Congress Should Fix Obamacare By Giving Health Care Back To States

Congress Should Fix Obamacare By Giving Health Care Back To States

The Federalist - Tuesday February 28, 2017

by John Daniel Davidson

When President Trump addresses a joint session of Congress tonight, he should make health care reform the centerpiece of his remarks, and he should make it clear to congressional Republicans what he has in mind. Ideally, he should strongly support repeal, even if a replacement plan isn’t ready to go.

The GOP has talked about repealing and replacing Obamacare nonstop for nearly seven years now. Republicans have won federal, state, and even local elections on promises to dismantle the law. If they fail to do it now, Republican voters might well be incensed—and with good reason.

Republican lawmakers are terrified they’ll get blamed for taking coverage away from millions of Americans if they repeal the law. An analysis presented Saturday to the National Governors Association (then leaked to Vox) predicted significant coverage losses if Republicans switch from Obamacare’s income-based tax credits to age-based tax credits, as outlined a recent 19-page proposal released by GOP leadership. The Vox headline warned “millions could lose coverage under GOP health proposal.”

But lost in the hemming and hawing over the potential political fallout is a simple fact: millions of American have already lost coverage as a direct result of the Affordable Care Act, which regulated their old plans out of existence. Millions more have simply opted out of health insurance coverage altogether because they can’t afford the overregulated ACA plans offered through the exchanges.

So far, Trump has been hopelessly muddled on the issue. During his campaign, he promised to replace Obamacare with something “terrific” that would “take care of everybody.” On Monday, he told reporters that “nobody knew that health care could be so complicated,” and suggested Republicans should just “let it be a disaster,” and blame it on Democrats and Obama.

At this point, letting Obamacare collapse under its own weight is bad idea. It made sense when Obama occupied the White House, but now that Republicans control the legislative and executive branches, it’s their responsibility to do something about it. But they need not craft a GOP version of the law with all the same pitfalls and costs as Obamacare. Instead, they should repeal the law and make a forceful case for health care federalism: states, not the federal government, should be the primary regulators of health insurance.

If States Want Bigger Medicaid, Let Them Pay For It

Of all the damage Obamacare has done, perhaps the most structurally important has been the federal takeover of health insurance markets. Recall that before the ACA, states were largely responsible for regulating individual and group health insurance. That’s one reason the cost of coverage varied from state to state. Some states, like New York and Washington, experimented with Obamacare-like provisions in the 1990s, and in the process nearly destroyed their individual health insurance markets.

Congress could repeal major tax and spending provisions of the law through the reconciliation process, as they are reportedly preparing to do, then invite states to step in and “replace”—or recreate—elements of Obamacare if they so choose.

Take Medicaid expansion. Despite the media’s specious refrain that the ACA has covered 20 million people, the vast majority of coverage gains under Obamacare have come from Medicaid expansion, the federal-state program originally created to provide coverage for the frail elderly, the disabled, and women and children.

Even so, repealing Medicaid expansion, the argument goes, would mean snatching coverage away from millions of poor Americans. This isn’t just a Democratic talking point. Ohio Gov. John Kasich, one of 16 Republican governors who expanded Medicaid under the ACA, has been lobbying to save that part of the law.

It’s a legitimately vexing problem. To date, 31 states and the District of Columbia have received generous federal funding for their expanded Medicaid programs, while 19 states have refused to expand. How do you maintain funding for expansion states without shortchanging non-expansion states?

One compromise floating around is to temporarily keep funding for those currently enrolled in expansion states but block future funding. At the same time, the federal government would make new funds available to non-expansion states  to offset the costs incurred by hospitals that treat large numbers of poor and indigent patients.

It’s a horrible idea. The federal government inflates state budgets (and therefore controls state policymaking) enough as it is. The last thing we need are more entitlement programs that enmesh states in federal policy schemes.

Every State Doesn’t Have to Be the Same

Instead, Congress should say to states, “if you like your expansion, you can keep it.” Of course, there would be a catch: states would have to pay for the expansion population based on the old Medicaid reimbursement rates. Traditionally, the federal government only pays about 60 percent of the cost of covering Medicaid enrollees. To entice states to expand their programs, the ACA offered a better rate: 100 percent to start with, ratcheting down to 90 percent by the year 2020. It was basically an extortion scheme, an offer too good for states to refuse. It also strengthened pre-existing incentives for states to game the Medicaid funding system to increase federal funding without actually raising taxes.

Repealing the enhanced funding would not only reduce federal leverage over state agencies, it would rectify the disparity between expansion and non-expansion states. If expansion states really want to keep covering all those newly eligible enrollees, they will simply have to pay for more of the coverage costs themselves.

After all, states are taxing entities. There’s nothing to stop lawmakers in, say, California from increasing taxes to pay for more generous Medicaid coverage in their state. If voters in Oregon want their Medicaid program to cover able-bodied, working-age adults with no children, by all means they should go ahead. Even before the ACA, Medicaid programs varied widely from state to state, with blue states generally offering more generous benefits than red states. There’s no reason that can’t continue.

The same goes for individual health insurance markets. Before Obamacare, states largely had control over these markets. Many states had (and still have) benefits mandates very similar to those in the ACA. Texas, a deep red state, has something like 62 benefit mandates. If states want to make health insurance more expensive by larding it up with required benefits, Congress should let them do it—and let state voters hold state lawmakers accountable.

All of this goes back to a core constitutional principle of federalism. Just because Obama and the Democrats tried to nationalize health care doesn’t mean Republicans should tie themselves in knots trying to make Obamacare palatable—or functional. If they really want it, let the states have at it.

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