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Republicans jockey over post-subsidy reform plans

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WASHINGTON—Facing sharp disagreements among themselves, congressional Republicans are nervously wrestling with how to respond if the U.S. Supreme Court in June strikes down premium subsidies in up to 37 states.

There are at least five different proposals from Senate and House Republicans, and they differ considerably in scope. But all seem intended to put off or limit the pain of Americans losing their subsidies and coverage until after the 2016 elections. It’s highly uncertain whether Republicans can unite behind a single plan, given that more conservative Republicans oppose any federal funding or regulatory role in expanding health coverage. And in the wake of a Supreme Court ruling in King v. Burwell striking down subsidies, any proposal that offers any subsidies could be scored by Congressional Budget Office as new spending.

The ramifications of a ruling erasing federal premium tax credits in states that haven’t established their own exchanges would be huge. More than 9 million Americans would lose access to financial assistance worth $28.8 billion in 2016, according to an analysis by researchers at the Urban Institute. It’s anticipated that the fallout would affect the entire individual insurance market in states using the federal exchange, not just the exchange market.

Given that the individuals who would lose subsidies and coverage are disproportionately residents of Republican-leaning states, the situation could prove politically perilous for the GOP, say analysts from both parties. Even Americans who profess to loathe the president’s health care reform law are unlikely to be happy about losing their insurance.

Congressional Republicans have offered several proposals in recent weeks to soften the impact if such a ruling occurs. Freshman Sen. Ron Johnson (R-Wis.), who is expected to face a tough re-election fight in 2016, introduced legislation intended to keep current subsidies in place through August 2017. That plan has the backing of Senate Majority Leader Mitch McConnell.

The Johnson plan would prohibit new customers in both the state and federally operated exchanges from receiving subsidies and repeal the individual and employer mandates. In addition, it would eliminate the Affordable Care Act’s minimum essential benefit requirements, allow states to set those benefit rules, and grandfather in existing health plans that are not compliant with the law.

Another proposal, by Sen. Ben Sasse (R-Neb.), would continue premium subsidies for 18 months but phase them out over that period. For six months after the court rules, financial assistance for all subsidy-eligible exchange customers would be set at a flat 65% of premium costs. That would decrease by 5 percentage points each month until the subsidies were completely eliminated. During the transition period, insurers would be prohibited from raising premiums. In addition, the Sasse bill would prohibit HHS from providing federal exchange technology to states interested in establishing their own exchanges.

In addition, three Republican senators, including Sen. Orrin Hatch, proposed in a Washington Post op-ed last month to allow people now receiving subsidized coverage through the federal exchange to keep their coverage for a transition period while letting states have more flexibility over their insurance markets and exchanges. But the proposal lacked details.

On the House side, House Ways and Means Committee Chairman Paul Ryan (R-Wis.) and two other committee chairmen have proposed to offer a flat tax credit to people now receiving subsidies through the federal exchange. In addition, they would let states opt into an alternative Republican reform model without insurance mandates and including traditional GOP policy nostrums such as allowing insurers to sell plans across state lines.

The most conservative House Republicans say they are putting together a plan that would repeal the ACA and replace it with an expansion of health savings accounts, medical malpractice caps, and a provision allowing insurers to sell plans across state lines. The sponsors have made no mention of including any premium subsidies to help people afford coverage.

Repeal and replace

Dean Clancy, a conservative health care policy analyst, applauds Republicans for proposing policies to address the post-King environment. But he thinks it’s a mistake to try to tweak the current health care reform law out of political panic over the elimination of subsidies. Instead, he thinks Republicans should offer a more comprehensive repeal-and-replace package even if it’s certain to be vetoed by President Barack Obama.

Given that it’s unlikely for President Obama to sign a GOP bill to mitigate the impact of the King ruling, “We shouldn’t negotiate with ourselves,” said Mr. Clancy, who has worked for Republicans in both the White House and Congress. “Let’s just do what we think is good policy and see how the debate unfolds.”

But Yevgeniy Feyman, a fellow at the conservative Manhattan Institute, sees a political imperative for congressional Republicans to take action if the Supreme Court kills the subsidies. “They definitely don’t want to put red state governors into a corner where the only option they really have is to go to HHS and say: We’re going to set up an exchange,” Mr. Feyman said.

Still, he has concerns about both the Johnson and Sasse proposals. Mr. Feyman worries that the Johnson bill would destabilize the individual insurance markets by locking out new customers who are likely to be healthier and less expensive than the current customer base.

On Sen. Sasse’s plan, Mr. Feyman questions the political merits of prohibiting HHS from working with states to set up their own exchanges if that’s the path they want to follow. That runs counter to the Republican philosophy of giving states flexibility in making health care policy decisions,” he said.

Tim Jost, a health care reform expert at Washington & Lee University who supports the Affordable Care Act and has written about the GOP proposals, sees more fundamental problems with these plans.

He argues that Sen. Johnson’s bill is poorly drafted and might not actually achieve the stated intent of keeping subsidies in place until 2017. Sen. Sasse’s bill, he said, would create a dysfunctional market for insurers because their enrollment pools would become unhealthier while at the same time they could not raise premiums.

In addition, Mr. Jost said both proposals would result in far fewer Americans being able to obtain affordable coverage, and would produce severe disruption in the individual insurance markets in the affected states.

Mr. Jost also doesn’t see much likelihood that the Obama administration would be willing to negotiate on significant changes to the health care reform law because of disruption caused by the Republican-backed King lawsuit. Instead, he thinks the president is likely to simply call on Congress to come up with a simple legislative fix — clarifying the law’s language to say that subsidies are available in all states — to prevent millions of Americans from losing coverage.

“The approach of the Obama administration has been, ‘You broke it, you bought it,’ ” he said.

Paul Demko writes for Modern Healthcare, a sister publication of Business Insurance.