The AHCA Does Not Materially Improve ObamaCare, and MacArthur Waivers Don’t Materially Improve the AHCA

The most remarkable thing about Rep. Tom MacArthur’s (R-NJ) amendment to the House leadership’s American Health Care Act is how little the conservative House Freedom Caucus got in exchange for supporting an ObamaCare-lite bill they had previously opposed.

The MacArthur amendment would allow states to apply for waivers that would:

  1. Exempt their individual and small-group insurance markets from ObamaCare’s “essential health benefits” coverage mandates as early as 2018;
  2. Allow insurers in those markets to consider the health status of previously uninsured applicants (if the state sets up some more direct form of subsidy for people with pre-existing conditions, either within or outside the commercial market) as early as 2019; and/or
  3. Allow states to loosen ObamaCare’s “community rating” price controls as they apply to age early as 2020.

These waivers may never happen. They certainly won’t happen in time to save consumers from the AHCA’s rising premiums, or to save Republicans from the inevitable backlash against the AHCA. But even if they did happen, they would increase the penalties ObamaCare imposes on insurers who offer quality coverage for the sick, and thereby accelerate ObamaCare’s race to the bottom.

The opt-out concept is not irredeemable. But the MacArthur amendment would require dramatic changes to make it even a modest step toward ObamaCare repeal.

The Secretary Can Block MacArthur Waivers

Supporters claim the amendment prevents the federal government from blocking or forcing states to alter waiver applications because it requires the Secretary of Health and Human Services to approve any and all waivers that provide the necessary information. But this is not quite true.

The amendment requires waiver applications must “demonstrate[]that the State has in place a program that carries out the purpose described” in the parts of AHCA that create subsidy programs for people with preexisting conditions. The Secretary could deny waiver applications on the basis that a state’s program does not adequately carry out the purpose of those parts of the AHCA, and refuse to approve the waiver until the state makes whatever changes the Secretary requires. The Secretary could also reject waivers on the basis that the information provided in the application is otherwise not truthful or accurate.

Donald Trump’s HHS Secretary Tom Price might not. But Secretary Bernie Sanders would.

MacArthur Waivers: Too Little, Too Late

Though the amendment allows states to waive the EHB mandates as early as January 1, 2018, the earliest states could do so would be 2019.

So even in states that are eager to provide premium relief, consumers would still feel the pinch of ObamaCare’s rising premiums, plus the 15-20 percent premium surcharge the AHCA would impose, in 2018—a year with mid-term elections, no less.

MacArthur Waivers Accelerate the AHCA’s Acceleration of ObamaCare’s Race to the Bottom

ObamaCare penalizes insurers who offer high-quality coverage to the sick, causing a race to the bottom in quality. You’ve seen the headlines. A “stampede to narrow networks.” Insurers fleeing the market. Complete collapse of the Exchanges in many counties. The ObamaCare provisions causing that race to the bottom are the same provisions that leave older women (age 55-64) facing the largest premium increases under the law: its community-rating price controls.

The AHCA would accelerate that race to the bottom. It would free consumers to buy less coverage (i.e., with lower actuarial values) than ObamaCare allows. But because it would preserve community rating, the adverse selection against comprehensive health plans would be even more severe. Coverage for the sick would get worse even faster than under ObamaCare, as insurers do even more to make their plans unappealing to the sick, or leave the market entirely.

As noted above, MacArthur waivers would allow willing states to loosen ObamaCare’s “age rating” bands even further, and to let insurers take health status into account for previously uninsured applicants. But these provisions would not be enough to prevent a race to the bottom. In fact, while it’s a good thing that MacArthur waivers would allow healthy people even more freedom to purchase less-comprehensive coverage, the fact that it would preserve community rating for sick enrollees who switch plans means it would create even more adverse selection than the AHCA would. So the race to the bottom would be even more swift and severe.

A Better Way to Let States Opt-Out

If the Republican Congress wants to provide real relief to consumers and take a step toward keeping its pledge to repeal ObamaCare, here are the features of a state opt-out provision that would accomplish both goals.

First, allow states to opt out of all of Title I of ObamaCare. This would stabilize insurance markets immediately, and cause premiums to fall dramatically for the vast majority of consumers in the individual market. If Republicans want to weather a tough mid-term election, they are going to need millions of voters happy because their premiums fell.

Second, don’t require states to get approval from the federal government. Let states opt out of ObamaCare simply by notifying the Secretary of Health and Human Services. Giving the Secretary any authority to approve a state’s plans also gives her the authority to deny those plans.

Third, let residents of all 50 states purchase insurance licensed by ObamaCare opt-out states. This would tie the opt-out idea to President Donald Trump’s campaign promise to let consumers and employers purchase insurance across state lines. As such, it would give states an added incentive to opt out of ObamaCare (states that did so could collect premium-tax revenue from out-of-state purchasers) and allow residents of all states to opt out of ObamaCare at their discretion.

MacArthur Amendment Exempts Congress from MacArthur Waivers

Then again, maybe the whole opt-out idea is doomed. The MacArthur amendment exempts Congress, which gets coverage through the District of Columbia’s small-business Exchange, from any waiver that the District might pursue. Authors of the amendment apparently included the language because otherwise the bill would run afoul of Senate rules and cause the entire AHCA to require 60 votes in the Senate rather than just 51. Since this problem would apply to any waiver or opt-out idea, maybe Congress should just stick to keeping their promise to repeal ObamaCare outright.

Conclusion

What I wrote about the AHCA two months ago still applies:

The House leadership bill isn’t even a repeal bill. Not by a long shot. It would repeal far less of ObamaCare than the bill Republicans sent to President Obama one year ago. The ObamaCare regulations it retains are already causing insurance markets to collapse. It would allow that collapse to continue, and even accelerate the collapse. Republicans would then own whatever damage ObamaCare causes, such as when the law leaves seriously ill patients with no coverage at all…The fallout could dog Republicans all the way into 2018 and 2020, when it could lead to a Democratic wave election like the one we saw in 2008. Only then, Democrats won’t have ObamaCare on their mind but single-payer…

The [AHCA] merely applies a new coat of paint to a building that Republicans themselves have already condemned. Since the most important asset health reformers have is unified Republican opposition to ObamaCare, at least in theory, it would set the cause of affordable health care back a decade or more if Republicans end up coalescing around this bill and putting a Republican imprimatur on ObamaCare’s core features. If this is the choice, it would be better if Congress simply did nothing.

Congressional Republicans and President Trump took office with a mandate to repeal and replace ObamaCare. Yet even as 76 percent of Republican voters and 80 percent of Trump voters want Congress to repeal and replace ObamaCare, both the moderate and the conservative wings of the House GOP now appear ready to snub their base by supporting a bill that does neither. Good luck turning out those voters in 2018.