Just as we predicted, the Congressional Budget Office (CBO) has released a report demonstrating that the “too-clever-by-half” approach of RINOcare will result in the worst possible outcome for insurance prices and coverage numbers. Worse, if CBO would factor in the nature of the pre-2020 and post-2020 components of the bill, the inevitable political cliff will ensure that all of the liabilities are incurred immediately but none of its supposed benefits are ever actualized three years from now.
It’s clear that by exacerbating the death spiral of the existing failed market before 2020, the political reality will ensure that even the minor reforms implemented to Medicaid and the exchange subsidies in 2020 will never occur. And the disaster will all be blamed on a wrongly-perceived Obamacare repeal bill instead of Obamacare itself. Full repeal is the only solvent way forward.
Budget cuts will never come to fruition
Overall, CBO projects the GOP bill will net $337 billion in savings over 10 years. The bill would eliminate $599 billion in tax revenue but also cut spending by $935 billion, resulting in a net deficit reduction. That is actually a very small number for repealing a massive entitlement. The reason the number is so low is because the bill would repeal all the tax revenue (a good thing), but keep much of the Medicaid expansion and swap out exchange subsidies with new refundable tax credits.
However, even the projected savings are never going to happen. The bottom line of this bill, as we will explore below, is that it will not reduce prices or heal the private sector. In fact, it will exacerbate the death spiral and even increase premiums by 15-20% before 2020, per CBO. With that in mind, picture the world of politics for the next three years. The insolvency will get even worse and it will all be blamed upon the repeal of Obamacare instead of Obamacare. Without the leverage of lower prices and a healed market, does anyone believe for a minute that Republicans will have the guts to go along with implementing subsequent Medicaid cuts, which are responsible for most of the budgetary savings? Heck, at that point, Medicaid will be the only option for all of us!
Moreover, although CBO estimates a net savings from the GOP’s proposed subsidy change in 2020, we will never actualize those savings either. CBO projects that the change from income-based subsidies to age-based subsidies will decrease the cost of the entitlement from $675 billion to $361 billion over 10 years. But again, picture the market entering 2020 when prices rise even quicker and Republicans are blamed. With price-hiking regulations in place, a dying or dead private market, and Republicans agreeing to the premise of an entitlement outside of Medicaid, albeit rated by age instead of income, does anyone believe it will be tenable for Republicans to get rid of the income-based subsidies? What will happen is that we will be saddled with the greatest common factor of both plans (income and age) instead of the lowest common denominator.
Prices will go up under RINOcare, but clearly go down dramatically under full repeal
Given that RINOcare keeps almost all the critical price-hiking regulations in place and then gets rid of the individual mandate, premiums will go up, not down. CBO projects that before 2020 premiums will rise by 15-20% because healthy individuals will utilize the reprieve from the individual mandate and leave the market. Thus, not only will this bill result in 24 million more uninsured, but it won’t lower premiums as we predicted. That is what happens when you don’t repeal Obamacare but immediately repeal its funding mechanism.
Now, CBO does project that post 2020 premiums will go down by 10%, but we will never make it to that point. Again, the timeline is very important here. If this bill does not bring immediate relief, and in fact exacerbates the death spiral, the private market, along with GOP political capital, will be dead by 2020. The new regime will never be in place, especially not during the reelection of President Trump. We will either have a massive bail out or a single-payer system by that point.
However, there is one very important note on the latter point. As I noted last week, the GOP bill does indeed repeal one of the more minor regulations by 2020, referred to as “actuarial value.” And, by the way, this fact alone exposes the lie that regulations can’t be repealed through budget reconciliation, but I digress.
Actuarial value is the regulation requiring insurers to only offer four types of plans with certain values (platinum, gold, silver, and bronze). This is the only regulation fully repealed, and even repeal of this regulation is mooted by the fact that the essential mandated benefits are still in place, limiting the flexibility of what insurers could offer. Nonetheless, CBO notes that just the repeal of this one regulation will result in a 10% drop in premiums. Imagine if they actually proposed full and immediate repeal of all 24 regulations, including the major cost-drivers, such as guaranteed issue, community rating, essential mandated benefits, caps on out-of-pocket payments and lifetime costs, medical-loss ratio, and risk-adjustment programs? And repeal them immediately? The entire market would be healed, it would spawn choice and competition from new entrants into the market, and as CBO has hinted in the past, a healthy and cheaper market induced by de-regulation would ultimately increase coverage numbers as well.
Paul Ryan sent out a Baghdad Bob-style tweet following the release of the report:
— Paul Ryan (@SpeakerRyan) March 13, 2017
Ryan conveniently obfuscates the pre-2020 reality, which is all that matters. Also, even the 10% decrease is only relative to the current unsustainable socialist baseline of Obamacare. Is that what success looks like?
Moreover, he misses the point that if one regulation repealed after 2020 would reduce prices, imagine how the prices and coverage numbers would look with full repeal of the major regulations immediately?
Status quo AND RINOcare are both failed options and false choices
Obviously, as always, CBO is devoid of any common sense scoring, and fails to consider that under current law and trajectory the entire market will collapse. As such, these coverage numbers are meaningless because everyone will lose coverage absent a bailout or single-payer. However, that doesn’t excuse Republicans for proposing an even more insolvent version, albeit eliciting a PR nightmare by erroneously marketing their plan as repeal of Obamacare.
The upshot of this report is that Republicans have only one choice that is solvent, fair, Constitutional, and politically feasible. That is full repeal of all the Obamacare regulations effective as soon as possible and a transition period to phase out subsidies as the private market heals. That is the only way to heal Medicaid. That is the only way to ensure there is only a limited need for subsidization in the first place. The American people want to afford quality care and insurance on their own. There is no short cut and there are no other options.
Republicans in Cleveland spelled out very clearly in the party platform what should happen to Obamacare:
It’s time for the president to fulfill that promise.