The most likely scenario as the Trump presidency begins is that Obamacare will be replaced by a less generous program, resulting in the loss of insurance coverage for millions of Americans.

As a new Republican administration and Congress prepare to take office in the United States, the Republican Party’s opposition to the Democratic mosaic of health care reforms known as Obamacare will move from the realm of political theatre to the hard world of governing. What, if anything, of Obamacare is likely to survive? What, if anything, will be put in its place? And what, if anything, will this mean for Canada?

The legislation known informally as the Affordable Care Act (ACA), and colloquially as Obamacare, comprises two acts of Congress and numerous federal regulations. It is mirrored at the state level by widely varying legislation passed to give effect to the federal provisions. Unwinding this web of legislation would not be a simple process.

The Republicans have passed numerous Bills to repeal Obamacare, in all or part, since winning the House in 2010 and the Senate in 2014. Most recently, a Bill was passed in both houses, and was duly vetoed by President Obama. But these actions were theatre. Knowing that first the Senate (from 2010 to 2014) and then the President (after 2014) would block any attempt to repeal it, the Republicans could engage in such cheap talk. But now that they “own” health care with their control of the House, the Senate and the White House, what will they do?

The structure of Obamacare

Despite Republican rhetoric, Obamacare was not a comprehensive overhaul of the US health care system. Rather it was a compendium of provisions aimed at filling gaps in coverage left by the existing system of employer-based private insurance and government programs.

There are essentially three strands to the reforms. The first is a set of insurance regulation provisions that banned certain underwriting practices such as denying coverage on the basis of pre-existing conditions. These provisions prevent insurers from varying premiums on grounds other than age and smoking status. The second strand is a substantial expansion of the cost-shared federal-state program for the poor (Medicaid). Under this expansion federal funding is provided to states that agree to extend coverage to all those with incomes equalling 138 percent of the federal poverty line or less.

The third and most controversial strand is the regulation and subsidization of the individual and small-group insurance market (affecting about 10 percent of the population), through a combination of carrots and sticks. The sticks are “mandates” requiring individuals to have, and some employers to provide, a defined minimum of insurance coverage, or the individual will pay a tax or fine in penalty. The carrots are federal subsidies for individuals and insurers and state-level health insurance “exchanges” (now known as “marketplaces”) to facilitate access to individual and small-group insurance.

These marketplaces largely exist online and provide a clearing-house function, where consumers select a private insurer and choose from the health packages it offers. But the marketplaces are not passive. They administer federal regulations requiring insurers to offer standardized coverage options (each of which builds on a compulsory basic basket but may vary in its required co-payments and deductibles, choice of health care providers and additional services covered), so that consumers can compare plans on an apples-to-apples basis.

Equally important, the marketplaces administer federal subsidies. These subsidies — known as advance premium tax credits — are offered as refundable tax credits, calculated on a somewhat complicated formula based on estimated income, household size and the cost of medium-level plans in a given state. Beneficiaries can opt to receive the credit at the time of purchase, before they file their tax returns. (In that case they may have to perform a reconciliation based on their actual circumstances when the return is filed.)

Most attacks on Obamacare focus on this marketplace strand. Opponents have gained ammunition in the recent enrolment round for 2017, as the marketplaces in some states have foundered, with insurers either exiting the market or sharply raising premiums. The fundamental insurance principle of spreading risk across a broad range of higher- and lower-risk individuals came under pressure in these smaller markets, largely because those who chose to take out insurance were too few and/or too skewed toward higher risk, or because healthy individuals rejected the available insurance options and chose to go without insurance and pay the (relatively modest) tax penalty instead.

Scenarios

The Republicans have made it clear that they intend to act on their pledge to repeal and replace Obamacare. This is easier said than done.

Outright repeal would strip more than 20 million people of their newly acquired coverage within a year. Horror stories of rising premiums would pale in comparison with stories of cancer sufferers losing their insurance coverage. Trump and some other leading Republicans, such as Lamar Alexander, the chair of the Senate Health, Education, Labor and Pensions Committee, have already announced that there are some aspects of Obamacare that they do not wish to abandon — namely, the popular restrictions on insurers (requiring that they insure all applicants and provide coverage for dependents up to age 26, for example). But getting rid of the less popular parts — the mandates and the marketplaces — while leaving the constraints on insurers in place would put the individual and small-group markets into a death spiral far more threatening than the current problems in some marketplaces. Insurers would have to accept all applicants and could not vary their premiums according to risk. Without the cushion provided by the lower-risk individuals who are currently required to have insurance, insurers would raise premiums for the remaining enrollees, driving more and more of them out of the market and further skewing the risk pools. As a result, insurers would not take their business or would charge such high premiums that no one would buy in. This collapse of the market for individual and small-group policies would deprive even more people of the coverage they currently enjoy. Some replacement would be necessary.

