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November 8, 2012

End of the Threat to Obamacare? Not at All

By

President Obama’s narrow victory has left proponents of the Affordable Care Act (ACA) breathing a collective sigh of relief, believing that the legislation is safe. It’s true, of course, that the election’s outcome has ended the prospect of a new administration using Republican majorities in both chambers and the budget reconciliation process to force outright repeal. But the reality of the economic and political situation means the core elements of the ACA remain very much in play.

The primary reasons for this are the continuing problems with the federal budget deficit and the national debt and the worrying long-term weakness of the economy. Add to that the increasing skepticism that the ACA’s blunt tools will slow costs.

Let’s remember that the most important provisions of the ACA, such as penalties for Americans lacking insurance and firms not offering it, the expansion of Medicaid, and the heavily subsidized exchange-based coverage, do not go into effect until 2014. Meanwhile, new taxes on self-employment and limits on flexible spending accounts are scheduled to go into effect next year, just as Congress will be trying to boost employment growth. Additionally, lawmakers will be desperately searching for ways to delay or cut spending to deal with the deficit. That adds up to 2013 being a year for buyer’s remorse in Congress and around the country.

The reaction of employers to the ACA is likely to be the first pressure point for changes in the ACA or at least the suspension of some of its provisions. Employers have been reporting for some time that concerns about mandatory benefits are slowing their hiring. And as the Wall Street Journal recently reported, lower-wage employers are moving towards hiring part-time employees to avoid the ACA’s penalties. These patterns will only grow in 2013 as many employers eye the prospect of putting their employees into the heavily subsidized exchange plans. And the possibility of larger-than-expected enrollment in health insurance exchanges will sharply increase the budget costs, adding to the deficit pressures to curb the ACA.

These developments in the economy will force Congress to reopen key ACA coverage provisions, perhaps as part of a deficit reduction package. Effects on employment and continued increases in health care costs could also increase the prospects of a bipartisan redesign of employer-based coverage within a tax reform package. That could involve switching clumsy mandates and penalties on employers for the kind of structural tax reform that many Republican and administration insiders have actually long supported—measures that gradually curb and eventually replace the current tax exclusion for employer-sponsored coverage with tax credits and subsidies that would apply to all employees.

It’s also hard to imagine the expansion of Medicaid proceeding as planned. The number of Republican governors has now grown to at least 30, from 29. If slow economic growth continues, and statehouse fears of unsustainable employee pensions and other mounting costs continue to grow, even the short-term prospect of Washington picking up expanded Medicaid costs is not likely to prevent a strong pushback by states. That’s going to be exacerbated by a Congress that is desperately trying to curb spending. So expect structural reform of the ACA’s Medicaid, including some version of a block grant, to be on the deficit-reduction table.

Perhaps most important of all, the prospects for serious Medicare reform are actually on the rise. The Ryan version of premium support (in which the federal government would provide a limited payment to beneficiaries that could be used toward purchasing a private insurance plan or for the traditional Medicare program) was initially seen by the Obama campaign as a gift from heaven that would doom Romney among the elderly. But that didn’t happen. Indeed Obama’s initial large lead as the best defender of Medicare slid to just 5 points by the election. Exit polls show Romney also won the senior vote (and those older than 45 years) and even increased the Republican share over 2008.

What this suggests is that a version of premium support is now likely to gain renewed traction as budget pressures and underlying costs of health care force congressional action. The approach has actually had bipartisan support since the Clinton Administration and, in private, among many Democratic politicians. Versions have garnered strong support in the Bowles-Simpson Commission, from leading organizations outside Congress, such as the Bipartisan Policy Center and the Brookings Institution. And compared with alternative ways of slowing Medicare spending, it doesn’t look so bad politically. Relying on the Independent Payment Advisory Board (IPAB) of experts in health care economics and the health care system to crack down on physicians and hospitals is hardly going to make the ACA more popular among seniors. Let’s remember that repealing the IPAB had strong bipartisan support in the House, with even liberal Rep Barney Frank (D, Mass) as a cosponsor.

The Obama administration is arguing that the election means the ACA is a settled issue. It is far from that.

First appeared in the Journal of the American Medical Association.

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