Republicans Don’t Lack a Plan to Replace Obamacare. They Lack a Unified Theory

There has never been a shortage of GOP substitutes for Obamacare, from think tank white papers to congressional committee frameworks to fully drafted bills. But in the seven years that congressional Republicans spent promising to repeal and replace President Obama's health care law, none ever moved beyond the development phase, because what Republicans lacked wasn't a plan. It was a theory.

After the Affordable Care Act (ACA) passed, when Republican legislators were asked what sort of health system they preferred, most would say something about lowering costs, increasing affordability, and improving access. Some might criticize Obamacare for covering too few people, as Senate Majority Leader Mitch McConnell did in January. "What you need to understand is that there are 25 million Americans who aren't covered now," he said on CBS News. "If the idea behind Obamacare was to get everyone covered, that's one of the many failures."

But improved affordability and accessibility is an outcome, not a system. Republicans almost never took the time to describe the basic mechanics of how their preferred health care system might work. As a result, when the GOP took control of both Congress and the White House this year and the time came to draw up an actual plan to repeal and replace the ACA, it struggled to get out of the gate. Proposals were repeatedly altered and delayed. After the House repeal bill was released in March, it was met with an immediate chorus of criticism—with the loudest voices coming from the right.

In his 2015 book Overcoming Obamacare, journalist Philip Klein wrote that conservatives and libertarians have generally split into three schools of thought on what should take the place of the ACA. The first group, which Klein dubbed the reform school, believed that those who opposed Obamacare should nonetheless take its existence as a given. The reform school is not so much a theory of health care policy as one of health care politics: Because Obamacare is already the law of the land, and industry players and state governments have organized themselves around it, opponents have to accept it as, at the very least, a starting point. The idea is not really to repeal Obamacare, but to improve it by pushing things in a more market-friendly direction.

That might mean incremental changes, like deregulating the law's exchanges. But in the long run, it could provide a path to reforms of the larger entitlement system. In a plan put forward by Avik Roy, the founder of the Foundation for Research on Equal Opportunity, a modified Obamacare could serve as a vehicle for the overhaul of Medicare, the nation's most expensive program, and the biggest single driver of America's long-term debt. At its most ambitious, the reform school would make a bargain—accepting some basic tenets of the ACA in exchange for sweeping entitlement changes that would transform the nation's fiscal future.

Klein's second group also believes that Obamacare needs to be the starting point even for critics. But these folks—the replace school—think the law can be fully repealed, so long as a suitable replacement is offered at the same time.

This group's main insight is that repealing Obamacare, which under Obama eventually provided coverage to more than 10 million people through the exchanges and roughly 13 million people through the law's Medicaid expansion, would result in tremendous disruption to the health insurance arrangements of millions. As policy wonks have long understood, disruption is the enemy of health policy reform.

With that in mind, the reform school argues for a system of tax credits to help individuals purchase insurance. The key to this scheme, and the most controversial part of it, is that these credits are advanceable and refundable, meaning that they're paid up front and result in a cash transfer if they exceed the amount of income tax an individual owes. The benefit is that they do more to help poorer individuals, who tend to pay less in income taxes, than deductions, which only count against taxes owed. But setting up a system along these lines would inevitably mean creating a new health care subsidy disbursed by the federal government.

Finally, there's the restart school, which seeks to blow up the system in hopes of moving it in an entirely new direction. The mechanisms favored by restart-school adherents vary. Some, like Cato Institute Health Policy Director Michael Cannon, want to create very large Health Savings Accounts that would both provide a massive tax cut to most Americans and return control of health spending dollars to individuals. (Most Americans are currently covered through insurance purchased by their employers, which gets a tax break not available to individual buyers.) Others want to extend a tax deduction to those who purchase coverage on the individual market.

Whatever the mechanism, the thread connecting this group is a disinclination to compete with Obamacare and other left-of-center plans on comprehensive coverage numbers. A freer market, the thinking goes, would bring innovation and cost savings that would make such coverage less necessary. Health care, not health insurance, should be the metric, they say.

Each of these theories offers a reasonably coherent vision of how Obamacare should be taken down and what should come next. Unfortunately, the same cannot be said for the plan put forth by House Republicans in March. The bill offered a mish-mash of conservative policy ideas that simply didn't hang together.

It accepted the central tenets of Obamacare, leaving the law's major insurance regulations in place and eliminating the individual mandate but setting a new penalty for those who go without coverage. But despite the concessions to the status quo, 14 million fewer people would have insurance after just one year, according to the Congressional Budget Office. That number would rise to 24 million over the next decade.

And despite creating a new refundable tax credit system, the House bill wouldn't provide much benefit to the poor, especially people in their 50s and early 60s. It allowed insurers to charge older people five times as much as younger people (Obamacare sets the limit at three times), while offering subsidies that wouldn't cover the increased cost.

The bill gestured at Medicaid reform, but ignored the bigger fiscal questions about the entitlements system and delayed a Medicaid overhaul until next decade, raising questions about whether the changes would ever go into place. It left Obamacare's "essential health benefits"—a list of mandates regarding what insurers must cover—in place, and did essentially nothing to unwind the tax carve-out for employer-sponsored insurance, leaving the market as regulated and distorted as before.

It was a bill, in other words, that combined the least appealing elements of all three schools of thought, with almost none of the upsides.

Defenders of the plan protest that there were procedural reasons for the bill's structure—in particular, the limits of the reconciliation process, which requires that all provisions have a non-trivial budgetary impact.

But those limitations didn't really explain the underlying logic—or give the bill a theory to hold it all together. The driving idea seemed to be that Republicans needed to be able to claim they had a proposal to repeal and replace the ACA.

Less than three weeks after it was introduced, the bill was pulled from consideration, just hours before a scheduled vote. Members of the House Freedom Caucus, a group of conservative legislators, refused to back it, even after considerable arm twisting from President Trump.

Republicans may have had a plan, but they didn't have the votes. In this case, a theory would have been better.