Considering the Implications of Repeal and Transition

JANUARY 5, 2017 BY LARRY MCNEELY

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by Larry McNeely

With the Senate’s decision to take up the Fiscal Year 2017 budget resolution, Congressional leaders are now pursuing repeal of key provisions of the Affordable Care Act without an immediate replacement. It is time that we took a hard look at this strategy’s implications for health care.

At the outset, I should stipulate that this course of action is not one NCHC can support. Despite real flaws in the ACA and pressing affordability challenges, the United States has managed to end pre-existing condition denials and benefit caps, cover more Americans and slow the growth in Medicare spending. In our view, this Congress ought to be working together, on a bipartisan basis, to fix what’s broken in our health system without first putting these broadly supported achievements at risk…now or in the future.

That said, this post is not a polemic against repeal. Instead, I want to invite ACA supporters and opponents alike to examine a very specific aspect of forthcoming repeal legislation….the replacement fund, established by Section 3002 of the budget resolution.

This “fund” may seem like an arcane detail in the budget process, but exactly how Congress handles this issue will substantially impact the lives of ordinary Americans.

You see, ending the ACA’s major coverage provisions such as the affordability tax credits, the Medicaid expansion or the individual and employer mandates, will produce savings to the federal treasury. Although much of these savings are expected to offset the rollback or delay of taxes which helped pay for the ACA, the budget resolution provides that all but $2 billion of the net savings from any repeal bill would be set aside in this fund to cover the cost of eventual replacement legislation.

Let’s say the eventual repeal bill sunsets key coverage provisions after two years and allocates the savings to this replacement fund.  How much would go into this fund?

HR 3762, the vetoed repeal bill from 2015 which today’s Congressional leaders are using as a template, produced $317.5 billion in net savings, or $516 billion when accounting for macroeconomic effects, according to the non-partisan Congressional Budget Office. (We will not know the exact impact of this year’s legislation until CBO scores an actual bill specifying the provisions to be repealed and the date of their repeal, but using the HR 3762 numbers should give us a rough approximation of what this year’s repeal effort might generate.)

The problem is that $300-500 billion is only a fraction of the $1.4 trillion in direct ACA coverage spending which is expected to be repealed. Even if our lawmakers were given the judgment and wisdom of Solomon, it would not be possible to cover the same number of people at one third of the cost.

No efficiencies, newly wrung from the health system, can be sufficient to make up a budgetary difference of that magnitude. Lawmakers will be forced to turn to some combination of the following blunt force cuts:

1. Reducing the size of the tax credit available for private coverage or limiting the number of people eligible for that tax credit under any replacement
2. Cutting Medicare benefits or payments to providers and plans
3. Capping the exclusion of employer sponsored health plans from income and payroll taxes
4. Reducing the overall level of federal support for state Medicaid programs

Theoretically, lawmakers could look outside health care to fund ACA replacement legislation. Unfortunately, domestic discretionary spending, now at historic lows, could not provide much. Large scale defense or social security savings, even if advisable, would be politically unlikely, and tax reform advocates would fight to devote any revenue to the lowering of rates, not new health care spending.

If Congress moves forward with repeal and transition, it seems likely that individual market customers and plans, Medicare beneficiaries and their providers, Medicaid programs in all 50 states and DC, and employers offering health coverage would be pitted directly against one another. What one gains, someone else will lose. For everyone with a stake in health care, it would amount to a war of all against all.

Whatever your view of the ACA, why would any of us want to live through the scenario described above? Instead, let’s begin the hard work of identifying ways to confront the increasing unaffordability of coverage and care in this country.

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