The ACA Has Survived Yet Again. Now What?

Health Care

The ACA Has Survived Yet Again. Now What?

Obamacare has survived another brush with death. But realizing its full potential may not be easy. 

June 28, 2015

The Affordable Care Act has used up at least four of its nine lives. It was almost stillborn after Democrats lost their 60-vote Senate majority in early 2010. It survived a brush with death in the Supreme Court in June 2012—and yet another in that fall’s election. And just last week, of course, it was upheld by the Supreme Court in the most ringing affirmation yet.

In each case, the existential threat was real. Surviving all of them was hardly foreordained. Say the law had a two-out-of-three chance of winning each time. Basic statistics tells us that the likelihood of four straight wins—if each episode is independent of the others—is less than one in five. For all the commitment displayed by the law’s architects and advocates, for all the extraordinary good that it has done already, the Affordable Care Act has also been extraordinarily lucky.

The Road to Entrenchment

But, of course, these episodes weren’t independent. With each challenge, the entrenchment of the ACA has increased. If the Supreme Court had defied precedent, compassion, and common sense to rule against the ACA last week, the law would likely have survived, albeit in diminished form. At this point, two extremely powerful forces protect it. The first is the politics of loss aversion. It is extremely hard to take social benefits away once they have been granted. Not impossible, but very hard—and only when they are unpopular (welfare) or weakly entrenched or temporary (extended unemployment benefits) or when the fallout is relatively hidden and someone else can be blamed for the change (the 1983 Greenspan Commission’s cuts in future Social Security benefits).

The estimates that seven to nine million Americans would lose their benefits if the Court had ruled against the ACA, the signs of growing public support for the law and strong public opposition to taking benefits away, and the scramble of Republicans to come up with stopgap measures—these are all reminders that the politics of loss aversion has kicked in. Repeal is no longer an option if it ever was. And “repeal and replace” won’t be much easier.

That’s in part because the GOP faces a serious policy conundrum. It’s not just that its members are split between die-hard opponents and those who are slightly more pragmatic (read: living in the real world). It’s also that the law is working in one of the many ways that the GOP claimed it wouldn’t: It is lowering the deficit. Since 2010, estimates of the cost of the law’s coverage expansions have declined by nearly a third for the 2015-19 period, while its Medicare savings have been larger than expected, extending the life of the trust fund by a stunning 13 years.

All of which means “repeal and replace” would cost the government a lot of money. Under current congressional procedures, legislative items that increase the deficit are in violation of the so-called pay-as-you-go rules, which require that mandatory spending increases or tax cuts be paid for. This matters a great deal in the Senate, because it means that Republicans cannot use the streamlined reconciliation process—which allows them to avoid the 60-vote barrier posed by a Democratic filibuster—unless they either abandon the pay-as-you-go rules altogether (going nuclear, budget-style), or come up with spending cuts—or, even less likely, new revenue sources—to make up the difference. To say neither will be easy is an understatement. 

But neither is impossible either. The most viable strategy for the GOP at this point is to try to cripple the law through smaller-scale changes that push the ACA from its current expansionary path. They could give the states more freedom, for example, which might allow the most conservative to undermine its operation even more than they have. They could strip some of the taxes and regulations from the law and offset the cost with budget gimmicks or distant benefit cuts. Unfortunately, some Democrats are inclined to go along with these measures, particularly a repeal of the law’s medical device tax.

Thus, if federal budgetary pressures continue to lessen, we could well see some bipartisan backtracking that makes it harder to maintain the subsidies at current levels, much less expand them to more adequate levels in the future. However, all of these moves will meet fierce political resistance, not just within the GOP caucus—since many Republicans would rather say they oppose the law completely than pass reforms that compromise it while acknowledging its permanence—but also from Democrats and advocates for beneficiaries, who are finally gaining the confidence and organization they should have had all along.

Rex Features via AP Images

United States President Barack Obama with U.S. Vice President Joe Biden by his side, delivers a statement on today's Affordable Care Act ruling from the Supreme Court Barack Obama Statement on US Supreme Court decision upholding Obamacare at The White House. 

