Shredding the Safety Net

January 22, 2017

The GOP has taken the first steps to free 20 million Americans from the shackles of Obamacare. Soon, they will be free to go to the emergency room of their choice. Just like the good old days. Assuming, that is, that the hospital won’t close the emergency room because it is overwhelmed with people who can’t pay, if the Affordable Care Act (ACA) is repealed.

This is a cynical and callous move by the Republicans, who are playing with people’s lives. By the way, they do not have a mandate to destroy Obamacare; only 22% of Americans want the program to be repealed outright. Yes, the polls show that Americans are split about 43%/43% on favorable and unfavorable views of Obamacare. But some of the “unfavorables” think the ACA does not go far enough and it should be expanded. And 55% of Americans want parts of the ACA repealed only if replacements are enacted at the same time, based on the latest CNN poll. Good luck with that.

Obamacare’s Success is Based on the Law of Large Numbers

The ACA uses the fundamental framework of any successful insurance program. You create big pools of insured customers, to spread the risk of loss so it is manageable.

This “law of large numbers” is the bedrock of insurance, and the ACA employed this principle to attract private insurance companies to participate. However, the Republicans seem to believe that the “the market” will somehow work if we go back to the old system of individuals purchasing insurance on their own. But the “market” had left out the 16% of Americans who did not have medical insurance before Obamacare, in many cases because they were not part of a large pool, such as an employer-provided plan.

Republicans claim that Obamacare is a “disaster” and is in a “death spiral”, so they have to scrap it. But new enrollments for 2017 rose year over year, and it is operating well in many states. Before we resign ourselves to a repeal of Obamacare, let’s consider its achievements.

Since it went into effect, the Affordable Care Act has:

· Provided coverage to 20 million Americans

· Helped to cut the rate of the uninsured from 16% to 8.9% since 2010…so about 7% of Americans

· Provided affordable insurance to low-income Americans: the average premium is $1, 528 and the out-of-pocket maximum is $2,350

· Helped to slow the growth of medical inflation

· Reduced the federal deficit significantly

The High Cost of Repeal

Meanwhile, repealing Obamacare could increase the federal deficit by $350 billion over 10 years, according to The Congressional Budget Office. The CBO, which is non-partisan, has estimated that a full repeal of the ACA would cause 18 million Americans to lose their medical insurance in the first year. Eventually 30 million would lose their insurance within a few years. Premiums would rise 20–25% for people buying individual policies.

There are problems with Obamacare. Several insurers have pulled out of certain states, because the policies were not profitable, and in others they have raised premiums sharply. For some middle-class families, who don’t qualify for subsidies, the cost of the policies is a burden. The Democratic solution, as proposed by Hillary Clinton, is to increase the subsidies that people receive. That would reduce their out-of-pocket cost while allowing insurers to make a decent profit.

Another important step for putting the system on a firmer footing, in my opinion, would be to increase the penalty for not signing up for insurance. That would discourage younger, healthier people from gaming the system by forgoing insurance. The Democrats have shied away from proposing this, because the so-called mandate is unpopular and Republicans have attacked it ferociously. But it is crucial for maintaining a well-balanced pool of risks.

The Republican “Solutions” Don’t Address the Problems

Most of the Republicans’ ideas won’t address the basic problem of high health care costs. Instead, they would dismantle one of the ACA’s advantages, the creation of those large pools of policyholders to spread the risk.

The Republicans have floated ideas such as:

· Letting consumers buy insurance policies across state lines…on the theory that will lead to more competition

· Creating more tax-advantaged accounts for consumers to use for paying health care costs

· Replacing Obamacare with block grants for states

Large health insurers, such as Aetna and CIGNA, already compete across the nation. The problem with the first proposal is that states — -not the Federal Government — regulate almost all insurers. Smaller, less creditworthy insurers would love to sell policies across state lines…but they may not meet the regulatory requirements.

If out-of-state insurers could sell policies into another state, they could avoid the stricter regulation and the capital requirements faced by the insurers that have met that state’s requirements. That could allow them to underprice their policies vs. better capitalized, more regulated firms. This would be a gift to smaller, weaker insurers….not to consumers.

Tax-advantaged accounts probably won’t help many ACA policy-holders because they may not have either much taxable income or a high tax rate. That’s why they’re on Obamacare. They aren’t meeting with their accountant to do tax-planning; they are getting by month to month.

This is like telling someone, “We’re abolishing Social Security. But don’t worry; you can set up a terrific pension plan for yourself.”

And when Republicans talk about “block grants”, that is code for “let’s cut the funding for the program”.

Why the Rush to Repeal?

Why are Republicans so determined to end Obamacare, even though they don’t have a detailed plan yet? Why do they want to destroy a program that is working pretty well in many states… and gamble with 20 million Americans’ health? After all, the insurance companies, hospital management companies and the American Medical Association, the doctor’s lobby, aren’t clamoring for repeal.

I think that the Republicans’ obsession with the ACA reflects the politics of spite and class warfare. And, of course, taxes.

The Republicans hate Obamacare because:

· It is a Democratic program…so it should be opposed regardless of its merits

· It is Barack Obama’s key legislative achievement, his “legacy” … and he doesn’t deserve one

· Many of its beneficiaries are low-income minorities, so they’re unlikely to vote Republican

· Obama financed the program with a new 3.8% tax on investment income…he raised taxes!

I learned about the 3.8% tax on investment income several years ago, from a well-heeled friend who was incensed about it. It had not been on my radar screen. I don’t know how many Americans have enough investment income to care about much about that 3.8% tax. That group probably doesn’t amount to 7% of the U.S. population, the number of Americans who obtained medical insurance through Obamacare. But it’s an important constituency for the Republicans, it seems.

The Republicans will also, ironically, throw under the bus — or the ambulance, if you prefer — a lot of working-class, white Trump supporters who have Obamacare policies. Those poor souls have a nasty surprise coming their way.

In former times, when one party passed a major program in the U.S., such as Social Security, or negotiated a treaty, such as NAFTA, the other party did not seek to nullify those actions as soon as it seized power. They accepted such achievements as legitimate exercises of political power in our democracy. They also realized that if they exercised restraint, their opponents probably would not rush to undo their laws. They wouldn’t scrap a program that was working, just to get revenge.

But those days are gone, apparently.

The Wall Street Democrat