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Brian Blase was featured as a panelist at AEI’s “Chasing the Ghosts of the Affordable Care Act” policy briefing

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President at Paragon Health Institute
Brian Blase, Ph.D., is the President of Paragon Health Institute. Brian was Special Assistant to the President for Economic Policy at the White House’s National Economic Council (NEC) from 2017-2019, where he coordinated the development and execution of numerous health policies and advised the President, NEC director, and senior officials. After leaving the White House, Brian founded Blase Policy Strategies and serves as its CEO.

On March 1, 2024, Paragon President Brian Blase was featured as panelist at the American Enterprise Institute’s event “Chasing the Ghosts of the Affordable Care Act.”

Description from the event website:

Almost 14 years ago, President Barack Obama signed into law the Affordable Care Act (ACA). The law survived a series of legal and political challenges during its implementation, but they came at a cost to its initial ambitions. In a forthcoming study, “The Ghosts of the Affordable Care Act,” Miami University Law Professor Gabriel Scheffler examines the enactment-entrenchment trade-offs that limit the scope and durability of major social program legislation. The ACA was never repealed, but significant parts of it were “replaced” or discarded.

At this forum, Professor Scheffler will examine the rules of the game that shaped the ACA’s survival and evolution. A panel of veteran health policy practitioners will offer a range of perspectives on how we got here and the implications for future options.

Brian’s complete remarks are as follows:

Tom, thanks for inviting me to participate. Gabe, thanks for this thoughtful and somewhat painful trip down memory lane.

Here is the big takeaway to me: the ACA in 2024 is largely the law that the health care industry would have written. It just took some time to get to it. The main components that the industry liked—large new subsidies through Medicaid expansion, the exchanges, and 340B—are growing. Health insurers have reaped windfalls and enjoy being regulated utilities.

The main components that the industry disliked have disappeared. The Cadillac tax—gone. The health insurance tax—gone. The medical device tax—gone. The Independent Payment Advisory Board—gone. And all in big bipartisan votes.

Looking back, the conversations in the board rooms of the health industry were probably to support enactment to get all the stuff they wanted and then to work to eliminate what they didn’t like. And that’s how it played out, in a way that substantially increased deficits.

In retrospect, President Obama’s guarantee that the ACA would not increase deficits appears only to have been made to get the law passed. One key example. As Gabe discusses, the CLASS program significantly contributed to the law’s purported deficit reduction. That’s because collections needed to come in for five years before any payments were made. The year after the ACA was enacted, then-HHS secretary Kathleen Sebelius said that CLASS had serious underlying problems and the administration would not implement it. One year later it was repealed.

Oh and though it’s out of my lane, I don’t think the student loan redesign which was used as an ACA pay-for is working out as a saver for the government.

The core central planning aspects of the ACA have failed. Most notably and I don’t believe Gabe’s paper addressed this, the Centers for Medicare and Medicaid Innovation is increasing deficits having failed to develop models that either improve health care or lower costs. And the co-op experiment was also a failure, harming many policyholders with coverage that collapsed.

The first seven years of implementation of the ACA occurred with an accommodating administration. And they took many extralegal actions to ease political opposition to the law.

Most famously, President Obama admitted in the fall of 2013 that his promise that people could keep their plans if they liked them was not true. That led the administration to create a new class of plans—grandmothered plans—that could avoid the ACA’s cost-increasing regulations. If the Trump administration had done this, it would have been called sabotage.

The Obama administration also provided significant relief from the employer mandate penalties for the first two years. And it took action to offset the ACA’s Medicare Advantage payment reductions prior to the 2012 election through an extralegal demonstration program.

Let me move to the efforts to repeal and replace the ACA.

The ACA severely restricted the types of plans people could buy, compelled people to purchase such coverage or pay a penalty, contained substantial new taxes and spending, and involved enormous amounts of Washington central planning. And it was unpopular. As a result, intense Republican opposition to the law should have been expected.

Negative public reaction to the ACA contributed to the landslide election in 2010 for Republicans and a House majority. This ended any hope of accommodating legislative policy for the ACA.

For Republicans, the best chance to meaningfully change policy direction would have been to capture the White House in 2012 since its core provisions had not yet taken hold. In one of the ironies of recent political history, the Republican party nominated the man least able to make the case against the ACA. Massachusetts Governor Mitt Romney had embraced many of the central elements of the ACA in a 2006 state health reform.

President Obama was re-elected and the implementation of the ACA continued.

But, implementation went poorly. From 2013-2017, individual market premiums doubled, plan deductibles soared, insurers exited markets, the vast majority of the co-ops failed, and plan networks became very restrictive.

In 2016, repealing and replacing Obamacare was once again a core piece of the Republican platform. And then Republicans caught the car.

