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Repeal of Obamacare
The 115th Congress was sworn in and officially took office on January 3, 2017. Both parties immediately drew battle lines over President-elect Donald Trump’s campaign promise to repeal the Affordable Care Act (ACA), commonly known as Obamacare.
The repeal of the ACA is part of President-elect Trump’s seven-point plan to reform healthcare. His plan can be found in detail on his website www.donaldjtrump.com/positions/healthcare-reform. The seven points are summarized, as follows:
1. Completely repeal Obamacare.
2. Modify existing law that inhibits the sale of health insurance across state lines.
3. Allow individuals to fully deduct health insurance premium payments from their tax returns under the current tax system.
4. Allow individuals to use Health Savings Accounts (HSAs). Contributions into HSAs should be tax-free and should be allowed to accumulate.
5. Require price transparency from all healthcare providers, especially doctors and healthcare organizations like clinics and hospitals.
6. Block-grant Medicaid to the states.
7. Remove barriers to entry into free markets for drug providers that offer safe, reliable, and cheaper products.
President-elect Trump also wants to reform our mental health programs and institutions and relieve healthcare cost pressures on state and local governments by simply enforcing the current immigration laws and restricting the number of visas granted to enter the United States.
In a press conference with Republican (GOP) leadership on Capitol Hill the next day, Vice-President-elect Mike Pence stated, “First order of business is to repeal and replace Obamacare”. He noted that a lot of states are experiencing approximately 25 percent premium rate increases this year. Representative Steve King (R-IA) introduced a bill to fully repeal the ACA, stating, “I believe Obamacare should be ripped out by the roots, and I will not stop fighting until we have successfully done just that”. Representative Dave Brat (R-VA) indicated that GOP leadership wants to present legislation for the repeal to Mr. Trump for his signature by February 20 of this year. However, Speaker of the House Paul Ryan (R-WI) informed reporters that there would be “transition relief”, which GOP leaders expect could take anywhere from 18 months to three years.
At the same time Republicans were meeting on Capitol Hill, President Obama met with House and Senate Democrats for about two hours in hopes of saving his signature legislation. According to one attendee, President Obama told them that, “tearing it down is relatively easy but tearing this down without harming tens of millions of people is incredibly hard. You should be proud of what we did. Don’t take any glee in their [Republicans] screwing it up.” New Senate minority leader Chuck Schumer (D-NY), in taking a hard stance against repeal, has adopted the slogan, “Make America Sick Again”, an obvious play on words of Trump’s campaign slogan, “Make America Great Again”. In an interview with Politico, Senator Schumer issued these strong words, “And if they think we’re going to come in and save their [Republicans] butts when they screw it up? No.”
The interaction between Donald Trump and Chuck Schumer could be one of the more interesting aspects of the new leadership in Washington D.C. In the aforementioned Politico interview, Schumer was quoted as saying about Donald Trump, “God bless him. But I don’t know him that well. And it doesn’t matter. What matters is [sic] are the issues and our values, not pats on the back. They can try to flatter me, it’s not going to work.” He has also been quoted as saying, “He’s not my friend.” However, in April 2006, Senator Schumer appeared on Season 5, Episode 8 of Donald Trump’s reality television show, The Apprentice. He hosted that week’s winning team to breakfast in the presidential suite of the historic Hay-Adams Hotel in Washington D.C. He told the winning team, regarding Trump, “His father and my grandfather were builders together in Brooklyn. Even when he was much younger, you knew he was going to go places.” It appears Senator Schumer never thought one of those places would be The White House.
As of today, the two big questions seem to be: 1) How will Republican leadership go about repealing Obamacare? 2) What will the repeal mean for individuals, insurance companies, and healthcare providers?
Republican Strategies for Repeal
Vice-president-elect Mike Pence said Mr. Trump could begin using executive actions on day one. Representative Chris Collins (R-NY) also added, “The president in his first day in office is going to do some level of executive orders related to ObamaCare.” However, no GOP leader offered specifics as to what the executive orders would entail.
The most probable strategy for dismantling Obamacare would be the process known as budget reconciliation. Budget reconciliation is basically a way for Congress to quickly pass legislation related to taxes or spending, especially for entitlement programs. Since 1980, Congress has passed 24 budget reconciliation bills. Twenty were signed into law and four were vetoed. Some of the past budget reconciliation bills include the Omnibus Budget Reconciliation Act of 1981(which was the foundation for what became known as the “Reagan Revolution”), the Balanced Budget Act of 1997, and the Bush tax cuts of 2001 and 2003. The Byrd rule in the Senate, named for former Senator Robert C. Byrd (D-WV), prevents abuse of budget reconciliation. The rule allows legislation to be considered for budget reconciliation only if it relates to spending, taxes, and deficits. The Senate parliamentarian usually determines whether the legislation violates the Byrd rule, but the Senate can waive the rule with a 60-vote majority. Budget reconciliation will be an important tool for Senate Republicans since its usage requires only a simple majority vote and cannot be filibustered. However, budget reconciliation can only be used once per Congress. Hence, any other legislation proposed by Republicans could be subject to filibuster by Senate Democrats unless Republicans move to change the rules to further limit filibustering.
Therefore, Republicans will be limited to using budget reconciliation to repeal only the parts of Obamacare that relate to spending and taxes. According to Robert Pear of the New York Times, some actions permissible through budget reconciliation would include:
• Phasing out tens of billions of dollars given each year to states that have expanded Medicaid eligibility.
