustment at all. The trustees report out Wednesday says that beneficiaries are projected to receive a very modest adjustment: 0.2%. Although that change is relatively small, it means that the “smoothing” provisions in last year’s budget deal do not apply—and, as the Wednesday Medicare report notes, premiums for some beneficiaries “need to be raised substantially,” up to nearly $150 per month.

Before the trustees’ report was released, some experts had predicted that a series of payment reductions by the Independent Payment Advisory Board (IPAB) under Obamacare would spark talk of “death panels” in political campaigns this fall. Spending levels did not require the board to convene, making that issue moot for now. But that doesn’t mean that Medicare won’t be an issue on the campaign trail. Democrats raised the Part B premium issue last year; expect to hear much more about it before November.

This post was originally published at the Wall Street Journal Think Tank blog.

The Daunting Math Behind the House Republican Health Plan

A House Republican alternative to Obamacare is coming this week, and some reports suggest it will include a refundable tax credit to subsidize health insurance. This would present some tough political and policy choices about whether and how to pay for a new program of tax credits.

Changing the tax treatment of employer-provided health insurance could provide one of the largest potential sources of financing for a new refundable credit. It also would bring hefty trade-offs. On the political side, capping the deductibility of employer-based health plans to finance refundable credits that are considered government spending would not please some Republicans. Put another way: Repealing Obamacare’s tax increases to replace them with other revenue increases is unlikely to go over well with conservative voters, as I wrote in Think Tank late in 2014.

On a more technical level, such tax changes pose a “Goldilocks” problem. Some believe that an Obamacare alternative could cap the deductibility of employer-based insurance in a way that would raise enough revenue to fund subsidies for most, if not all, of those newly covered by the law, while leaving employer-based coverage unchanged for the vast majority of plans and workers. Achieving one of these goals would be difficult; achieving both simultaneously could be impossible.

Financing a refundable tax credit through reforms to Medicaid would raise other concerns. Some noteworthy examples suggest that giving states additional flexibility over benefit parameters would flatten the growth of Medicaid spending. But the Congressional Budget Office might conclude that such changes would cause states to reduce the number of individuals covered by Medicaid. Liberal advocates of Obamacare’s coverage expansions are almost certain to argue this. And if achieving coverage gains is an objective of an Obamacare alternative, budget scorekeepers are likely to note that reforming Medicaid to finance a refundable tax credit could work at cross-purposes.

House Republicans could decide to use Medicare savings to finance a new refundable tax credit. That, however, could lead to charges of hypocrisy because of the political attacks Republicans have leveled against President Barack Obama for funding the 2010 health-care law this way and because of the optics of using one entitlement program to fund another. Likewise, Republicans could, in theory, propose a new refundable credit without any method of paying for it—but such a proposal may not receive enough support to ensure passage.

It’s also possible that House Republicans’ proposal may attempt to obscure the conflicts and trade-offs that come with crafting a health plan. Mr. Obama arguably did that as a presidential candidate in 2008, and it’s a major reason his health-care efforts enjoyed widespread popularity through early 2009. Once the messy trade-offs necessary to construct the law—the individual mandate, tax increases, and Medicare reductions—were clear, the effort’s approval ratings plummeted. They remain low today. Given what happened with Obamacare’s crafting and rollout, Republicans’ failure to acknowledge the policy trade-offs necessary to enact an alternative to that law could win a short-term political battle—but cost them a long-term policy war.

This post was originally published at the Wall Street Journal Think Tank blog.

Paul Ryan, Donald Trump, And a Return to Congressional Government?

Last week’s announcement by House Speaker Paul Ryan that he will vote for presumptive Republican presidential nominee Donald Trump in November received widespread attention from political commentators. However, few noted the reason behind Mr. Ryan’s public endorsement of Trump: The speaker believes Mr. Trump will effectively cede policy-making authority to Republicans in Congress.

Writing in his hometown Janesville Gazette, the House speaker spent time outlining the agenda he has worked to frame since taking office in September—creating policy teams tasked with formulating an alternative to Obamacare, principles for tax reform, an anti-poverty agenda, and more. Noting that Hillary Clinton likely wouldn’t embrace the principles behind the Republican agenda, “we need a Republican president willing to sign [this agenda] into law,” he said.