Could Republicans do more? Recent House GOP budgets give a good idea of what the maximalist GOP position is: eliminating subsidies for coverage expansions, turning Medicaid into a cash-strapped block grant, and making Medicare a system of competing private plans. To make the numbers appear to add up, these budgets have repealed all the taxes and Medicare savings and then, in a sleight of hand worthy of Houdini, insisted that even more Medicare savings and the same amount of tax revenue can be found elsewhere, without explicit tax increases.

At this point, however, the maximalist position looks politically untenable. Republicans will be under intense pressure to provide some kind of transitional assistance to those now receiving subsidies, and there’s no magical way to raise revenues without raising taxes. (Republicans cannot even agree among themselves on the barest outlines of comprehensive tax reform.) Here, as elsewhere, the extreme nature of the demands of House conservatives—full repeal, yet no tax increases, of any sort, ever—actually cut against finding a workable strategy for fundamentally compromising the law.

From the Republican perspective, the best prospect for major retrenchment could arrive in 2017. If the GOP won the presidential race and held on to both houses of Congress, and especially if it gained a filibuster-proof 60 votes in the Senate, a Scott Walker or similarly conservative Republican president might decide to go for broke, pressure Congress to waive pay-as-you-go, and ram through fundamental changes. And while the result would be an epic battle, it might succeed in crippling the law. If this unlikely but frightening set of events came to pass, the ACA would need the fifth of its nine lives. 

Lessons from Medicaid

Still, the existential threats are mostly past. That doesn’t mean, however, that the ACA will continue to work as well as it has so far. Advocates often use the analogy of Social Security or Medicare to describe where the ACA is heading—toward deep entrenchment and near-universal support. But the better analogy is Medicaid, and not the Medicaid program that is the part of the ACA today, but the Medicaid program that was created alongside Medicare in 1965.

It’s easy to forget, but Medicaid was not fully institutionalized until decades after its passage. The last state to adopt the program, Arizona, didn’t do so until the early 1980s. And well into the early 1990s, it wasn’t clear which way the program would go: the direction of long-vulnerable welfare or the direction of the more regnant Medicare. Expanding and securing Medicaid took enormous effort at the state and national levels—year after year, federal budget deal after federal budget deal, state legislative session after state legislative session. And the victories were always vulnerable at the state level. Though few state programs were radically cut back, states dragged their heels and compromised their programs in many ways over many years.

By the early 21st century, however, Medicaid was a program as big as Medicare—and a cornerstone of the Affordable Care Act. It’s still a deeply imperfect program, with low provider participation, penurious reimbursement rates, and millions eligible who don’t sign up. Thankfully, the ACA is, in key respects, stronger at the outset than Medicaid was in 1965. But to say the ACA is more like Medicaid than it is like Medicare expresses the essential truth that it’s going to take fierce and prolonged advocacy to make it a program that provides anything like the kind of secure, citizen-based protection that Medicare or Social Security does.    

Medicaid is an apt analogy for another reason. For all the security, savings, and other indirect benefits that the ACA will provide to all Americans, it is a program that will, for the foreseeable future, provide direct coverage only to a minority of working-age citizens. The overwhelming majority will continue to have employment-based coverage. Unlike Medicare, which is seen as a universal right for everyone of retirement age, the ACA is likely to be seen as a benefit for a vulnerable segment of the American population for many years to come. And given that workplace insurance has virtually disappeared in lower-wage jobs, the ACA’s direct beneficiaries are inevitably going to be disproportionately low-income and non-white. In this age of “makers vs. takers” rhetoric, the ACA will remain vulnerable to attack as a benefit for someone else (and, let’s face it, someone else who doesn’t have the same skin color as the white Americans who are most opposed to the law).  

