Is Washington Ready for the Death of Obamacare?
The possibility that the U.S. Supreme Court will soon eliminate federal subsidies for people buying health insurance through the Affordable Care Act is the biggest story in politics and economics that no one wants to talk about. But the stakes in King v. Burwell, which the court will hear on March 4, could scarcely be higher: If the plaintiffs prevail, millions of people in 34 states who bought insurance on federal exchanges would suddenly lose the subsidies that make it affordable. Consequently, most would lose their coverage. A Rand study pegged the number at 9.6 million people, with premiums soaring 47 percent for those still able to afford them. “Everyone agrees this would be a cataclysmic hit to the insurance market,” Michael Kolber, a health-care attorney at Manatt, Phelps & Phillips, said at a Feb. 13 Bloomberg Intelligence panel on King v. Burwell.
The immediate effect of a ruling against the ACA would be to hurl the political system, and no small part of the economy, into chaos. Yet there’s little sign that Washington is preparing for that scenario. Democrats won’t talk about what they would do because they don’t want the court to believe they could contain the fallout. Republicans don’t want to talk because they’re loath to admit that, even after voting 67 times to repeal or defund the ACA, they have no plan to help the millions who would be affected. (But they’d sure love the court to kill the law anyway.) Hospitals and insurers understand that bewailing their financial plight might not help their cause. Instead, they’ve channeled their warnings into amicus briefs.
A notable exception to this monkish silence is Stuart Butler of the Brookings Institution in Washington. Butler, 67, is the Zelig of modern health-care reform, present at every critical stage. In 1993, as a scholar at the conservative Heritage Foundation, he designed a health-care plan around an individual mandate that became the main alternative to the Clinton administration’s plan. A decade later, when he soured on the mandate, many conservatives followed suit. President Obama’s decision to make the mandate a pillar of the ACA ignited broad conservative antipathy to the idea, which left Butler, its progenitor, awkwardly situated when Heritage became the locus of opposition. His decision last July to leave Heritage after 35 years and move to Brookings is a gauge of how far Republican health-care policy has moved to the right since the Clinton era.
Practically alone among Republicans, Butler is sounding an alarm about what a decision in favor of the King plaintiffs would carry with it. While Democrats would be dismayed if the court guts Obama’s signature initiative, Butler’s worry is grounded in an understanding that voters with skyrocketing premiums may not blame Obama, as Republicans assume. They’ll expect the party hellbent on destroying the law to have a solution—and react badly if none is forthcoming. Because 16 states operate their own exchanges and therefore won’t be affected by the court’s ruling, Butler believes the ACA will stagger on and eventually recover, since voters won’t abide a system wherein some states have affordable, federally subsidized health-care coverage and others do not. Absent an alternative, he says, the ACA will rise again like a horror-movie killer. “People who believe the ACA instantly goes away are deluding themselves,” he says. “By not doing anything to develop a Republican vision of how to move forward, they could end up with the very nightmare they’re trying to avoid.”
On the political front, lawmakers would have to decide what to do about the people in 34 states who would lose their subsidies. In theory, Congress could tweak the law to restore them. But Republicans have no interest in this, nor have they shown any sign of being able to agree on any other fix, much less one that Obama would support. That would throw responsibility to the states, which would each have to try and devise their own solution. Some would probably manage; others, especially those with Republican governors or legislatures implacably opposed to the ACA, almost certainly would not.
The result would not just leave millions uncovered but also risk destroying the individual health-care markets in states that don’t act. According to a brief filed by a consortium of hospital trade groups, “A market without subsidies will trigger a premium ‘death spiral’ in those states: With subsidies gone and premiums pushed higher, younger and healthier patients will likely drop coverage. Those that remain, paying the higher rates, are likely to be sicker and use more health-care resources. That, in turn, will push rates for everyone in those states even higher, which will cause more to drop coverage, and so on.”
On the business front, the effects would be no less significant. “If the U.S. health-care system were its own economy,” says Butler, “it would be the sixth-largest in the world—larger than Britain’s.” Entire segments of the health system redesigned their business models to take advantage of the ACA’s incentives. Hospitals, for instance, were given a trade-off: They stopped receiving government payments to offset the cost of treating the uninsured, cuts that amount to $269 billion over a decade. In return, they were promised millions of new patients insured through federal subsidies. “All the major hospital systems and big insurers like Kaiser and Geisinger spent a ton of money adapting to the ACA,” says Butler. If subsidies vanish, “suddenly the market is misaligned. If you’ve hired all these new doctors and health-care workers to cover all these new people walking in the door, and they don’t come, what do you do? You lay them off.”
This is no mere hypothetical. In 2012, after the ACA had ended hospital reimbursement payments, the Supreme Court ruled that state Medicaid expansion was optional, rather than mandatory, as the law had decreed. Hospitals in the states that chose not to expand Medicaid lost one source of income without gaining a new one to offset it (Medicaid patients). At least 43 hospitals have closed as a result, with the pace picking up each year, according to an investigation by USA Today.
The ACA also opened up a flood of investments in digital health ventures. A recent study by StartUp Health, a New York incubator, found that $14.5 billion has been invested since the law was signed, including $6.5 billion last year. “If Congress is unwilling to take action, it would clearly make it less attractive to invest in things related to the coverage expansion,” says Bob Kocher, a partner specializing in health-care IT at the venture capital firm Venrock. “It slows the rate of change in the health-care ecosystem in a way that’s bad for everybody and hurts companies going after these new patients, who are going to suffer.”
If the court strikes down federal subsidies, Butler hopes Congress will use the resulting pressure from voters and health-care companies to implement a more conservative vision of health-care reform—changing the tax treatment for employer-sponsored health plans and allowing states much greater flexibility to spend Medicaid money and design their own systems (abolishing the individual mandate if they wish).
But Butler’s plan would require a Republican contingent willing to go along—and so far none has materialized. “When Clinton came in, there was clear momentum toward a sweeping reform of the health system,” he says. “There was a big debate on the right about whether to try and match it, but with a different structure, or just to attack.” Butler sided with those who wanted to fix the problem. That’s much harder now. “Today, I think we’re in the exact same situation,” he says. “Only this time there isn’t a core group of people who have coalesced around a basic alternative.”
It’s possible such a group will emerge as the court prepares to issue a decision, probably in late June. The party’s presidential aspirants may also take an interest in Butler’s alternative, given the failure of efforts to repeal the law. “You can bang your head against the wall all you like,” says Butler. “If it doesn’t fall down, then maybe you should go around it or figure out some other way to move forward.” So far, though, no one has called. But if the court sides with the King plaintiffs and the blowback is as intense as some people expect—well, maybe then Butler’s phone will start ringing.
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