Mr. Ryan clearly believes that “the House can be a driver of policy ideas”—in fact, he said as much in his article endorsing Trump. Mr. Ryan justified his endorsement of the businessman as a practical means to enact the agenda he and his fellow House Republicans are developing: “House Republicans are helping shape that Republican vision by offering a bold policy agenda, by offering a better way ahead. Donald Trump can help us make it a reality.”

What Mr. Ryan proposes—and what the speaker believes Mr. Trump has endorsed—would amount to the greatest ceding of a policy agenda from the executive to the legislature in over two decades. The arrangement echoes then-Speaker Newt Gingrich’s Contract with America, which dominated headlines following the 1994 Republican sweep of Congress. For a time, House Republicans so controlled the policy agenda that in April 1995, President Bill Clinton plaintively pleaded in a prime-time television news conference: “I am relevant. The Constitution gives me relevance.”

For all Mr. Trump’s ability to generate headlines or set Twitter alight, Mr. Ryan envisions a scenario where a President Trump, if not entirely irrelevant, would give Republicans in Congress the lead role in formulating a governing agenda. While Mr. Trump has thus far shown little interest in policy nuances, Mr. Ryan’s gambit appears based on the premise that, when and if he takes office, Mr. Trump will continue to outsource most of his agenda to Congressional Republicans. We’ll see if this arrangement will wear well for Speaker Ryan, Republicans in Congress, or Mr. Trump himself.

This post was originally published at the Wall Street Journal Think Tank blog.

What If GOP Alternatives to Obamacare Cover Fewer People — And That’s Not a Flaw?

Republican lawmakers crafting alternatives to Obamacare face a fundamental decision: whether to focus on expanding coverage or containing costs. Their choice may be driven, at least in part, by budget scorekeepers.

The Congressional Budget Office released a report in December 2008 on key issues in analyzing major health-care proposals. Included was a chart projecting individuals’ willingness to enroll in health insurance at various levels of subsidy (in technical terms, an elasticity curve). That curve suggested that insurance enrollment would remain below 40% until subsidies reached 70% of cost and that even if costs were 100% subsidized, about a fifth of individuals would decline to enroll. (And that level of subsidy is probably much greater than many Republicans would be willing to offer.)

This scenario is what prompted President Barack Obama to accept an individual mandate after he had campaigned against it; Nancy-Ann DeParle, one of his advisers overseeing health-care efforts, wrote in April 2009 that “the Congressional Budget Office (CBO) will likely take the position that without an individual responsibility requirement, half of the uninsured will be left uncovered.”

Having fought a mandate to purchase health insurance on both policy and constitutional grounds, Republicans are unlikely to include one in their alternative. This means that CBO is likely to analyze, or score, such a proposal as covering fewer individuals than Obamacare. While the GOP plan taking shape may not contain the legislative detail necessary to receive a CBO analysis, any Republican alternative is likely to be criticized by Obamacare supporters for not covering as many Americans.

Republicans could, however, embrace such an outcome as a feature rather than a flaw to their proposal. CBO concluded last September that eliminating the mandate would dramatically reduce coverage levels; this could be cited as grounds to argue that most of Obamacare’s coverage gains have come due to government coercion.

Some conservatives may argue that lowering costs, not increasing health coverage, is the proper metric by which to gauge health-care reforms. The plan I worked on for America Next, a conservative think tank, took this approach, focusing on reducing costs rather than on implementing a major coverage expansion.

Other details may spark controversy, but lowering costs vs. increasing coverage is a fundamental distinction likely to define any alternative to Obamacare. The option Republicans choose and the way they frame the issue will go a long way toward shaping the policy and political battles to come.

This post was originally published at the Wall Street Journal Think Tank blog.

An Insight Into Divisions over Administration Authority to Pay Obamacare Subsidies

A federal district judge ruled this month, in a lawsuit brought by House Republicans, that the Obama administration lacks the authority to pay cost-sharing subsidies to health insurers if Congress has not appropriated the funds. Some civil servants in the administration may agree.

