Home inFocus Campaign Season ­­– Issues on the Trail (Summer 2016) Obamacare Through the Spin Cycle

Obamacare Through the Spin Cycle

Richard Baehr Summer 2016
Barack Obama signing the Patient Protection and Affordable Care Act at the White House, March 23, 2010. (Photo: White House/Pete Souza)

It is over six years since the Patient Protection and Affordable Care Act, known by most simply as Obamacare, was signed into law on March 23, 2010. In the year preceding the final passage of the legislation, the bill had been worked on in multiple committees in both houses of Congress, before final passage in the House and Senate. The bills passed by each House were different, and a controversial approach was chosen by President Obama and the bill’s sponsors in Congress, so as to avoid the need for a conference committee to iron out differences between the two versions and then send the new bill back to each House for approval.  The approach that was selected—having the House approve the Senate version, and then using the budget reconciliation process to approve changes to the Senate bill —was chosen because the Democrats had lost their filibuster proof majority of 60 seats in the Senate, when Republican Scott Brown won the seat long held by Ted Kennedy in Massachusetts in a special election. Budget reconciliation can only relate to spending or tax issues and only requires a majority vote in the Senate, and therefore could not be filibustered by Republicans in the Senate, who otherwise could have blocked a conference committee bill with their 41 votes.

It is clear that the process by which Obamacare was passed is to a not insignificant extent, responsible for the continuing controversy over the bill years after its passage and to some of the bitter partisanship that has existed between the two parties during President Obama’s two terms.  It would be fair to say that no significant piece of social legislation in American history had ever been passed before with only the votes from one Party supporting it and uniform opposition by the other. The approach using budget reconciliation was an affirmation of the attitude of Democrats and President Obama in the comments the President made to Republicans during the debate over the stimulus package in 2009, when he attempted to cut off criticism and suggestions of alternatives by saying:  “We won,” and then again in his response to Senator John McCain who challenged the Obamacare process at a meeting with leaders in Congress, by dismissively noting that  “The election is over.”  So much for bipartisanship, “no red states or blue states” and the rest of the working together script.

Obamacare has been a big part of the political debate for seven years, and shows no signs of letup. Virtually all polls taken since President Obama signed the legislation have shown more Americans opposed to Obamacare than the number supporting it, with net negative margins typically ranging from 5 to 10 points. There has been little movement in these numbers over time, with small increases in support for the program after Supreme Court decisions that have upheld it, or upheld certain features of the law. Advocates for the law have argued that support for the program increases when those interviewed learn more about the features of the program.  This argument is part of the regular sniping at Republicans and conservative critics for making misleading claims about the program (e.g. the existence of death panels), and for the more general sniping at the “Tea Party,” whose existence owes much of its early momentum, and especially its contribution to the 2010 Republican Congressional election victories, to anger over Obamacare.  Of course, making misleading claims about Obamacare was an essential element of the selling of the legislation before many people knew the Tea Party existed.

The punditry has not been neutral in the Obamacare debate. Supporters of the program defended it when it was being drafted, when the reconciliation process was contemplated and then used, and ever since. Problems with the program— including the massive signup failure with the online exchanges in the fall of 2013, the changes made to allow “those currently insured to keep their insurance,” the far higher total subsidy cost than estimated, the lower than anticipated enrollment in the exchanges, the higher than anticipated cost per enrollee, the losses experienced by insurance companies due to higher than estimated medical costs for the newly insured—have all been red meat for the program’s critics, and described as little more than growing pains by the law’s defenders.

The law’s defenders played a significant role throughout the legislation’s road to passage.  Much as has recently been shown to be the case with the selling of the Iran nuclear deal, favored journalists were chosen to spread the message the Obama administration and its leaders in Congress wanted disseminated. Among the most active in this regard were Ezra Klein, then of The Washington Post, and Jonathan Cohn in The New Republic. Both appeared to be true believers that Obamacare would provide insurance for the uninsurable, and achieve a significant redistribution of health care services and income, with more low income people gaining health insurance through a program paid for with program reductions or payment changes for providers of Medicare, and new capital gains taxes on wealthy Americans.

Klein appeared so close to those in power pushing the legislation that his columns referred to his detailed conversations with “Nancy” and “Harry” about the process for passage.  Klein, the creator of the Journo-List that assisted the 2008 Obama campaign by coordinating messaging among liberal journalists, was often the first one to broadcast some new selling point for Obamacare, e.g. Nancy or Harry had met with the CBO, and learned that the program cost for ten years would be under $1 trillion, and the net impact of the new program would be a deficit reduction of around $100 billion over 10 years, and ten times that in the next ten year.

If only more Obamacare-type programs could be created, one might have thought the nation’s accumulated debt could disappear.

There was also MIT Professor Jonathan Gruber, often described as the principal architect of the legislation, who ran models on Obamacare program costs for the administration, and who later admitted that many details about the program could not be discussed openly when the bill was being considered in Congress, since the legislation would not have passed if Americans knew what was in it.  House Speaker Nancy Pelosi of course famously admitted that the bill would have to be passed to learn what was in it.  Seen on tape, Gruber described American voters as ill-informed and stupid, and expressed skepticism that the bill would lower health care costs, a primary selling point for supporters.  He said the bill makes healthy people pay, in order to give money to sick people. Most important however, was Gruber speaking at various conferences and arguing that the Obamacare bill only allowed the federal government to pay subsidies to support consumers buying exchange policies if those exchanges were set up by the states. That condition exists in only 12 of the 50 states, and the legality of the subsidies provided for enrollees on the federal exchange reached the Supreme Court. The Court ruled in June 2015 to allow subsidies on the federal exchange, much as it sustained the individual mandate in June 2012 (which it considered unconstitutional if actually a mandate) by calling it a tax.

