Next week, Republicans will officially take control of Congress. House Speaker John Boehner (R-Ohio) and new Senate Majority Leader Mitch McConnell (R-Ky.) have both said that they’re “renewing our commitment to repeal ObamaCare” in 2015.
The U.S. Supreme Court may beat them to it. On March 4, the nine justices will hear King v. Burwell, which challenges the federal government’s ability to offer subsidies through the 34 health insurance exchanges it operates. If the high court strikes down those subsidies, the entire law could unravel.
But Republicans cannot be satisfied with simply repealing Obamacare. They must formulate a replacement plan that will reduce health costs and expand access to care. And with a final decision in King expected in late June, they must do so quickly.
The plaintiffs aiming to bring down Obamacare have the law on their side. In a section known as 36B, the Affordable Care Act states that the federal government can only offer subsidies through exchanges “established by the State.”
Thirty-four states refused to build these exchanges and left the federal government to operate one for them. So according to the letter of the law, the government can’t offer subsidies in those states.
But the Obama administration needs those subsidies to prop up its health reform effort. Without them, people in the 34 states served by the federally-operated exchange — almost three-quarters of the country — would bear the full cost of Obamacare’s overpriced health plans.
The administration pressured the Internal Revenue Service, which distributes the subsidies as tax credits, to overlook the clear wording of section 36B.
The IRS expressed concern in 2011 about its legal ability to grant subsidies. But the tax collector eventually buckled and concluded that HealthCare.gov — an online marketplace owned and operated by the federal government — counted as an exchange “established by the State.”
If the U.S. Supreme Court defers to common sense and bars the distribution of insurance subsidies through the federal exchange, more than four million people would lose the federal cash they’d previously received. Many of them would be exempt from Obamacare’s individual mandate, as the law waives the requirement if premiums exceed 8 percent of income. Only the truly ill or those with chronic conditions would purchase insurance.
The individual mandate would then collapse. With fewer people in the insurance risk pool, premiums would shoot up. As they did, a steadily increasing number of people with insurance would find their premiums unaffordable — and would drop coverage. Thus would this death spiral cascade.
The employer mandate would disappear, too. Obamacare bases the fine for employers who do not provide health insurance on the number of workers who receive subsidies through the exchanges. If the feds can’t hand out subsidies, then firms won’t face fines for failing to offer coverage.
If the U.S. Supreme Court unravels the Obamacare status quo, then the Republican Congress must be ready with a health reform plan to replace it.
Republicans can start by reforming Medicaid, the jointly-funded federal-state health insurance program for the poor. Currently, the federal government essentially matches states’ Medicaid spending. That framework encourages states to expand their programs and gives them little incentive to root out waste. One report estimates that annual Medicaid spending could surpass $850 billion by 2022.
A system of block grants would bring Medicaid costs under control and allow states the freedom to experiment with various mechanisms for delivering benefits. Such experimentation could lead to better care for Medicaid recipients at a lower cost to taxpayers.
Republicans must then turn their attention to Medicare, which accounts for 20 percent of all health spending in this country. The program’s annual costs for covering about 50 million seniors are expected to exceed $1 trillion by early next decade. With the baby boomers retiring, this figure will surely skyrocket.
To rein in those costs, Congress should institute means-tested vouchers. Medicare beneficiaries could then purchase coverage from private insurers who compete for their business. Such competition would drive down costs and improve the overall quality of care.
The next element of an Obamacare replacement plan? Reform of the tax treatment of health insurance. Right now, businesses can purchase health insurance for their employees with untaxed dollars. Congress should grant individuals the same privilege. To ensure that low-income Americans could take full advantage, Congress could create refundable tax credits that help offset the cost of insurance.
Reforming the tax code in this way would empower consumers to choose health plans that meet their needs and budget — not those of their employers. This healthy dose of consumerism would also drive down costs, as patients have a greater incentive to consume care wisely when they’re paying the bill themselves.
To ensure that those with pre-existing conditions can find affordable health insurance, Congress should expand funding for high-risk pools. Because each state’s insurance market is different, the feds should entrust the states to create these pools — but should direct that premiums be capped at an affordable multiple of the average premium of a particular state.
Already some Republicans are preparing for such a network. Rep. Jack Kingston (R-Ga.) has already put forth legislation that would offer block grants to states to fund these high-risk pools.
Finally, Republicans must encourage the adoption of high-deductible insurance policies paired with tax-advantaged Health Savings Accounts. Some 17 million people currently have these accounts, which enable patients to save money tax-free to pay for care when they need it. And if they face a medical catastrophe, their high-deductible plans will protect them.
Patients can keep any of the tax-free savings they don’t spend. That gives them a powerful incentive to shop around for care. A 2012 study found that the average family who switched to an HSA plan immediately spent 21 percent less on health care during the first year.
Whether thanks to the new Republican Congress or the nation’s highest court, Obamacare’s days may soon be numbered. Congressional leaders must be prepared with a plan to replace it.