The House Ways and Means Committee released a deposition Tuesday of David Fisher, former chief risk officer for the Internal Revenue Service. In it, Mr. Fisher recounts a series of events in late 2013 and early 2014 regarding the source and legality of Obamacare cost-sharing subsidies to insurers. The administration initially argued that the subsidies were subject to the budget sequester. By early 2014, however, it had shifted to the position that the cost-sharing subsidies were not subject to the sequester and could be paid under the appropriation authority for a separate program of premium subsidies created by the Affordable Care Act.

In the deposition, Mr. Fisher describes a January 2014 meeting at the Office of Management and Budget during which OMB staff showed—but did not allow IRS employees to retain—a memo ostensibly giving the federal government legal authority to combine the cost-sharing and premium subsidies. Mr. Fisher said the legal brief lacked a “single, main argument.” It was “almost a commentary on elements that, in total, would draw the conclusion that these payments out of the permanent appropriation would be appropriate.”

Mr. Fisher said he disagreed with OMB’s legal analysis and believed that there was “no clear reference” to an appropriation for the cost-sharing subsidies in the health-care law. He testified that the IRS’s chief financial officer and deputy chief financial officer shared his concerns. IRS Commissioner John Koskinen allowed employees to air those concerns soon after the OMB meeting, he said, but ultimately allowed the payments to proceed. Mr. Fisher testified that it was “a very strong consensus” of people in “fairly senior positions”—then-Attorney General Eric Holder had received a briefing, Mr. Fisher recalled—that the payments should proceed.

There is a notable point in the deposition: “There could be many other people who think this is about health care. To us,” Mr. Fisher said, referring to himself and others who shared his concerns, “this was not about health care.” The issue is abiding by appropriations law, he said, not least because the Anti-Deficiency Act provides criminal penalties for federal employees who spend funds not legally appropriated.

Democrats on the House Ways and Means Committee objected that Mr. Fisher was subpoenaed to testify, with Rep. Sander Levin calling it “another effort by the majority to try to undermine the Affordable Care Act.” Mr. Fisher, though, testified that he views the issue through a different prism.

Shortly before the federal ruling this month, both the House Ways and Means and the Energy and Commerce Committees issued subpoenas for internal documents relating to the cost-sharing subsidies. The panels have sought these documents for 15 months. The internal deliberations and potential conflicts raised by Mr. Fisher’s testimony could be part of the reason the administration has not released all those documents. It appears that there were questions about the legality of the cost-sharing subsidies within as well as outside the Obama administration.

This post was originally published at the Wall Street Journal Think Tank blog.

Will Premium Increases Related to Obamacare Sway Voters?

As candidates in both parties focus on the general election campaign, some Republicans wonder if large premium increases related to the Affordable Care Act could be an “October surprise” that helps propel them to victory in November. The causes of the approaching premium increases vary, but some are rooted in a 2013 Obama administration proposal.

In reporting on premium increases by one Iowa insurer, the Des Moines Register noted that individuals who bought new plans that complied with Affordable Care Act regulations could face premium increases of 38% to 43% next year. “Another 90,000 Wellmark customers who hold older individual insurance plans are expected to face smaller increases, which will be announced in June,” the paper said.

The disparity stems from a policy proposal in late 2013, when Healthcare.gov was not functioning, millions had received insurance cancellation notices, and President Barack Obama was being heavily criticized for pledging, “If you like your health-care plan you can keep it.” The administration allowed states to extend existing plans for one year.

Some states chose not to take this option. Those that implemented it did so for varying lengths of time. After extending the policy twice, the administration said this year that these temporary extensions would expire by the end of 2017.

States that implemented extensions created an actuarial problem for their health-care exchanges, the market where individuals not insured through their employer can buy their own plans. Enrollees seeking the enhanced benefits provided by Obamacare-compliant plans were the most likely to use them, while many people with little need for additional benefits preferred the status quo. In Iowa the problem is particularly acute: 90,000 residents have pre-Obamacare coverage, significantly more than the 55,000 who had signed up on the exchange as of February. By keeping these people, who tend to be healthier than those with ACA plans, out of the exchanges, the “fix” created another problem, laying the groundwork for the larger premium increases for next year.