Yet as it becomes clear that the ACA is a fact on the ground, we can expect more states to adopt and further entrench the full benefits of the law. With the vast majority of funding for the Medicaid expansion coming from the federal government, with health care providers facing a continuing costly influx of uninsured patients, there will be enormous pressure on political leaders in red states—especially governors—to fully implement the law. Think about it: Right now, citizens of red states that haven’t expanded Medicaid are paying federal tax dollars to fund Medicaid expansions in blue states—expansions that boost state economies by paying providers for previously uncompensated care and ensuring covered households have money left to spend after paying those providers. The usual fiscal flow is, of course, the other direction: blue states typically get back well less than $1 for every $1 they send to Washington; red states, more than $1 and often much more. But blue-state schadenfreude should be resisted, because it’s in the red states, with their meager benefits and high levels of poverty and un-insurance, where the Medicaid expansion could do the most good.  

The intensity of state GOP resistance is based on the realistic fear that full implementation will be a one-way ratchet. But while this makes the opposition more determined, it also suggests that states that cross the Rubicon will have a hard time going back. Many years will pass before the more recalcitrant states enter into America’s new social compact. But unless there is major retrenchment at the federal level, they gradually will, and all of us will be better for it.

AP Photo/Jacquelyn Martin

Students cheer as they hold up signs supporting the Affordable Care Act (ACA) after the Supreme Court decided that the ACA may provide nationwide tax subsidies, Thursday June 25, 2015, outside of the Supreme Court in Washington. 

The Challenges Ahead

Those who celebrated the Supreme Court’s ruling should not be complacent about the challenges ahead. Many of the state-run exchanges will face significant difficulties as they move toward financial independence and routinized operation. With regard to the twin goals of the law—coverage and cost-control—the early happy statistics will become harder and harder to replicate in the future. At some point, probably soon, we’re going to have to grapple with the law’s lack of serious measures for slowing the growth of health premiums without more and more cost-shifting or tighter and tighter restrictions on the choice of doctors and hospitals.

Further expanding coverage is the most immediate challenge. As states approach full coverage of legal citizens (contrary to opposition rhetoric, undocumented immigrants aren’t covered), incremental gains will become harder and harder. In this context, the opening up of the window for state waivers under the law in 2017 presents opportunities. Pioneering states should experiment with various forms of auto-enrollment, ensuring that all citizens without insurance are automatically covered by Medicaid or private plans offered by the exchanges.

Over the long term, cost control is the law’s Achilles’ heel. Like Achilles, the law looks valiant in this domain so far, with overall costs rising at their slowest sustained rate in the modern history of health care. But the fact remains that the law contains relatively limited tools for controlling costs outside of the Medicare program, which, of course, covers only the aged and disabled. As the “death panel” smear and the high levels of opposition to the ACA among the aged suggest, there are real risks to relying solely on Medicare to contain costs system-wide. The alternatives, however, are also daunting: creating a national public option or state equivalents or establishing all-payer rate-setting at the state or regional level.

For now, cost-control goals will be best met by using Medicare as a laboratory for testing new models of care delivery and payment. When successful, these are likely to diffuse into the private sector, as did Medicare’s prospective payment system for hospitals in the 1980s. The bottom line, however, is that health care providers continue to have enormous market power, and they use it to charge prices that are far higher than those in the rest of the world or those paid by Medicare, excessively variable, and almost completely unrelated to quality.

As a first step to tackle this problem, health insurers should be encouraged to consolidate their most costly procedures within health care institutions that deliver high-quality care at low cost—essentially steering patients to the higher-volume, lower-cost providers that deliver the best bang for the buck. Insurers that have experimented with this approach have proved successful at reducing costs without the backlash against restricted networks and bureaucratic second-guessing that plagued the 1990s version of managed care. But this approach will only work if there is close monitoring of and significant restrictions on the hidden cost-shifting that occurs when insurers restrict provider networks or design benefit packages to discourage care for those who need it most or when they deliberately leave patients vulnerable to out-of-network charges, a major source of cost-shifting that is likely to grow worse.  

But for now, let us celebrate a landmark Supreme Court decision and what it means. The ACA is an enormous step forward in the history of American efforts to ensure that all citizens have basic security. It is the most important step yet toward an efficient and humane health system that doesn’t drain our budget or excessively burden employers and families. And, thanks to the perseverance of its advocates and the politics of entrenchment, it is, in some form, here to stay. What form that will be is the question—and answering it in the right way, the struggle ahead.

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