The Big Mistake in Obamacare Replacement Plans

When Democrats were peddling ObamaCare to an unsuspecting America, they told us that the price of health insurance would go down by thousands of dollars. But the opposite happened, and it continues to happen. The way that real insurance works is that policyholders get lower premiums if they are less likely to file claims and thereby cost their insurance companies money; that is, if they pose less risk. Insurance companies set premiums by using actuarial science to calculate risk.

But ObamaCare policies don’t price for risk, everyone pays the same regardless of risk due to the ACA’s “community rating” policy. However, there’s another way to keep the price of premiums down and that’s for policyholders to agree to pay some of the costs of the medical treatment incurred in their claims, i.e. deductibles and copayments -- the lower the premium, the higher the deductible.

So, ObamaCare tried to make premiums affordable by having much, much higher deductibles. But some folks who file claims with ObamaCare can’t pay their deductibles. ObamaCare took care of those folks through CSRs, cost sharing reductions, where government pays the policyholder’s deductible.

Unlike its premiums, the ACA did not provide automatic funding of the CSRs. Instead, Congress must regularly approve the funds for the CSRs, and Congress hasn’t been doing that. This back-loaded little aspect of the ACA has been driven home recently by President Trump’s executive order to stop payment of CSRs. Democrats and their stooges in the media are wailing that the president’s order is “arson” and “sabotage.” They caterwaul that without the CSR payments the price of ACA premiums will, surprise, surprise, shoot up even higher. They seem to think that the ACA should be exempt from the “Laws of Insurance.”

On May 12, 2016 in House v. Burwell, a federal judge found that the payments of CSRs are unconstitutional because Congress hasn’t been appropriating the funds. Law Professor Timothy Jost has written much on the case (archive); here’s what he wrote on the day of the decision. Though Article I, Section 9, Clause 7 is quite clear in requiring that money cannot be “drawn from the Treasury” without an appropriation from Congress, Democrats seem to think that the president should just keep on lawlessly spending money, just as Obama did.

The media has been rather careless in reporting this story; they often refer to the CSRs as “subsidies.” But there’s another ObamaCare subsidy that one receives when the government helps to pay for one’s health insurance premiums. That is the main subsidy, and it has complicated folks’ income tax returns. Unlike premiums, which must be paid every month, the CSRs are subsidies that would never need to be paid if no one filed a claim. But policyholders do file claims, so the true cost of ACA policies needs to include the $7B that the CSRs are costing taxpayers. That’s the same $7B Democrats think Pres. Trump should be spending without congressional authorization.

Congress has the power to appropriate the funds for the CSRs, and recently Sens. Alexander and Murray have reached a deal to do just that. However, the deal is for a two-year appropriation, which Republicans should reject for a much shorter funding period, should they be inclined to vote for this deal. Not only that, Republicans should get some concessions, too:

Just minutes before Alexander announced the deal, White House legislative director Marc Short emerged from a Senate GOP lunch saying that “a starting point” in exchange for restoring the cost-sharing payments “is eliminating the individual mandate and employer mandate” -- the central pillars of Obamacare.

But the mandates aren’t “the central pillars of ObamaCare.” ObamaCare made inroads into several huge areas of health insurance, and most of ObamaCare would still stand if the individual mandate were repealed. What would be affected by the elimination of the individual mandate is the Individual Market.

Because most Americans receive health insurance through their employer or through government programs like Medicare and Medicaid, Obamacare trained its corporatist sights on the Individual Market. It is this group that receives all the media attention, but it is by far the smallest sector. Before the implementation of the ACA, the Individual Market, which is also called the “Non-Group” market, comprised just 4 percent of the population.

Repeal of the individual mandate would likely result in throngs of healthy young Americans choosing not to buy health insurance, which would indeed doom the Individual Market under Obamacare. But that should happen anyway. You see, government needs to get completely out of the Individual Market; Congress needs to let the Individual Market be totally private.

But what we’ve seen with the various Republican repeal and replace plans is that they retain government involvement in the Individual Market. Continuing the government’s involvement in the Individual Market with the individual mandate and subsidies is the Republican’s “Big Mistake” in their replacement plans.

Here’s a question that should be asked of all congressional Republicans: Will you vote to repeal the individual mandate? Any GOP congressman who is for the repeal of the individual mandate cannot also be for the federal government’s continued involvement in the Individual Market, because that market depends on that mandate. In their repeal and replace plans, Republicans are sabotaging themselves by being for contradictory things.

With ObamaCare you get both high premiums and high deductibles. But ACA premiums would have been even higher had Democrats structured ObamaCare like real insurance with reasonable deductibles. The people ObamaCare hurts the most are those who pay the full price for health insurance at the exchanges.

If people don’t have the funds to pay the full price for health insurance premiums, deductibles and copays, then they need to be put into Medicaid. Congress should especially be putting ACA subsidy recipients with pre-existing conditions into Medicaid. All taxpayers should be helping to pay for those very sick poor people, rather than having a disproportionate amount of it paid by those in the Individual Market.

Besides being incoherent, the Supreme Court decision to uphold the individual mandate was a rewrite of the ACA. The Court did not defer to Congress when it saved Obamacare, it legislated. Congress should resent the Court’s usurpation of its power to write law. If the high court will not strike down bad law, then it is left to Congress to do so.