The issue is more pronounced in Iowa, but other states are affected. This isn’t the only component of Obamacare that could exacerbate premium spikes. One popular feature is that parents can cover their children up to age 26. At the same time, however, this policy point discourages those young people from buying a plan of their own. Enrollment among these “young invincibles” remains well below expectations three years into the exchanges. Data from 2014 had suggested that those young people enrolling in plans were incurring high medical costs—which could also contribute to a trend of premium spikes.

For every action, there is an equal and opposite reaction. Political solutions from years past may materialize in the form of rate hikes this fall–and could generate a distinct reaction among voters on Election Day.

This post was originally published at the Wall Street Journal Think Tank blog.

How Hillary Clinton’s Credit for Out-of-Pocket Health Costs Could Backfire on Taxpayers

Hillary Clinton said recently that she supports efforts to allow some under 65 to buy into Medicare and suggested that this would help lower health-care costs. A key element of her broader health-care platform could, however, increase them–at a sizable cost to the federal government.

A plan the Clinton campaign unveiled in September would create a refundable tax credit worth as much as $2,500 per individual and $5,000 per family to cover out-of-pocket health-care expenses. The campaign has said that the credit would be “available to insured Americans with qualifying out-of-pocket health expenses in excess of five percent of their income, and who are not eligible for Medicare or claiming existing deductions for medical costs.” This means people eligible for the credit would include not only those who have plans through the Obamacare exchanges but also those insured through their employer. Making the credit refundable could allow individuals with little or no income tax liability to receive a refund from the federal government toward their out-of-pocket health costs.

The potential breadth of this proposal could prove its undoing. For one thing, the most recent Census Bureau survey, published in September, estimates that 175 million Americans are covered by employer plans. That’s nearly 14 times the 12.7 million individuals covered by plans through the Affordable Care Act exchanges. While there have been proposals to increase federal subsidies provides to those enrolled through the ACA exchanges, this is the only plan suggesting new federal subsidies for those with employer coverage.

Extending federal subsidies for out-of-pocket costs incurred by those with employer-provided plans could dramatically remake that market. Companies could opt to increase employee cost-sharing, knowing that workers would recoup some or possibly all of their new costs through the federal program. A Kaiser Family Foundation survey of employer plans last year found that only 19% of workers with single coverage faced a deductible of more than $2,000. The Clinton plan sets the maximum credit for individuals at $2,500. If the federal government provides individuals with high health costs a refundable credit to help subsidize their expenses, employers would have reason to try to offload their costs onto employees—which ultimately could end up costing the U.S. Treasury more.

Details of the Clinton plan are still limited. Should it be implemented, policy makers could attempt to shape or amend the tax credit’s effects. Still, it’s possible that a policy designed to absorb higher health costs would shift them from employers and workers to federal taxpayers. That cost-shifting wouldn’t lower spending–and could increase it. Knowing there is a federal credit might give employees incentive to incur additional expenses to exceed the subsidy threshold. That would mean a credit aimed at mitigating the effects of rising health costs for some families could end up exacerbating the problem on a broader scale.

This post was originally published at the Wall Street Journal Think Tank blog.

Is House v. Burwell About Statute or the Constitution?

Last Thursday, the Obama administration suffered a legal setback, when a federal judge in Washington ruled that the administration exceeded its authority by paying out cost-sharing subsidies to health insurers under the Affordable Care Act.

The administration will doubtless appeal the case, which was brought by the Republican-led House of Representatives, but whether those appeals succeed may well depend on whether courts view the case as one of statutory interpretation, or one with constitutional implications.

In its briefs in the case, the administration tried to portray House v. Burwell as a successor case to King v. Burwell, another lawsuit surrounding Obamacare subsidy payments, which the Supreme Court decided in June 2015.

In upholding Obamacare subsidies in King v. Burwell, the Supreme Court ruled last year that courts should not interpret conflicting sections of a statute in such a way that would lead to absurd consequences.

In the current case, government attorneys write that the Affordable Care Act statute, which includes an explicit appropriation for subsidized premium payments to insurers, provides enough authority for the administration likewise to disburse a separate program of subsidies to cover discounts for low-income consumers.