• Removing penalties for individuals who choose to live without insurance
• Removing penalties for larger employers who do not offer insurance coverage to employees
• Repealing subsidies for private health insurance coverage obtained through the public marketplaces, known as exchanges
• Repealing taxes and fees imposed on certain high-income people
• Repealing taxes and fees on manufacturers of brand-name prescription drugs and medical devices
Impact of Repeal
Many pundits are already speculating about the ramifications of the repeal of the ACA even before President-elect Trump has been sworn in and Congress has proposed any serious legislation. The overriding concept definitely seems to be uncertainty due to the lack of specifics related to repeal. The day after the new Congress was sworn in, shares of hospital companies had plummeted by 1p.m. Tenet Healthcare Corporation shares were down 25% and Community Health Systems, a chain of 158 hospitals, many of them rural, were down 29%. Shares of HCA Holdings and LifePoint Health were down 14% and 13%, respectively. The same day, Mizuho Securities downgraded “ACA vulnerable stocks” from buy to neutral and issued this statement, “The worst possible outcome for healthcare stocks is a reality. We see extreme risk of ACA repeal/replace, loss of the Medicaid expansion, a primary driver of results for both hospitals and health plans, and reversal of the many value-based regulations that promote home healthcare”. Terry Lynam, spokesperson for Northwell Health said, “Changes are needed in the ACA, but the idea of dismantling it is worrisome.”
Health insurance companies are also concerned. J.B. Silvers, a professor of health finance at Case Western Reserve University and a former health insurance CEO, thinks that a delay of two or three years in implementing the repeal will increase the risk of the Obamacare individual insurance exchange markets to the point that continuing in the market will not be feasible. He states that the number of people purchasing individual policies on the exchanges will drop like a rock if both the premium subsidies now available to lower-income enrollees go away immediately and the mandate to sign up for an insurance plan disappears. There is, after all, a clause in the agreement between insurers and the federal government that allows insurers to cancel or withdraw from policies if subsidies end. Mr. Silvers expects many insurers to leave anyway since they must decide on their 2018 participation by late spring of 2017.
Dante Chinni, who heads up the American Communities Project at American University and writes the Politics Counts blog for the Wall Street Journal, brings up one of the more interesting aspects of the potential repeal of the ACA. He notes that counties that gave Donald Trump the highest levels of support could feel the most impact. He notes that Gallup data, analyzed with the county typology from the American Communities Project, show that eight county types have seen increases in health insurance coverage greater than the national average. Six of the eight county types – representing about 77 million people or 33 million votes, a quarter of the total cast – sided with Mr. Trump, some by very large margins. The table below details the demographic results:
County Type Change in Insured since 2008 2016 Vote and Margin
Native American Lands 14.80% Trump +5%
Working Class Country 6.80% Trump +46%
Graying America 5.80% Trump +22%
Hispanic Centers 5.70% Clinton +2%
Rural Middle America 4.90% Trump +39%
African American South 4.90% Trump +1%
Big Cities 4.50% Clinton +35%
Evangelical Hubs 4.30% Trump +51%
National Average 3.90% NA
Mr. Chinni points out that three of the county types – Graying America, Rural Middle America, and Working Class Country – make up large parts of Florida, Michigan, Pennsylvania, and Wisconsin, states that were key to Mr. Trump’s electoral college victory. However, when more people purchase health insurance simply because they are mandated by law or required to pay a penalty if they don’t, those people may still dislike the law. This possibility is supported by Gallup data that shows nationally 53% disapprove of the law while only 42% approve of it. Nevertheless, individuals who have benefitted from insurance coverage and subsidies may not be able to regain coverage either because of a pre-existing condition or because of higher premiums. A recent study by the Commonwealth Fund and Rand Corporation revealed that without repeal, an individual ACA policy will cost around $3,200 a year in 2018 but a replacement policy after repeal will cost $4,700.
One of the more dicey issues that the new administration and Congress will have to address is how to keep one of the most popular aspects of the ACA – requiring insurance companies to cover everyone, including those with pre-existing conditions – while repealing one of the most unpopular aspects of the ACA – mandating that everyone purchase health insurance, including the young and healthy. If the mandate is lifted and the young and healthy drop coverage knowing they can purchase coverage whenever they need it, insurers would be forced to significantly increase premiums.
According to the Kaiser Family Foundation, a full repeal would also result in higher payments for services performed for beneficiaries enrolled in Medicare Advantage, the managed-care portion of Medicare. Therefore, premiums would probably increase in order to offset the increase in cost of services. Seniors would also have to pay more for prescription drugs, widening what is known as “the doughnut hole”. Before the ACA, seniors received a certain dollar amount of coverage for prescription drugs and then had to pay out of pocket unless or until they qualified for high-dollar, catastrophic provisions. The gap between the set dollar amount and the catastrophic provisions was known as “the doughnut hole”. The ACA significantly decreased the amount that seniors on Medicare had to pay for their prescription drugs, thereby helping to close “the doughnut hole”
The new leadership in Washington D.C. will have many facets of this sweeping legislation to consider in order to come up with the best solution. Whether to completely “repeal and replace” or merely redesign the existing model will be a mammoth challenge. Arguments can be made for both. But, for now, it is interesting to note the words of Warren Buffet, “In a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”