Republicans in Washington are struggling to unify around a plan to deal with enhanced Biden-era Obamacare subsidies that are expiring at the end of 2025. In this blog post, I propose several ways out of their conundrum, addressing the political objections and concerns that various conservatives and Republicans have raised to their colleagues’ ideas.
Background
Some Republicans have proposed a simple 1- to 2-year extension of the subsidies. Others are content to let the subsidies expire. Yet others propose rerouting the subsidies through Health Savings Accounts, and still others propose pairing a short-term subsidy extension with incremental GOP reforms on topics like price transparency and program integrity. Pro-lifers have weighed in, arguing that any Republican bill must ensure that Affordable Care Act subsidies do not fund abortions.
You can see how this got complicated in a hurry. The real issue is that few Republicans have an overarching vision of what a free-market system should look like, and as a result, too many are focused on short-term messaging victories instead of long-term policy wins.
Based on FREOPP’s long track record in free-market health reform, and drawing on flagship reform legislation like the Fair Care Act of 2020, I’ve argued that Republicans should pair a short-term subsidy extension with far-reaching, premium-reducing deregulation of Obamacare’s health insurance exchanges: specifically, restoring a 5:1 “age band” and installing reinsurance. These two changes will address Obamacare’s two worst regulatory flaws. (For an explanation of these concepts, read this op-ed.) Only when there’s a functioning market for individually-purchased health insurance can we eventually have a truly market-based health care system.
GOP pushback on my favored approach
I’ve had a lot of conversations with D.C. policymakers over the last several weeks. On the GOP side, there are those who agree with my favored approach, and those who raise concerns. Among the skeptics, the concerns are:
- Subsidies are bad. “We won the shutdown” by opposing an extension of the Biden-era enhanced Obamacare subsidies, and many Republicans are dug into that position, and don’t want to retract it.
- The pro-life factor. Pro-life activists are adamantly against any policy that doesn’t include Hyde protections (i.e., assurances that taxpayer subsidies won’t fund abortions).
- Partisanship. Many Republicans are instinctively hostile to doing any sort of deal with Democrats. (A variation of this objection is a pessimism that Democrats will say yes to my version of a bipartisan deal.)
I will address these objections in order.
Objection 1: Subsidies are bad
Many Republicans—especially in the House—are comfortable letting the subsidies expire, even if that means foregoing the opportunity to actually repair Obamacare’s worst flaws. This is short-sighted, in my view, but for those I can’t convince, here is a version of my proposal that anti-subsidy Rs can get behind that would let all subsidies expire, in a reconciliation bill that can pass the Senate with only Republican votes:
- Let all the subsidies expire.
- Enact a $10 billion per year reinsurance fund, with Hyde protections included, that directly subsidizes the cost of care for the sickest enrollees.
Congress can pay for the $10 billion reinsurance fund with one or more of the following tools:
- Moving all federal employees out of the Federal Employee Health Benefits Program and into Obamacare, funding 72% of the ACA silver plan premiums for eligible workers. This will save over $10 billion per year, by my calculations.
- Appropriate funding for Cost Sharing Reduction subsidies within the Obamacare exchanges, which for complicated reasons I won’t delve into here will reduce the deficit by about $3 billion per year. (Such a provision would need to be designed well to pass muster with the Senate parliamentarian.)
- Move ACA Medicaid expansion enrollees onto the ACA exchanges. Earlier this year, I estimated that doing so would save $159 billion over a decade, because all of the accounting games that states play with Medicaid make that program costlier than ACA-based coverage (see below chart). It also would improve the quality of coverage and reduce disruptive churn between government programs.
Objection 2: Addressing concerns of pro-lifers
As I mentioned above, pro-life activists insist that any Republican bill include Hyde protections. (Originally passed in 1976 and sponsored by former Illinois Congressman Henry Hyde, Hyde language prohibits federal funds from directly funding abortions.) Republicans struggled to include Hyde language in their 2017 effort to “repeal and replace” Obamacare through the Senate reconciliation process, a highly underrated factor in their ultimate failure.
New appropriations for reinsurance and/or cost-sharing reduction subsidies could include Hyde language, thereby addressing these concerns. If designed the right way, Hyde provisions should survive the “Byrd bath” parliamentary process by which non-fiscal provisions are removed from reconciliation bills.
Furthermore, House Republicans aren’t bound by Senate rules, and can pass a bill with Hyde protections irrespective of what the Senate does.
Objection 3: Republicans think Democrats won’t play ball
It won’t shock anyone to learn that Republicans and Democrats deeply mistrust each other. Many Republicans believe that there’s no point in negotiating with Democrats, because Dems won’t agree to anything they offer, so there is therefore no point in offering an extension of the Biden-era enhanced subsidies.
I think this is incorrect. It is in Republicans’ interest to get to a bipartisan deal that enables them to enact far-reaching, strategic reforms. And such a deal is possible. But we’ll get to that in the next segment.
For now, let’s assume the skeptics are right and that a bipartisan deal is impossible. So put forth a partisan version! A version of Obamacare reform that could get through the Senate reconciliation process with only Republican votes could look like this:
- No subsidy extension, and/or one that is restricted to current enrollees over 50, and/or an entirely new subsidy schedule that is age-adjusted like the one proposed in the Fair Care Act (see below).
- Hyde protections included in reinsurance and cost-sharing reduction appropriations.
- Move FEHB enrollees into the ACA, and/or ACA Medicaid expansion enrollees into the exchanges.
- Republicans can layer in their favorite additional ideas, like program integrity and price transparency, though many are unlikely to make it through the Senate reconciliation process.
Such a bill would reduce the deficit and significantly reduce Obamacare premiums, two goals Republicans say they care about.
But, the partisan approach would forego the opportunity to move from 3:1 age bands to 5:1—an important reform for helping make premiums once again affordable for young people.
Ultimately, a GOP-only bill with these provisions would be a significant improvement upon the status quo, and would give Republicans leverage to negotiate a better, bipartisan version with Democrats.
The value of a bipartisan approach
I still believe that the bipartisan approach is better, for the reasons described above. You can get permanent Obamacare reform in exchange for temporary subsidy extensions, which would further lower premiums. You can add in more robust price transparency provisions. Health reform is more durable when it passes the 60-vote threshold in the Senate.
Most importantly, Congress could take credit for finally reducing Obamacare’s ever rising premiums, and start to build a health insurance market that works for all Americans, at no political cost. Why wouldn’t Republicans want to take advantage of that opportunity?