Jordan Candler / September 12, 2017

From ObamaCare to BailoutCare?

Congress can either pursue exchange bailouts or a state-managed ObamaCare structure.

That ObamaCare lives on today is indefensible. The truth is, ObamaCare could and should have already been repealed. But it wasn’t, which underscores another ugly truth. “Republicans never had a consensus plan on what to do with Obamacare,” writes Reason’s Peter Suderman, “and in the wake of the failure of that non-plan, they still have not developed one.” The consequence is that lawmakers are left crafting hastily concocting contingency plans, some of which, predictably, would take us further down the path of never-ending bailouts.

Among the ideas being floated is one by Senators Lamar Alexander (R-TN) and Patty Murray (D-WA), the draft of which is reportedly in its final stages. The legislation would take action “to fund insurers payments critical to the Affordable Care Act,” The Wall Street Journal reported. The report added, “Mr. Alexander suggested he would be willing to authorize the subsidy payments for multiple years, as Democrats are demanding, in exchange for ‘structural changes’ to … Obamacare.”

But the term “structural changes” is a red herring, Suderman correctly opines: “Although some of the stabilization plans that have been discussed are temporary, temporary patches often have a way of becoming unofficially permanent. One potential and even likely outcome of this approach would be a recurring series of temporary bailouts, in which the exchanges are always teetering on the brink, and stabilization funding is always about to expire, and Congress comes together each year to ask what can be done and then decides to merely extend the funding for another year.” Just look at the debt ceiling brouhaha for how this strategy plays out.

On a brighter note, Senators Lindsey Graham (R-SC), Bill Cassidy (R-LA) and Dean Heller (R-NV) are working on a proposal to make ObamaCare state-managed. “Rather than funding Medicaid and subsidies directly,” The Washington Post says, “that money would be put into a block grant that a state could use to develop any health-care system it wants. It also allows states to opt out of many [ObamaCare] regulations.” Even here, though, the cons are evident.

Suderman explains, “The potential downsides are clear enough: The federal preexisting conditions protections that are the major driver of premium increases would be left in place. The combination of preexisting conditions rules and no coverage mandate would likely cause insurance markets to enter a death spiral. States would not be required to use the block grants to provide aid to the poor, so some of the funding might not be targeted towards the needy. Giving the states more freedom would mean more variation in performance; it is likely that some states would use the money poorly, and that others would simply continue with systems that look rather like Obamacare does now.”

That’s not to say the entire idea is bad, as Suderman argues: “States that wanted to keep an individual mandate in place could do so. States would not be required to spend on the poor, but could also use the plan’s flexibility to find ways to better target the poor and the needy. The variation in performance would likely mean that some states come out better than they would under the current system, and that those experiments could then be replicated, and perhaps even improved upon, in other states.”

The bottom line: It’s a gamble, but one that shows better promise than option A — exchange bailouts. Based on historical context, red states would do better under the Graham-Cassidy-Heller proposal, while blue states would completely botch how health care dollars are managed. But it would also allow consumers to vote with their feet. The biggest question is whether Congress, which is quickly running out of time to enact a health care alternative — and, Suderman observes, whose Republican members have more or less accepted ObamaCare — has the guts to pursue and pass this structure. That is a question that demonstrably shows bleak potential.

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