In 2017, we had the most significant effort to substantially modify the ACA. Notice I did not use the phrase repeal and replace. It became clear in early 2017 that the leadership in the party was not supportive of significantly repealing the ACA.

Gabe’s paper makes a typical fault to say that the ACA might not have survived if not for John McCain’s thumbs down.

First, the legislation that passed the House maintained most of the ACA insurance rules, kept the subsidies in a redesigned form, and permitted states to maintain their expansion—just at the traditional rate for Medicaid rather than the enhanced rate.

And that legislation went too far for the Senate. The so-called skinny bill that John McCain turned down only had three elements—the elimination of the individual mandate penalty, the delay of the employer mandate penalty, and an extension of what states could do using a 1332 waiver. If that bill had passed the Senate and we had a conference, the product would likely have been closer to the skinny Senate bill. And policy would be very similar to what we currently have.

The legislative effort failed for a lot of reasons that I don’t have time to explore.

But one reason is particularly important for this conversation: CBO. CBO applied a mythical power to the individual mandate. If you remember, President Obama had campaigned against the individual mandate. But his position changed because of CBO. According to CBO, the individual mandate would compel people who didn’t receive subsidies to purchase coverage. Thus, it made both the coverage and cost numbers look better.

These mythical assumptions continued through 2017. Republicans reviled the individual mandate, and every proposal would eliminate it. CBO had not caught up to the reality that the individual mandate was just not affecting coverage levels. Despite Republican bills maintaining most of the ACA’s spending for health insurance, the elimination of the individual mandate penalty led CBO to project 20 million people would lose coverage. And although this number was bogus – as became clear once Congress eliminated it—the number was the top data point cited by Democrats and the media for why the Republican bills were harmful and it was devastating for the modification efforts.

With respect to the argument in this paper, one of the main ACA designs that led to its entrenchment was the make-up of the Medicaid expansion. With almost all expansion spending financed by Washington, states had significant incentives to expand Medicaid. By 2017, many Republican governors expanded Medicaid and the Republican governors that expanded Medicaid did not want to roll back the federal money. It created a significant divide within the party. In my view, dividing Republicans in states on Medicaid expansion has probably contributed to the ACA’s entrenchment more than any other element.

There have been some conservative policy wins, outside of the ones favored by industry. The Tax Cuts and Jobs Act eliminated the individual mandate penalty. The outsized and unrealistic effect of the mandate meant repealing it led to outsized and unrealistic budget savings from fewer people getting subsidies, making it a useful pay for.

Second: the refusal of some states to implement Medicaid expansion. I don’t have time to get into the numerous problems with expansion, but Paragon has a new comprehensive study on the subject.

Third: the regulatory efforts of the Trump administration to expand options for employers and families through association health plans, short-term limited-duration insurance, and individual coverage health reimbursement arrangements.

Finally, Medicare Advantage has emerged in a much stronger position than experts expected. CBO thought MA growth would flatline. The Office of the Actuary at CMS thought the ACA would lead enrollment to shrink by half. Yet, MA has continued to exhibit strong grow.

I think there are a few other assertions in the paper that are incorrect. I’m going to mention two more.

First, there was not Trump administration sabotage. The main administrative action taken by the Trump administration was to comply with a federal court ruling that the government couldn’t make cost-sharing reduction payments to insurance companies absent a congressional appropriation. That resulted in regulators allowing the practice of silver-loading, which vastly increased payments to participating insurers. The Biden administrations could have asked Congress to fund the CSR program but chose not to. One other major Trump ACA supporting policy: individual coverage HRAs are increasing enrollment in the individual market using employer dollars.

Second, the evidence is mixed on whether the ACA improved health outcomes. Life expectancy decreased from 2014 to 2017 – the first three years the ACA’s provisions took effect with greater declines in states that expanded Medicaid.

In closing, let me offer perspective on policy moving forward. First, rationalize federal Medicaid subsidies. It makes zero sense for the federal government to pay a much higher percentage of state expenses for the non-disabled, working-age expansion population than for traditional Medicaid populations. There is no sensible policy that would have resulted in that outcome and the federal discrimination against lower-income children and people with disabilities through this disparity should end.

Second, as a recent paper from Paragon discusses, the ACA exchanges was not an efficient coverage expansion. It has cost a lot more to decrease the number of uninsured than expected. Much of the subsidies have gone to people who would have already had coverage and to people who now pay nothing for their coverage. And the subsidy structure gives insurers enormous power to increase prices with nearly the full price increase borne by taxpayers. Policymakers should not continue the enhanced subsidies and should rather focus on a better targeted and more efficient structure.

Thanks again for asking me to participate and I look forward to the discussion.

The original posting of the event can be found here.

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