None of the repeal legislation passed by the Republicans during Obama’s two terms included replacement options. But a number of other senior Republicans in both the House and the Senate have drafted alternatives, such as tax credits toward the purchase of private insurance, health savings accounts and changes to regulatory requirements. The selection of Tom Price as Trump’s designate for secretary of health and human services brings the Republican congressman with arguably the longest history of devising alternatives to the ACA (dating from before its passage) into the executive.

All of these alternatives would eliminate the most loathed symbol of government over-reach, the requirement that all individuals have insurance, known as the “individual mandate.” Instead, most alternatives include measures to encourage but not require individuals to have insurance, such as preventing insurers from risk-rating on the basis of pre-existing conditions if individuals maintain continuous coverage with any insurer, creating an incentive for people to take out and keep insurance before they become ill. Furthermore, under most proposals, the ACA’s income-scaled advance-premium-tax-credit subsidy would be replaced by various income- or age-based tax credits, typically somewhat less complicated but considerably more meagre, especially for lower-income recipients. The effect of these provisions would be to reduce the extent and the quality of coverage.

The fate of the state-level health insurance exchanges, or marketplaces, is less clear in the Republican proposals to date. Many state-level marketplaces are in good health, and the problems plaguing others are fixable. These problems are similar to those that arose when private-insurance-based options were introduced into the public Medicare program for the elderly in the early and mid-2000s. They were largely resolved through increased subsidies for individuals and risk buffers for insurers, to ensure enough participation on both the demand and supply sides to make the programs viable. At first these subsidies dramatically increased the costs of the programs, but by the time they were reduced as part of the complex Obamacare package, the markets had stabilized and were continuing to function. Given the fiscal implications, it is highly unlikely that a Republican Congress would undertake a similar “fix” for the Obamacare marketplaces, even if it could be cast as a “replacement.”

As for the Medicaid expansion, leading Republicans at federal and state levels, including Trump, Price, Speaker of the House Paul Ryan and the Governor of Ryan’s home state of Wisconsin, Scott Walker, would convert federal funding from a cost-shared arrangement with the states to a set global amount as a block grant (subject to various conditions and indexation formulas). All of these proposals would reduce federal funding, and although their advocates argue that these reductions would drive efficiency, independent analyses have projected that they would remove coverage from between 14 and 17 million people. Other state-level Republicans, however, including Vice-President-Elect Mike Pence, Trump’s running mate and the Governor of Indiana, had experimented with Medicaid expansion on various public-private models under federal waivers, temporarily relaxing federal conditions to give states flexibility to experiment. The official who led Indiana’s efforts in this regard has been nominated by Trump to head the federal Center for Medicare and Medicaid Services, suggesting that this option is still of interest.

Given the speed with which the Republicans have promised to act, and the variety of proposals on the table, the stage is set for a fast-paced, cobbled-together strategy. This strategy, however, would have to overcome legislative hurdles. The ACA was passed through a tortuous and politically polarized process, meaning that changing or repealing some of the act’s provisions will require at least 60 votes in the Senate in order to overcome a “filibuster” – an indefinite extension of debate – by the Democratic minority. The Republican-dominated Senate could only avoid this problem by circumventing the filibuster rule, which has long-term risks for members of any party for the next time they find themselves in the minority. Nonetheless, it is one that the Republicans could well pursue.

The Republicans are already taking the first steps toward repeal. Both houses of Congress are aiming to vote this week or next week on budget resolutions that will allow those parts of the ACA with taxing or spending implications to be repealed by simple majorities. They will then have until January 27 to devise budget legislation that repeals those parts. But doing that while leaving the regulatory requirements on insurers in place would destroy the individual and small-group market for reasons described above. Therefore the repeal will be set to take effect at some point in the future. The Republicans have yet to agree among themselves on a timeline; they are divided between hawks who want a relatively quick timeline, and doves who fear the carnage that would result and want more time to devise a replacement.

