Proposed GOP alternatives to Obamacare subsidies are bad medicine

Supporters of healthcare reform were breathing a little easier last week after oral arguments at the Supreme Court over the Affordable Care Act.

On the docket was King vs. Burwell, a lawsuit brought by the Competitive Enterprise Institute, a Koch-backed libertarian organization. The lawsuit asserts that the 2010 law bars health insurance subsidies for residents of three dozen states that relied on the federal government to set up their individual health insurance exchanges rather than doing so themselves.

If the plaintiffs prevail, about 7.5 million residents of federal-exchange states would be at risk of losing their insurance because they depend on the tax subsidies to make their coverage affordable.

The government’s lawyer, Solicitor Gen. Donald Verrilli, advised the court on Wednesday that it gets worse: Many would have to drop their coverage, leaving only the sickest residents in the insurance pool. That would raise the cost of insurance, driving even more people out and dooming the insurance markets in those states to “death spirals.�

At oral argument, Justice Anthony Kennedy seemed disinclined to knock out the subsidies in those federal-exchange states. If he joins with the four liberal justices known to favor the government’s position, the ACA will survive this latest — and possibly last — brush with judicial execution.

Yet even in the absence of a final decision, King vs. Burwell has opened a window into the politics of healthcare, circa 2015.

Opposition to the ACA is still a litmus test for Republicans, even though its benefits to millions of Americans are now manifest; in red states, the consequences of an adverse Supreme Court ruling include 2.5 million people losing their health insurance subsidies in Florida, and 1.75 million in Texas, according to the Kaiser Family Foundation.

Congressional Republicans have responded by proposing several workarounds and alternatives.

Political commentator Jonathan Chait has written that conservative healthcare proposals tend to reflect the “Heritage Uncertainty Principle,� a takeoff on the Heisenberg uncertainty principle of physics, which states that certain aspects of reality can never be determined.

His point, referring to the right-wing Heritage Foundation, was that “conservative health-care policies do not exist in any real form� — they’re put forth only to counter whatever plan Democrats are offering, and they evaporate the moment anyone tries to take them seriously. The individual mandate, for instance, originated as a Heritage counterweight to the Clinton healthcare reform of the 1990s; once it was incorporated into the Affordable Care Act, conservatives denounced it as an infringement on individual liberty.

The latest GOP plans are a bit different; they’re more like Potemkin health plans, like the roadside Potemkin villages supposedly erected by Catherine the Great’s courtier Grigory Potemkin to give her a false impression of prosperity in the Russian countryside. These contingency plans seem designed chiefly to persuade the Supreme Court that it can safely gut Obamacare via the King case, because there will be an alternative ready to go.

Last week’s oral arguments suggested that Justice Antonin Scalia, at least, found this argument appealing. In what is destined to become the most famous exchange of the session, he asked Verrilli: “You really think Congress is just going to sit there while all of these disastrous consequences ensue?�

Verrilli replied: “This Congress, your honor?� (You can hear Verrilli’s disbelief, and laughter it provoked among court spectators, in the audio of the oral arguments posted on the court website; the exchange with Scalia starts at the 55:35 mark.)

As for the proposals themselves, Sen. Ben Sasse (R-Neb.) suggested in a Wall Street Journal op-ed last month that residents of the affected states be permitted to keep their subsidies for 18 months if the court rules against them. This would allow congressional Republicans to “unify around a specific set of constructive, longer-term solutions,� he wrote. On the eve of the court hearing, Sen. Ted Cruz (R-Texas) offered a measure to repeal the ACA’s individual mandate, exchanges and subsidies, but to allow people to buy health insurance across state lines.

This ancient GOP proposal would launch a race to the bottom in which health insurance would be offered only from states with the loosest, most industry-friendly standards. That’s what happened when the Supreme Court allowed credit cards to be offered across state lines in 1978 — state interest rate caps disappeared, because credit card issuers set up shop in South Dakota, Delaware and other states without such usury limits.

Interstate insurance sales also are featured in a plan promoted through a Wall Street Journal op-ed last week by GOP House committee chairmen Paul Ryan of Wisconsin, John Kline of Minnesota and Fred Upton of Michigan. They were referring to a proposal Upton is introducing with Sens. Orrin Hatch (R-Utah) and Richard Burr (R-N.C.).

Their Patient Choice, Affordability, Responsibility, and Empowerment Act is almost identical to a measure offered a year ago by Hatch, Burr and Sen. Tom Coburn (R-Okla.), who has since retired. At the time, we observed that the plan would worsen “two issues with the Affordable Care Act most often cited by its critics: people discovering they can’t see their previous doctors or go to their choice of hospitals; and older enrollees being confronted with sticker shock at the premiums on exchange-issued individual plans.�

The proposal would raise premiums for older enrollees and sharply reduce premium assistance for middle-and low-income families. Its promoters claim it would leave in place the ACA’s protection of insurance buyers with preexisting medical conditions, but that’s deceptive. It would provide that protection only for those who maintain their coverage without a lapse of at least 18 months.

For many people, this protection would be useless. That’s because the most important reason people go uninsured is that they can’t afford coverage, often because of a job loss. Under the GOP plan, these individuals and families could lose their access to affordable coverage forever. And maintaining coverage under any condition would be harder because the subsidies would be much lower.

For a couple earning $32,000, or about twice the federal poverty line, the GOP plan would slash the subsidy nearly in half, as Brookings Institution social insurance expert Henry J. Aaron calculates; for those earning just under $48,000, or three times the poverty line, the subsidy — $16,000 a year under the ACA — would be zero.

Some aspects of the ACA do need fixing, Aaron wrote, “but those repairs involve filling holes in coverage, not making more holes.�

The biggest mistake is to assume these plans are for real. In the days since the Supreme Court’s hearing on King vs. Burwell, Republican leaders seem to have dropped the pretense that they’ll have even a transitional measure ready by June, when the court is expected to rule. “We’ll do our best,� Hatch said Thursday. “But we’ll have to see.� It’s the old bait-and-switch — but all bait, and no switch.

Michael Hiltzik’s column appears Sundays and Wednesdays. Read his blog, the Economy Hub, at latimes.com/business/hiltzik, reach him at [email protected], check out facebook.com/hiltzik and follow @hiltzikm on Twitter.