POLITICS
03/07/2017 11:45 am ET Updated Mar 08, 2017

Conservatives Lash Out At 'Republican Welfare' As Opposition To 'Ryancare' Grows

Republicans are proposing to replace tax credits that subsidize health insurance with different tax credits that subsidize health insurance.

WASHINGTON ― The Republican Study Committee, an influential group of House conservatives, called it “a Republican welfare entitlement.” Conservative advocacy group FreedomWorks, a major force on the right, put it simply: “This is ObamaCare-lite.” Over at Breitbart News, the lodestar of the Trump administration, readers variously dubbed it “Ryancare,” “Obamacare 2.0,” “Soroscare” or, for the wonks, “unEarned Income Tax Credit II.”

The brewing conservative opposition to House Speaker Paul Ryan’s reform of the Affordable Care Act centers on what Ryan calls “advanceable refundable tax credits” that could be used to subsidize the purchase of health insurance.

Conservatives are making the case ― quite accurately ― that such a payment is, in principle, no different than the subsidies already created by the Affordable Care Act, also known as Obamacare. For a campaign based on principle, that’s a devastating critique.

The only difference, in the end, is that Ryan’s subsidies are smaller than those in the current health care law. “Writing checks to individuals to purchase insurance is, in principle, Obamacare,” concludes an RSC staff report obtained by The Huffington Post and first reported by Bloomberg.

At its heart, Ryan’s health care plan cuts taxes for the wealthy by hundreds of billions of dollars. It does so by raiding Medicaid, a health care program that is popularly understood to benefit the poor but is also a lifeline to many elderly people. The bill also helps fund the tax cuts by raising the cost of health coverage for those over the age of 55 and those with pre-existing conditions.

But conservatives warn that the Medicaid cuts aren’t real. Ryan’s plan delays unwinding Medicaid expansion by several years, which would put the onus on a future Congress to suffer the pain.

The RSC doesn’t think that will happen.

“The future reduction is premised on a future Congress being willing to endure the political pressure of letting spending cuts go into effect,” the report warns. “It is unlikely that any future Congress will have a stronger political will in terms of reforming Obamacare entitlements than the sitting Congress – thus it is unlikely that the expansion repeal will ever be implemented in reality.”

President Donald Trump offered a less than full-throated endorsement for the plan on Tuesday morning, tweeting that the bill was now out for “review and negotiation.”

Asked how much of the bill Republicans were willing to negotiate over, House Energy and Commerce Chairman Greg Walden (R-Ore.) said it was a “legislative process,” and that Republicans were open to a “thoughtful legislative discussion.”

If the early responses are any indication, Republicans may have to make some changes.

In many ways, the House Republican proposal released last night not only accepts the flawed progressive premises of Obamacare but expands upon them. Michael Needham, Heritage Action

Influential conservative groups spent the early part of Tuesday coming out against the bill. Heritage Action’s CEO, Michael Needham, called it “bad politics and, more importantly, bad policy.”

“In many ways, the House Republican proposal released last night not only accepts the flawed progressive premises of Obamacare but expands upon them,” Needham said.

Club for Growth President David McIntosh said that if this “warmed-over substitute for government-run health care” wasn’t changed, the Club for Growth would key vote against it.

And the Koch brothers’ primary political group ― Americans for Prosperity ― blasted the bill and demanded a full repeal of the Affordable Care Act.

“We’re going to be more strongly reminding Republicans of their promises made over the last eight years on the issue of stopping — or at least rolling back, anyway — government-run health care,” said Tim Phillips, the president of Americans for Prosperity. “We’re telling them to keep their promises — and they’ve promised an unequivocal repeal of Obamacare.”

Meanwhile, the initial take from the most conservative Senate Republicans was that the bill would have problems in their chamber. Sen. Mike Lee (R-Utah) called the House plan “a step in the wrong direction,” and Sen. Rand Paul (R-Ky.) called it “Obamacare Lite.”

“It will not pass,” Paul tweeted.

But why would the Breitbart-inspired conservative movement take down a repeal plan pushed by Ryan and ostensibly backed by Trump? Breitbart’s longtime honcho, Steve Bannon, has long considered Ryan an obstacle to his vision for the future of the Republican Party ― and he could use any failure to repeal and replace Obamacare against Ryan in the future.

Read the RSC memo below.

