ObamaCare On The Precipice

By John McManus, president and founder, The McManus Group

Congress opened the 2016 session by finally getting a bill that repeals large swaths of ObamaCare to the president’s desk. It took numerous attempts over the past several years, but some parliamentary maneuvering enabled the Senate — the primary roadblock — to repeal the Medicaid expansion, subsidized insurance exchanges, and a host of ObamaCare taxes through a process called Budget Reconciliation. The bill left the substantial Medicare cuts in place and therefore was scored as saving $516 billion over 10 years. President Obama promptly vetoed the legislation (only his eighth in seven years), but the effort clearly delineated Republican intentions to scrap the law should they win the White House this year.

Since enactment of ObamaCare, Republicans have vowed to “repeal and replace” the law. What has happened to the “replace” part of the “repeal and replace” of ObamaCare? We are told that is forthcoming. But the Republican caucus has had difficulty forging consensus, because any serious attempt will likely require them to either advance similar policies they just repealed (e.g., refundable tax credits for insurance) or open them to withering criticism of taking away coverage Americans have come to depend on. Providing coverage generally requires spending a lot of taxpayer dollars. Conservatives do not want to be accused of voting for new spending and entitlements, but moderates fear a backlash should individuals lose their coverage. What to do?

Fortunately, there is no reason to delay targeted changes until a comprehensive replacement can be achieved. Congress made a first swipe late last year when it successfully:

• eliminated the requirement for states to change the small-group market definition from 50 to 100 employees, thereby lowering health costs for small businesses by 18 percent
• suspended the medical device 2.3 percent excise tax for two years
• delayed imposition of the 40 percent excise tax on “Cadillac” health plans for two years
• suspended the tax on insurance plans for one year.

Noticeably absent in the end-of-year tax package was any relief for the pharmaceutical industry, which did not even request that its $3 billion to $4 billion annual fee be rescinded or suspended. With the public fixated on pharmaceutical pricing, the industry is in a more defensive posture and kept its head down as other sectors furiously lobbied for relief.

PROSPECTS FOR FURTHER TARGETED FIXES IN 2016
This year, it may become more difficult to legislate as the elections loom and there are very few legislative days to move bills. But Congress has the opportunity to build on last year’s targeted improvements in the same way it made changes in 2015 by building bipartisan support to amend the more onerous aspects of the law.

One example is relief small businesses are seeking for absurdly punitive fines for doing right by their employees. Pressure is building from small businesses to rescind a $100 per day, per employee penalty for providing “health reimbursement arrangements” to employees, whereby employers provide pretax resources for employees to purchase coverage on the individual market. Many small employers who could not afford to buy coverage were using these arrangements to help their employees finance premiums in the individual market or cover out-of-pocket health costs. In 2014, contributions to HRAs averaged about $1,390 for individuals and $2,781 for families.

The Treasury Department opined that this cash assistance constitutes employer-provided insurance and is in violation of ObamaCare mandates. The penalties became effective on July 1, 2015, and most small businesses do not even know they may be in violation and subject to massive penalties for trying to assist their employees. A business with four employees — e.g., a hair salon, small home builder, bicycle repair shop — could be subject to fines of $146,000 ($36,500 per employee) for providing healthcare assistance in the wrong way. That could be a business-ending event for a firm that is not required to provide any coverage at all; the employer mandate only applies to businesses with more than 50 employees.

The National Federation of Independent Business, National Association of Self- Employed, the National Manufacturers Association, and other groups are now mobilizing on Capitol Hill to build bipartisan support for legislation to repeal those penalties and permit these arrangements. More than 70 Republicans and Democrats, equally divided, have cosponsored Reps. Boustany (R-LA) and Thompson’s (D-CA) Small Business Health Care Relief Act, and bipartisan support is building for Sens. Grassley (R-IA) and Heitkamp’s (D-ND) companion legislation in the Senate.

COLLAPSE UNDER ITS OWN WEIGHT?
Advocates of an outright repeal of ObamaCare may be heartened by indications that the health insurance market is becoming increasingly unstable and may collapse under its own weight.

Recently, the Obama administration announced that 11.3 million Americans had signed up for its health exchange plans. That’s better than the administration’s conservative estimate of 10 million earlier last year, but far below the 21 million the Congressional Budget Office had projected when the law was enacted six years ago. More troubling is the demographics of those who are enrolling — they tend to be older and sicker and thus more costly for the insurers participating. Nearly half of those enrolled in 2016 are older than 45, and the coveted demographic of individuals under 30 signed in smaller numbers this year as compared to last year despite higher individual mandate penalties, which are also known as “taxes” according to the Supreme Court.

Part of the problem is the exorbitant deductibles, which make the coverage useless to anyone expecting modest health costs. According to HealthPocket, the average deductible for a “silver” or midtier plan in 2016 is $3,117 for an individual and $6,480 for a family.

But pushing more of the cost onto enrollees has not abated premium growth for covered services. Premiums for silver plans rose by about 10 percent in 2016, according to the Kaiser Family Foundation. A more comprehensive view of premiums across all plans — bronze, silver, gold, and platinum — by the Daily Caller Foundation found that premiums increased by a whopping 20.3 percent. This could lead to a death spiral over time where healthier enrollees drop out of the pool and can no longer cross-subsidize the sicker enrollees who consume far more healthcare than their premiums can offset.

Hastening the death march, the left’s experiment with not-for-profit healthcare has been a total bust. Fourteen of ObamaCare’s 16 nonprofit co-ops, which were created to provide an alternative to for-profit insurers, have become insolvent, costing the federal government $1.4 billion and causing 800,000 individuals to seek healthcare elsewhere. These dumped co-op enrollees may find themselves with fewer alternatives as UnitedHealth, the nation’s largest insurer, recently threatened to exit the ObamaCare exchanges. And many other plans are taking losses for underpricing plans, which ObamaCare’s risk corridors cannot cover.

Compounding these concerns is the sheer operational complexity of the program, which may end up canceling coverage for even the subsidized individuals who find it useful. The Internal Revenue Service reported in January that about 1.4 million households that received subsidies for their ObamaCare plans failed to properly account for that assistance on their tax returns, putting their subsidies at risk if they want to retain their coverage.

The architects of ObamaCare decided to provide subsidies through the tax code so they could argue they had delivered middle class tax relief, but many subsidy-eligible individuals had little or no tax liability, so they were provided “refundable” tax credits that could be advanced to their chosen insurer and immediately reduce the cost of their premium. The average subsidy-eligible individual received a subsidy of $300 a month, which covered roughly threefourths of the cost of the premium.

Individuals are supposed to account for those credits on their tax returns in the following year. Those who fail to do so cannot get them in advance, making health insurance unaffordable to them. Nearly 1 million households failed to file the new form that accounts for the subsidies, which was introduced in the 2015 tax season. Another 316,000 households that received the credits failed to file any tax return at all. And 150,000 requested extensions but never followed through. All told, nearly one-third of the 4.6 million subsidy-eligible individuals could potentially lose their tax credits. Expect the Obama administration to refrain from enforcing this provision. But how would a new administration handle this issue, particularly one intent on eviscerating the program?

Good question. But at this stage of the campaign we have little insight into who will occupy the Oval Office.