Crafting and passing replacement legislation would be even more fraught. Even assuming the Republicans in the House, the Senate and the administration could coalesce around a plan, any plan would also face a Democratic filibuster unless the filibuster rule is circumvented. If they wish to respect the rule, the Republicans might count on the ticking time bomb of a pending repeal to bring enough Democrats to the table to reach a compromise. No such compromise could include an individual mandate, given the high symbolism involved. But the mandate itself was never a point of ideological principle for the Democrats — it was a technical necessity for getting to near-universal coverage in a private market. If the Democrats could cast a different set of provisions as “fixing” rather than “replacing” Obamacare, some bipartisan agreement might be possible. A more likely prospect in the highly polarized context would be failure to pass anything other than a series of extensions of the effective date of the repeal. The uncertainty and market turbulence generated by such a drawn-out process could ultimately drive the parties together.

In the meantime, the Trump administration would face a choice. It could simply drag its feet on administering and enforcing the ACA. This approach would be subject to legal challenges on the grounds that the President was abdicating his responsibility to “faithfully execute the law,” but the courts have typically allowed considerable executive discretion in that regard. Similarly, the federal government could refrain from taking some of the measures necessary to respond to the current problems in some state marketplaces and allow them to collapse under their own weight, in the words of a recent Trump tweet. And it could decline to defend against a number of the legal challenges to the ACA that continue to make their way through the courts. But because the Republicans would bear responsibility for the ensuing chaos, this is at best an interim option while new legislation is being prepared. Alternatively, and more likely, the administration could take various actions, potentially including executive orders, to counter the uncertainty created by legislative conflict and prop up the market.

Whatever happens, there will be even more variation at the state level than there is at present. Much of the implementation of Obamacare required action at the state level. But only 16 states and the District of Columbia established their own marketplaces, and 5 of those rely on the federal information technology platform. Some of these marketplaces could well be left in place, to be operated and subsidized by each state under its own legislation, as Massachusetts did before the ACA was passed (although reconciling state subsidies with whatever federal tax credits the Republicans put in place could be tricky). In 28 states the federal government had to step in to operate the marketplaces, and in the remaining 6 states they are operated through various forms of federal-state partnership. Most of these would likely disappear, and a variety of private options could arise to take their place, as proposed by Tom Price. Meanwhile, federal oversight of the state exchanges, as well as the federal subsidies and regulations administered and enforced through the exchanges, would disappear. State-level disparity in Medicaid coverage would likely grow. Nineteen states (generally Republican-controlled, southern, mountain and plains states) had already refused to expand their Medicaid programs under the ACA, even though the federal government committed to funding 100 percent of the expansion for three years beginning in 2014, ramping down to a steady state of 90 percent in 2020 and thereafter. Others that had expanded their programs under federal waivers to experiment with private options as noted above might wish to retain some of the funding necessary to continue these options. It would be consistent with the Republicans’ traditional states’-rights stance to allow for yet a greater range of state-level variety.

In summary, the most likely scenario as the Trump presidency begins is that the ACA set of gap-filling regulations and tax-related subsidies would be replaced by a different, lighter and less generous set, a scaling back of the Medicaid expansion and an even greater degree of state-level variation. The consequences of this shift would be significant, not only in the loss of insurance coverage for millions of Americans but also symbolically, with the removal of the individual mandate. The brief moment in which health care coverage was an obligation and a right of citizenship would be over.

Implications for Canada

The passage of the Affordable Care Act had essentially no effect on Canada. (Because of the “second-best” nature of the package, even in the eyes of its proponents, it didn’t even dent the traditional Canadian smugness on this front.) It is therefore not likely that its demise would cause any ripples in this country either. One effect of the ACA — the innovations in health care delivery fostered by experimentation with various forms of pay-for-performance remuneration under lesser-known provisions relating to Medicare and Medicaid — has attracted some attention in Canada, but these are not likely to disappear. It is possible that a wide variety of state-level experimentation in the wake of ACA repeal could further inspire some provincial-level variation under  bilateral agreements complementary to the Canada Health Transfer. For example, the expansion of coverage for prescription drugs in Canada could conceivably be done by facilitating and subsidizing access to private insurance through province-based “marketplaces” based on the Obamacare model. In Canada, that model could include a public alternative to private plans (what in the US would be called a “public option”). But Canadians have a more familiar and less complicated homegrown model for combining public and private insurance for prescription drugs in Quebec, and it is likely that the Quebec program would have a greater demonstration effect than anything that happens in a US state. Canadian smugness is doubtless safe.

Photo: J Dennis / Shutterstock.com


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