To: RSC Members

From: RSC Policy Staff

RE: Repeal/Replace Released Bill

Date: 3/6/2017

Changes from February 10 Draft

Obamacare tax repeals: The released bill, in general, delays the repeal of Obamacare taxes by one year compared to the February 10 draft. The bill does not appear to repeal the Economic Substance Doctrine.

Cadillac Tax: The released bill includes a reinstatement of the Cadillac tax after 2025.

Refundable Tax Credits: The released bill contains the same tax credits as the February 10 draft; however, it also includes a phase out of the credit for individuals earning over $75,000 ($150,000 for joint filers). This would reduce the value of the credit by 10% of the amount by which an individual’s income exceeds the income threshold.

Medicaid: The released bill grows per capita Medicaid at CPI Medical, as opposed to CPI Medical plus one percent in the 2/10 draft. The released bill also adds language allowing states to disenroll high-dollar lottery winners.

DSH Cuts: The draft bill eliminated all Obamacare Disproportionate Share Hospital cuts. The released bill only does so for non-expansion states.

Employer Exclusion: The released bill does not contain the cap on the employer exclusion that was contained in the February 10 draft.

Summary I

Title I – Energy and Commerce:

Medicaid Expansion: The bill includes a phase out of the Medicaid expansion, via a freeze in eligibility for Obamacare’s enhanced 90% federal share of Medicaid costs for new enrollees beginning in 2020. This phase-out would likely take at least 2-5 years to be effective once implemented in 2020.

Medicaid Reforms: The bill shifts Medicaid to a per capita model, with a base year of FY2016 in most cases, or FY2019 if a state expands its Medicaid population after FY2016. The per capita payments would be inflated annually in line with the medical care component of the CPI, which is significantly higher than the general CPI plus population indexing that has been used for Medicaid block grants in House GOP budgets. The bill also makes changes to allow states to disenroll high-dollar lottery winners from Medicaid.

DSH Cuts: The bill eliminates Obamacare’s DSH cuts for non-expansion states, while maintaining these reductions for expansion states.

Planned Parenthood: The bill defunds Planned Parenthood for one year. 

State Innovation Grants: The bill includes funding for $100 billion in block grants to states for state innovation programs over FY2018-2026. These funds could be used to provide support for high-risk individuals, stabilize individual markets, reduce the cost of obtaining coverage in the individual markets, and to reduce out-of-pocket costs for individuals or make payments to providers for health care services.

Default Reinsurance: The bill also includes a default establishment of federal reinsurance programs in states that choose not to implement such a program with state innovation grants. Many conservatives had significant concerns with reinsurance payments to insurance companies under Obamacare.

Non-Continuous Coverage Penalty: The bill also includes a requirement that insurers charge a 30% penalty on any individual who had a lapse in coverage of over two months at any point in the 12 months prior to starting a new insurance policy. Some may describe this provision as akin to the individual mandate, though, to be clear, it does not require an individual to purchase insurance. Rather, it penalizes anyone who chose not to do so, but later decides to purchase, and allows insures to keep the funds from such penalties.

Other Provisions: The bill makes a number of changes to insurance regulations, including aiming at allowing individuals with continuous coverage to avoid being medically underwritten (re-risk rated) in the small group market. It also allows for states to make determinations as to what constitute essential health benefits and allows for 5-to-1 ration of premiums for older individuals compared to younger individuals.

Summary II

Title II – Ways and Means:

Obamacare Taxes: The bill repeals many of the Obamacare taxes, but generally on a delayed basis. However, the bill re-imposes the Cadillac tax beginning in 2025. The bill does not appear to repeal the Economic Substance Doctrine.

Obamacare Mandates: The bill sets the penalties for the individual and employer mandates under Obamacare to $0, effectively eliminating these penalties.

Advanceable, Refundable Tax Credits: The bill includes an advanceable, refundable tax credit for individuals without access to health insurance for the purchase of health insurance beginning in 2020. These credits vary based on age, with older individuals receiving more generous credits than younger. Credits would be: $2,000 for individuals under 30; $2,500 for individuals 30-40; $3,000 for individuals 40-50; $3,500 for individuals 50-60; and, $4,000 for individuals over 60. There would be an aggregate cap for a family of $14,000 and no more than 5 family members would be eligible for a credit.