The 2012 Supreme Court decision was a mixed bag for the administration, since it allowed states to decline to participate in the Medicaid expansion within Obamacare due to the coercive language in the bill. So far, 19 states, with over a third of the nation’s population have declined to move forward, in part to avoid having to pay the 10% state share of the expanded program costs. Despite this, it is Medicaid where Obamacare has had its greatest impact. Over 60% of those who are newly insured are part of the Medicaid expansion, which covers those with incomes between 100% of the poverty level and 138% of the poverty level.

The federal and state exchanges are what most people refer to as Obamacare, and their enrollment has badly lagged early estimates.  About 13 million have signed up on the exchanges this year, but that incudes people who had insurance before Obamacare was passed, and program officials expect the 13 million number to “melt” down to 10 million by the end of the fiscal year.  The prior year, after the “melt” ended, there were 8 million signed up. The original estimate was for 21 million enrolled in the exchanges by the end of fiscal 2016, and 30 million overall including Medicaid.  Despite reaching less than half of its initial enrollment goal for the exchanges, the ten-year estimated cost of subsidies provided for exchange enrollees has nearly doubled from $464 to $849 billion. Medicaid spending is now also expected to be near double over ten years the original cost estimate, though only 31 states have expanded their Medicaid programs.

There are regular stories in the news these days about insurance companies that are withdrawing from offering policies on the exchanges, especially with the likely end to risk corridors by which the federal government has partially subsidized insurance company losses in the early years of Obamacare. If the cost of coverage turns out to be double what you expect and for half the number of enrollees, it should be no great surprise that insurance companies may have badly underpriced their policies. It also appears that the Supreme Court will get one more shot at the Obamacare apple, after a federal court ruled in May that the subsidies paid to insurance companies on behalf of exchange enrollees need to be appropriated annually by Congress, which has not occurred.

Insurance companies, drug companies and hospitals were all lured into backing Obamacare. Hospitals were rewarded with new paying patients, covered by Medicaid or insurance policies, and greatly reduced bad debts from uninsured patients. Insurance companies and drug companies received a greater volume of business activity as well. What was unexpected, and damaging to the insurers, was the actual volume of care required to be delivered to the newly insured.  Obamacare advertised that it had all kinds of mechanisms to reduce the volume of care (presumably the excess care by providers), but the early years of the program suggest that volume for the newly insured has overwhelmed the savings expected from other program experiments or cost reduction efforts.

Advocates for Obamacare have also loudly broadcast that the rate of growth in all health care spending dropped since Obamacare was adopted.  There is no evidence however that Obamacare was a contributor to any such reduction. The growth rate in health care expenditures started dropping during the 2007-2009 fiscal crisis, and has continued since that date. The most significant features of Obamacare, and most of the new spending for the program only began in October 2013, and for the first time since 2007, overall health care spending grew in 2014 by at least 5%.

Costs for the program have grown significantly from year 1 to year 2 of the program.  For the 12 years 2003-2014, total health care spending in America has grown annually by 7.2%, 6.8%, 6.5%, 6.5%, 4.6% (2008), 3.9%, 4.0%, 3.9%, 3.8%, 2.9%, and 5.3% (2014).  It would take a Jonathan Gruber to argue that Obamacare has brought down the annual rate of health care spending increases.

In fact, the slowdown in health care expenditures during the financial crisis suggests that many Americans withheld spending on things that could be deferred, or for which they had significant out of pocket exposure. Obamacare enters the picture and 20 million people now have insurance coverage of some sort (commercial or Medicaid) to pay for things, and they consume a lot of health care.  Those who could not previously obtain insurance were probably heavy new users of healthcare services. The initial blip in spending in 2014 seems almost certain to have occurred again in 2015 based on Obamacare enrollment numbers for the two years and announced insurance company losses.

Republicans now control both the U.S. House and the Senate, though they are defending 24 Senate seats in 2016, seven of them in states Obama carried in 2012.  If Republicans held control of both the Senate and the House, and their presumptive Presidential nominee Donald Trump were elected President, the Party would have its first real chance to eliminate many of the features of Obamacare, using the same budget reconciliation measure the Democrats used to pass it. However, without a substantive plan to replace it, a least 20 million Americans who now have coverage would likely lose it. In Kentucky, the Republican candidate for Governor, Matt Bevin, attacked Obamacare when running this year, but has not take any steps to end his state’s Medicaid participation now that he has been elected Governor. Kentucky is one of the states with the largest gains in enrollment from the Medicaid expansion, near 20% of the state’s population. Rhetoric aside, some moves impact a large part of the population.

Obamacare is not finished with its Court challenges and political challenges. It is a reminder to political actors that steamrollering the other side in the legislative process is a slight not soon forgotten.  There are substantive plans to replace Obamacare that have been developed by some of the conservative think tanks. If the Republicans achieve the ability to implement such a replacement program, hopefully they will have learned some lessons from how President Obama, “Nancy,” “Harry,” Professor Gruber, and the liberal media shills who did their “job” to sell and pass Obamacare.