Notice & Comment

It’s the taxes, stupid.

With the caveat that this is a bad week for predictions, I’d like to offer my thoughts on what might happen next to the Affordable Care Act. I suspect there’s a pretty relentless political logic that’s about to take hold.

For starters, I doubt that Republicans will be able to coalesce around an alternative to Obamacare. They’ve demonstrated time and again that they can’t get past the white-paper stage. The reason is simple: health policy is hard. There are winners and losers and extending coverage to the uninsured costs a bunch of money.

Democrats barely managed to pass health reform in 2010 even though they cared passionately about it. The Republican Party has never cared much about expanding coverage. There’s no reason to think Republicans care enough this time to get their restive membership on board with a replacement, especially since Donald Trump is unlikely to make health reform a priority. Just a few defections in the Senate and a new bill is toast.

So no replace, at least not yet. But what about repeal? On this, I think the Republicans will press forward. Every single Republican in the House and Senate (except Susan Collins) has already voted for a reconciliation bill that eliminates the individual mandate, the subsidies, and the ACA’s new taxes. They can use that as a template to wipe the ACA’s most controversial provisions from the books.

At the same time, Republicans would have a ready excuse for keeping some popular parts of the law, most of which aren’t subject to reconciliation because they don’t affect spending or revenue. They include rules about preexisting conditions, lifetime and annual caps, allowing young people to stay on their parents’ insurance, and zero cost-sharing for preventive care.

But wait a minute. Wouldn’t the reconciliation bill unravel the individual market? Won’t Republicans be skittish about repeal if they can’t do replace?

I don’t think so. You’ve got to bear in mind that passing the reconciliation bill would represent an immediate $346 billion tax cut over ten years to wealthy individuals—$123 billion from the Medicare tax surcharge and $223 billion from the tax on investment income. All of that money—every dime—will go to people making more than $200,000 a year. However ambivalent Republicans may be about health reform, they are not at all ambivalent about big tax cuts to the wealthy.

As importantly, the Republicans have no real choice but to take a vote that they can genuinely characterize as repeal. Nearly every single Republican in office has run on repealing the ACA for the past six years. Primary challengers would come out of the woodwork if the Republicans can’t get their act together now.

Besides, the Republicans can and will delay the day of reckoning. Already, the reconciliation bill doesn’t kick in until 2018. It’d be child’s play to extend that to avoid a collapse of the insurance markets right before the midterm elections. Republicans would then get to take credit for repealing Obamacare without pitching millions off their plans. It’s a neat trick.

Sure, some members will kick and scream that this doesn’t count as a “real” repeal. So too will some activists and interest groups. But they’ll get over it: $346 billion is a big tax cut.

What happens when the ACA is finally set to lapse? I honestly have no idea. The political scene will look very different in a couple of years.

It’s safe to say, however, that passing a reform bill would be even harder at that point. The reconciliation bill does not increase the federal budget deficit, mainly because it retains the Medicare cuts that the Republicans previously deplored. But that means that paying for a meaningful Obamacare replacement will require new sources of tax revenue. It’s possible that the Republicans won’t care about deficit spending—they didn’t pay for Medicare Part D, either. But it will create political headwinds among the deficit hawks in Congress.

Without a reform bill, Republicans could just let the ACA lapse, with all the pain and suffering that a massive insurance contraction would entail. Or they might choose to kick the can down the road—delaying again the date of the ACA’s demise. I honestly don’t know which they’ll pick.

Maybe I’m wrong about all of this. Maybe Republicans will pull together a plausible replace bill. Or maybe they really will just blow the whole damn thing up. My hunch, though, is that unwinding the ACA won’t be as easy as the political rhetoric suggests.


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