GOP should regroup, reach out to Democrats on health care

It was a mistake for the GOP to think it could reform health care on a partisan basis. It was hard enough for Democrats to move forward with their plan in 2009 and 2010 when they had much larger majorities in the House and Senate, and more ideological unity. The GOP is operating with fewer votes to lose in both chambers and more diversity in its ranks about what needs to be done. Moreover, the procedural constraints of the budget reconciliation process distorted the American Health Care Act (AHCA) in ways that substantially lessened its appeal.

The GOP's moment of maximum leverage on health care, and other matters, was the period just after the November election. President Trump and most Republicans had campaigned on repeal and replacement of the Affordable Care Act and won. There was an expectation that some big changes were going to occur. That was the moment to reach out to willing Democrats to begin a bipartisan conversation on how to proceed. A realistic goal would have been a product that Republicans could claim delivered on 60 percent or more of what they wanted. There would be concessions, for sure, especially regarding coverage (as estimated by the Congressional Budget Office) and on Medicaid. But a bill produced by a GOP-led Congress and signed by a Republican president, with cooperation from some Democrats, would have made important progress toward a more market-driven system with less federal control.

At this point, it will be difficult to get any congressional Democrats to cooperate on health care. They sense, correctly, that Republicans may not be able to agree on a workable plan, so the most likely scenario at this point is a continuation of the ACA status quo, with perhaps minor changes.

That calculus will only change if the GOP comes forward with a revised and more viable plan. Such a plan need not be endorsed by all Republicans, or even passed in the House or Senate. It just needs to be a credible starting point that would make it clear to Democrats that the GOP has a plan that might actually pass and would work.

To produce such a plan, Republicans need to adjust their thinking. To begin with, the party should accept that everyone in the United States should be enrolled in health insurance that pays for major medical expenses. A plan that results in an increase of 15 million, 20 million, or 25 million uninsured Americans is not acceptable. The goal should be to cover even more people than the ACA, within a framework of a functioning market that relies less on federal control than the ACA. To get there, the AHCA would need to be changed in many different ways, including:

A compromise on Medicaid. The large losses of coverage projected by the Congressional Budget Office under the AHCA are concentrated among people who have enrolled in Medicaid under the ACA. The GOP should accept that Medicaid is going to serve as the safety-net insurance program for the lowest-income households and propose a new, nationwide income level below which there would be an expectation of Medicaid eligibility. The states that did not expand the program under the ACA would get bonus payments for moving eligibility to the national standard. States that did expand Medicaid would get those payments too, and be given time before a phaseout of the enhanced match above the new national standard commences. States could provide eligibility up to the ACA standard with regular federal matching funds. This compromise on Medicaid would occur within a framework of a reformed federal-state financial relationship that moves away from open-ended federal matching payments, such as per-capita federal payments to the states, based on historical spending patterns, for each Medicaid eligibility group.

Higher subsidies for households with incomes just above Medicaid eligibility. The AHCA provides a refundable tax credit for households without access to employer coverage or public insurance. These credits are adequate for the middle class, but they provide much less support to households just above Medicaid eligibility than does the ACA. The AHCA should be adjusted to provide additional support for insurance enrollment for these households, either through higher tax credits or new funding provided to states to support coverage for these families. A program run through the states could be modeled on the Children's Health Insurance Program.

A workable system of incentives for staying insured. The GOP wants to move away from the individual mandate while still providing regulatory protection to people who have preexisting conditions. The only way this can work is if there are strong incentives to enroll in coverage. The one-year, 30 percent premium surcharge in the AHCA, paid by those who experience more than a two-month break in coverage, is weaker than the ACA's coverage mandate and would lead to even more adverse selection in the individual insurance market. The surcharge should be replaced with a much tougher penalty on consumers who leave the market and later want to reenter it.

Automatic enrollment into insurance. There are large numbers of Americans who are eligible for subsidized coverage under the ACA and yet remain uninsured, and the same would be true under the AHCA. To correct this problem, the GOP should embrace a default enrollment system. Federal tax data can be used to identify which households are eligible for a refundable tax credit but fail to use it. Those data can be supplemented with state sources of information. States could then use the data to place the uninsured who are eligible for tax credits into default plans that provide catastrophic insurance protection. These plans would charge premiums that are equal to the value of the standard (not income-adjusted) credit amounts, and so most beneficiaries would owe no additional premium.

The truth is, the AHCA needed to change and probably would have in the Senate if it had passed in the House. So now there is time to change it in a deliberative way.

But the goal shouldn't be to find a bill that is acceptable to 100 percent of the Republican caucus. On health care, Republicans will be better off trying to reach a deal with some willing Democrats. That can be done, but only if Republicans first demonstrate they are serious about producing a workable approach that moves decisively away from key ACA provisions without leaving millions without insurance. If they do that, and the CBO produces an estimate showing it would work, they will find they have the leverage necessary to bring some willing Democrats to the table and get a good deal.

James C. Capretta is a resident fellow and holds the Milton Friedman Chair at the American Enterprise Institute, where he studies health care, entitlement, and U.S. budgetary policy.  jcapretta@aei.org

An earlier version of this article was published by RealClearHealth.