The decision by Senate Republicans leaders to set aside the Graham-Cassidy plan to repeal and replace the Affordable Care Act (ACA) has renewed talk of finding a bipartisan way forward on health care. But disagreement about what a bipartisan negotiation would be about is still an obstacle to getting a negotiation underway.
Many Democrats profess to want to participate in talks with Republicans on health care. Senate Minority Leader Chuck Schumer says he and his colleagues stand ready to work with Republicans on an adjustment to the ACA “that stabilizes markets, that lowers premiums.” But framing the purpose of the talks in this way will make it hard for them to ever take place. Rank-and-file Republicans don’t want to participate in a negotiation that has the singular purpose of “shoring up” Obamacare.
Put it this way: No one would expect Democrats to sit down with Republicans to discuss how to “repeal and replace” the ACA. Similarly, Republicans shouldn’t be expected to sit down with Democrats to talk about how to “retain and tinker with” the ACA.
Over the past month, Republican Senator Lamar Alexander, chairman of the Senate Health, Education, Labor, and Pensions Committee, has been negotiating with the ranking member of the committee, Democratic Senator Patty Murray, on a short-term fix to stabilize the ACA markets in 2018. Press reports indicate that, in the deal that was emerging before Alexander suspended the talks, Republicans were being asked to support additional federal funding for reinsurance payments covering high-cost cases and cost-sharing subsidies for low-income consumers in return for Democratic concessions to allow greater leeway for states to regulate insurance plans.
A bipartisan plan of this kind to stabilize the ACA markets in 2018 is fine as far as it goes. But it is far from sufficient. Republicans are right to be reluctant to participate in a negotiation like the one that produced the Alexander-Murray plan. What is needed is a thorough, top-to-bottom negotiation between both parties over fundamental aspects of the entire health system. It is fine to start with a bipartisan approach to stabilize the markets in 2018, but only if that is quickly followed by meaningful negotiations over more important questions.
Republicans should only participate in a negotiation over small, short-term measures if they have a commitment from Democrats in advance that the parties will also come to a consensus on a larger reform plan by a specified date. To that end, Republicans should only agree in a short-term fix to fund cost-sharing subsidies (and perhaps other spending) for 2018; that way they would ensure another round of legislation would be needed again next year to extend the payments into 2019 and beyond. This second round of legislation could serve as the vehicle for an agreement on a larger reform plan.
Getting Republicans interested in a bipartisan negotiation will mean putting on the table for discussion key aspects of the health system’s design. These should include: What is the appropriate income limit for Medicaid eligibility? How much flexibility should states have to run Medicaid without federal interference? What is the appropriate level of subsidization for enrollment in insurance (through federal tax credits)? What can be done to bring more cost discipline to the entire system, including Medicare and employer-provided coverage? And, finally, what can be done to ensure major health entitlement programs are affordable over the medium and long-term? These are difficult questions. But they must be addressed if Congress is going to both improve the affordability and sustainability of the system and build greater political stability around whatever system emerges from a consensus reform plan.
It may, in fact, be easier than most Republicans and Democrats think to find common ground on major aspects of the health system. The reason is that both parties have to work within the same constraints when advancing reforms.
Most Americans get their health insurance through employer-sponsored insurance plans. Medicare provides coverage for the elderly, and Medicaid is the nation’s safety-net insurance system. For Americans who are ineligible for employer coverage or public insurance, they must get their insurance through the individual insurance market. Officials in the Obama administration and Democrats in Congress designed the ACA around this basic structure because they knew it would be politically treacherous to try to upend it. Similarly, the Republican repeal-and-replace plans advanced this year were also built upon the existing system, instead of starting from scratch.
Because most members in both parties accept that they cannot change the basic structure of American health care, they have reached for many of the same policy levers. Notably, both parties have embraced refundable tax credits for individuals who must buy insurance on their own. This is a matter of fairness, as workers with employer coverage get a large federal tax subsidy; before the ACA, nothing comparable was available to people buying coverage in the individual market. Moreover, both parties recognize that low-income households will not be able to enroll in coverage without some additional subsidization of their premiums. There are differences between the parties over the amounts of the tax credits and how they are phased out by income. But those are the kinds of details that can be hashed out in negotiations.
To find common ground, it will be especially important for the parties to strike a compromise on Medicaid. The ACA allowed states to expand the program to households with incomes up to 138 percent of the federal poverty line (FPL), financed mainly with federal funds. Republicans have tried to roll back the expansion in their failed attempts at repeal and replace, while also pushing for reform of the program by moving to per-capita federal payments. Both parties will need to give ground in a negotiation. Republicans need to accept both that Medicaid is the nation’s safety-net insurance program and that there needs to be a reasonable income threshold below which everyone in all 50 states would be eligible for enrollment. (Perhaps that threshold should be 100 or 110 percent of the FPL.) Democrats must accept that Medicaid needs reform — especially to give states greater freedom to manage the program without federal interference — and to slow its rate of spending growth. If both parties give on these points, it will be possible to find a compromise position that is more stable than the status quo.
It is also important for the parties to join together to impose greater cost discipline on the system. The ACA imposed the “Cadillac tax” on high-cost employer coverage, but both parties have supported delaying it and would probably repeal it, if given the chance. Cost discipline is not popular, but it is absolutely necessary for a functioning health system. Instead of repealing the Cadillac tax, the parties should replace it with a fairer upper limit on the existing tax preference for employer-paid premiums. This approach would be more progressive and could be tailored to exempt low-wage workers.
Republicans have so far failed to repeal or replace the ACA. But the law is still unstable and vulnerable, in large part because it was passed with only Democratic votes in 2010 and now must be implemented by the Trump administration and a Republican Congress. The country would be far better served by a health-reform plan that both parties find acceptable. Surprising as it may sound, such a bipartisan solution is possible — but only if both parties are willing to discuss more than short-term fixes to the ACA.
James C. Capretta is a RealClearPolicy Contributor and holds the Milton Friedman chair at the American Enterprise Institute.