The administration attorneys say ending those subsidies would be a similar absurd outcome.

In her decision against the administration, Judge Rosemary Collyer of the U.S. District Court for the District of Columbia disagreed on both counts. Calling House v. Burwell “fundamentally different” from King v. Burwell, she framed the issue as “a failure to appropriate, not a failure in drafting.” Whereas King centered on mutually contradictory language under which “the statute could not function if interpreted literally,” in House the case revolves around the absence of language—namely, lack of a specific appropriation for the cost-sharing subsidies, as required by Article I of the Constitution. And while consequences might result if the House does not provide an explicit appropriation for the cost-sharing subsidies, “that is Congress’ prerogative; the Court cannot override it” by finding an appropriation where it is clear that none exists.

Judge Collyer’s decision last week echoes her procedural ruling last September. In ruling that the House had standing to bring its suit, she dismissed other portions of the House’s original case, relating to the administration’s unilateral delay of Obamacare’s employer mandate. She distinguished any disputes arising from the implementation or interpretation of a statute as quite different from the administration spending funds not appropriated—a constitutional injury worthy of court intervention, to protect the House’s “power of the purse” and separation of powers among the branches.

Such a distinction could prove crucial at the appellate stage. If viewed as a case of two parties differing on the interpretation of a statute, the House could lose its case on standing grounds—and the Supreme Court, having already heard multiple challenges to Obamacare, may decline to consider the case entirely. Conversely, if viewed as the executive exceeding its constitutional prerogatives, the Court of Appeals and Supreme Court may look more kindly on the House’s argument. Both for the political branches and for Obamacare, much hangs in the balance.

This post was originally published at the Wall Street Journal Think Tank blog.

The Problem with Health Care Costs: Third Party Payment

Several recent studies have illustrated the root of health care’s cost problem: In most cases, no one person—let alone one organization—bears sole responsibility for paying the bill. Slowing the growth of health costs may well involve changing those financial incentives—but also requires changing the culture that supports the status quo.

Two examples: A paper by University of Pennsylvania researchers found that 2,300 physicians “submitted claims for service codes that would translate into more than 100 hours per week on services” for Medicare beneficiaries alone; 600 doctors submitted claims totaling more than 168 hours per week—alleging to Medicare that they were working more than 24 hours per day, seven days per week. When it comes to drug costs, another researcher noted an interesting discrepancy: While pharmaceutical prices have increased by double-digit margins the past three years, drug prices net of rebates—that is, drug spending after discounts provided from manufacturers to pharmaceutical benefit managers (PBMs), have grown at much slower rates.

In both cases, the opacity of health care finance—individuals and businesses not knowing what things cost, and benefits not getting passed to consumers—results in hidden gains for intermediaries. In the drug scenario, PBMs negotiate rebates with manufacturers—rebates which they may or may not pass on to insurers, and which insurers may or may not ultimately pass on to consumers. Likewise, the Medicare insurance system—in which most seniors pay little-to-nothing out-of-pocket—can encourage some physicians to “up-code” their claims, knowing their patients will not incur any direct financial penalty.

Additional price transparency would help reveal the pricing disparities created by this “middle-man” issue. For instance, a recent Health Affairs article showed wide variations within states for common medical procedures such as ultrasounds. But transparency alone might not change behavior—or could even push it in the wrong direction.

A JAMA study released last week found that, among patients exposed to a price transparency tool, spending actually increased. As an accompanying editorial noted, “If patients are comparing services based on price for which their share of the cost is $0, the use of a price transparency tool may lead directly to patients selecting the higher-cost options given their likely perception that higher price is a proxy for higher quality and the lack of an incentive to price shop.”

Much of the problem with rising health costs stems from system actors—doctors, insurers, employers, and even patients—all believing that they’re spending other people’s money. Fixing that requires changing incentives so that patients can receive financial benefits from acting as smart purchasers of health care. But it also requires changing the culture, such that patients do not automatically equate the most expensive option as “best.”

This post was originally published at the Wall Street Journal Think Tank blog.