The credits would be phased out for individuals earning more than $75,000 or couples earning $150,000. The tax credit would be reduced by ten percent of the amount by which an individual’s income exceeds the threshold. The advanceable, refundable portion of these credits would be paid directly to insurers, with any excess in credit over premiums eligible to be deposited into an individual’s HSA account.

Modifications to Obamacare Premium Subsidies: The bill makes a number of changes to formulas directing the level of premium support tax credits under Obamacare aimed at stabilizing the individual and small group markets during the transition years through 2020.

HSA Expansions: The bill also expands the maximum contribution levels for HSAs by nearly 100%, to at least $6,500 for individuals and $13,100 for families.

Pro-Life Protections: The bill does attempt to provide guardrails to prevent the tax credits from allowing federal funds from going to abortion services by defining coverage that is eligible for qualifying for the credit as a plan that “does not provide coverage for abortions (other than any abortion necessary to the life of the mother or any abortion with respect to a pregnancy that is the result of an act of rape or incest)”. It is unclear if the language can survive Senate Byrd-rule scrutiny. This is also true of numerous other sections in the Ways and Means title.

Medicaid Expansion Concerns

Obamacare expanded Medicaid in two ways. First, it added eligibility for all adults earning up to 138% of the poverty level (previously, eligibility was largely focused on the very poor, single mothers, and the disabled). Second, for individuals made newly-eligible by that expansion, Obamacare provided a higher federal payment share for their medical expenses. For traditional Medicaid, the federal share is, on average, 57%. Obamacare provided a 90% federal share for the expansion population.

The draft bill maintains the Medicaid expansion as-is through the end of 2019. Beginning in 2020, it maintains the enhanced federal share only for existing enrollees, while new expansion population enrollees would receive a federal share in line with the traditional 57% average. It is assumed that the enrollment freeze will result in enhanced federal share-eligible beneficiaries cycling off the rolls in 2-5 years. So, in total, the expansion would continue to grow for three years, then phase out over the next 5.

Major Concerns

1. This maintains the Obamacare Medicaid expansion for three years

  1. Continues to contribute to the worsening of the federal and state budgets by incentivizing states to maintain expansion or to initiate new expansions and leaving the federal government picking up the majority of the bill. 

2. It is doubtful that a future Congress will allow the reduction in enhanced payments to occur

  1. The major cause for the delay is to avoid the political consequences and pain of unwinding expansion, especially in Republican-held states with upcoming gubernatorial contests. This also prevents state budgets from incurring major new costs with little runway.

  2. Like SGR, the future reduction is premised on a future Congress being willing to endure the political pressure of letting spending cuts go into effect. It is unlikely that any future Congress will have a stronger political will in terms of reforming Obamacare entitlements than the sitting Congress – thus it is unlikely that the expansion repeal will ever be implemented in reality. 

Tax Credits Concerns

The released text includes advanceable, refundable tax credits that would be available to individuals who do not otherwise have access to health insurance provided to them, such as through employer-sponsored coverage, Medicare, etc. These credits would be set at levels above those called for in Sec. Tom Price’s previous bills, which was the basis for the disturbingly high-cost scores we have referenced in the past. Specifically, the draft provides a credit of: $2,000 for those under 30, $2,500 for those 30-40, $3,000 for those 40-50, $3500 for those 50-60, and $4,000 for those over 60. The bill phases out these credits for individuals earning more than $75,000 ($150,000 for joint filers), by reducing the credit by 10% of the amount by which an individual’s income exceeds the threshold.

Major Concerns

1. This is a Republican welfare entitlement

  1. Writing checks to individuals to purchase insurance is, in principle, Obamacare.

  2. It does allow more choices for individuals, and is more patient-centered, but is fundamentally grounded on the idea that the federal government should fund insurance purchases.

2. Cost

  1. This is really an indicator of how severe Concern 1 is.

  2. The higher the cost, the bigger the entitlement, and the greater long-term risk to the federal fiscal condition if things spiral

  3. Has to be paid for. i) Some of this can be covered by using savings from repealing Obamacare, but that really just means enacting a Republican plan that deficit spends at the same rate as current law. ii) If cost exceeds Obamacare spending, than either some of the Obamacare taxes must be kept, or new revenues raised in other ways. The released bill includes a further delay of repealing Obamacare taxes, likely to produce this necessary revenue.

 3. Pro-life protections

  1. The draft includes many pro-life guardrails on credit use, but it is very unclear, and perhaps very unlikely, that such protections can survive Senate Byrd requirements as drafted.

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