It only took seven years, but Republicans have finally decided how they want to replace Obamacare: with a much, much less generous version of it that almost seems designed to push individual insurance markets into death spirals.
I guess that's freedom?
Before we get to that, though, let's recap what it is that Obamacare actually does. At the most general level, it just taxes the rich to subsidize health insurance for the poor and sick. Now, it does that in two ways. First, it expands Medicaid for households making up to 138 percent of the federal poverty level —$16,643 for an individual or $33,948 for a family of four — for states that choose to do so.* And second, it tries to make individual insurance markets work for people regardless of their age or health. How? Well, the best way to think about it is as a three-legged stool. It starts by saying that insurers aren't allowed to discriminate against people with preexisting conditions, or charge older people more than three times as much as younger ones; then it makes people pay a penalty if they don't buy a plan to try to prevent them from driving up premiums by waiting till they're sick to get covered; and finally, it gives subsidies to the people who need them to be able to afford a plan. The important point here is that it helps people more the more premiums go up, and helps low-income people the most.
It's no surprise, then, that Republicans have acted like this is the gravest threat to the republic since the 16th Amendment. (That's the one that made the income tax legal). After all, the GOP has made reversing redistribution its raison d'être the past 40 years, and in the past 40 years there hasn't been a bigger piece of redistribution than Obamacare. Still, they've run into a problem when they've tried to come up with a plan of their own. There isn't a conservative alternative to Obamacare, you see, because Obamacare is the conservative alternative. It's pretty close to what conservatives proposed in 1993, and what Mitt Romney did in Massachusetts. If you buy into the idea of universal coverage (or at least not yanking it away from too many people), then you either need the government to do it directly or use the same kind of three-legged stool Obamacare has. So it's even less of a surprise that the Republican replacement plan is more or less a stingier version of Obamacare that cuts taxes on the rich, cuts Medicaid, and cuts subsidies for lower earners while introducing them for some higher ones.
Here's the basic outline. The Republican proposal would repeal almost all the Obamacare taxes next year, a $600 billion tax cut largely benefiting the top 1 percent, without having a plan to, well, replace them. The House GOP is “still discussing details” about that. As for Medicaid, it would continue Obamacare's expansion for three more years, before cutting the program by capping its per-person costs instead of making the open-ended financial commitment that it does now. Not only that, but it would also reduce Medicaid benefits for anyone who had been newly covered by Obamacare, but hadn't been covered by it the whole time. In other words, anyone whose income went up enough to lose Medicaid in any one year would lose a big chunk of it if they needed it any other year.
When it comes to individual markets, it looks like the Republicans want to set up the same sort of three-legged stool that Obamacare has, but it's more like one and a half. Yes, the Republican plan would give people subsidies to defray the cost of coverage, but those subsidies would vary mostly by age, not income, and not at all by geographical location. That means that poorer people in high-cost areas such as, say, rural ones, probably would get priced out of the insurance market. At the same time, though, upper-middle-class households who don't get subsidies under Obamacare would under this plan. It's a reverse Robin Hood. But more than that, the biggest difference is that these Republican subsidies wouldn't grow at the same pace as premiums, like Obamacare's do, but only slightly faster than inflation. That's a slow-motion cut, since premiums tend to rise much more than overall prices. Which is to say that as more and more time passes, these subsidies would buy less and less coverage.
That, of course, is assuming there are even functioning individual insurance markets. There might not be. That's because the rest of the Republican plan sure looks like it would destabilize them. On the one hand, it would keep Obamacare's ban on insurers charging more for people with preexisting conditions, but it would only do so as long as you maintained continuous coverage (which is defined as at most a two-month gap). But on the other, it wouldn't do anything to try to get healthy people in the market and keep premiums down. If anything, the opposite. How's that? The answer is that the Republicans would let insurers hit people with a 30 percent surcharge if they let their coverage lapse longer than two months. Perhaps you see the problem. Obamacare penalized people if they didn't buy health insurance, while the Republican plan would penalize them if they do — which they then wouldn't until they absolutely needed to. Or, more succinctly, when they're sick. There's a pretty good chance this would turn into what's called a death spiral: Premiums rise because there aren't enough healthy people in the insurance pool, which makes even more healthy people drop out, and premiums rise even more, until eventually all you're left with are sick people who will try to pay whatever they can for coverage.
If this sounds like a plan that's designed to please no one and infuriate everyone, that's because it is. House conservatives don't like that it enshrines what they think is a “new entitlement” in tax-credit subsidies; Republican governors won't like the way it cuts Medicaid; and Senate Republicans are leery of anything that could make anywhere from 6 to 10 million people lose their health insurance, as S&P estimates this could. Indeed, conservative groups such as FreedomWorks, Heritage Action, and Americans for Prosperity are already rallying against it.
The only question is whether it will take seven years for Republicans to replace their Obamacare replacement.
* Correction: The original version of this story misstated the income threshold for the Medicaid expansion. It is 138 percent of the federal poverty level, not 400 percent.