Will the House GOP Obamacare replacement accelerate the death spiral?

Sen. Tom Cotton says “I think we’re moving a little bit too quickly on health care reform.” He explains:

This is a big issue. This is not like the latest spending bill that gets released on a Monday night, [passed] on Wednesday and everybody goes home for Christmas, and we live with it for nine months.

We’re going to live with health care reform that we pass forever, or until it’s changed in the far distant future. So I don’t think we need to introduce legislation on Monday and have one chance to amend it on Wednesday. I would much sooner get health care reform right than get it fast.

I agree. When Republicans repeal and replace Obamacare, the American people will hold them responsible for the new health insurance regime, just as they held Democrats responsible for the Obamacare regime — to the Dems detriment in three elections. For this reason, and because the issue is vital quite apart from political considerations, the important thing is to get it right.

But what does getting it right mean? I see two broad approaches between which Republicans must choose. The first is to focus on coverage numbers — in other words, try to make sure that the people who are getting subsidized coverage under Obamacare (and just the ones getting free coverage through the Medicaid expansion) will continue to have coverage under its replacement.

The second approach is not to obsess over coverage numbers, but to focus instead on the market-based reforms that conservatives favor (at least in theory) — reforms that promote choice and competition, including competition across state lines. Such reforms can be expected to bring down the cost of insurance.

The cost reductions might well provide roughly the same “benefit” to lower-income consumers as subsidies (or tax credits), and would provide that benefit universally. But it won’t do so immediately.

Some Republicans are talking as if they can adopt both approaches. Implement the first one through reconciliation and the second one through legislation.

It seems highly unlikely, though, that there will ever be 60 votes for the market-based reform conservatives favor. In my view, such reform can only be achieved through the reconciliation process, under a very “liberal” view of what that process allows. Even under the most liberal view of reconciliation, though, it’s difficult to argue that market-based reforms can be implemented except as part of a broad overhaul of Obamacare. Once repeal occurs, that train will have left the station.

Moreover, Republicans must consider what happens in the health insurance market during the period between the implementation of the first approach and the (hoped for) implementation of the second. More about this in a moment.

Which of the two approaches is preferable? From a pure policy standpoint, thoroughgoing market-based reform is the better way to go. However, from a political standpoint, there’s a case for maintaining Obamacare coverage levels while trying to improve the system in various ways at the margins. That way, Republicans avoid the considerable political hit that might well result if millions of people who were insured due to Obamacare suddenly have no health insurance.

But can existing coverage levels be maintained under an Obamacare-lite regime? I have my doubts.

I’m far from convinced that the House proposal will accomplish this. It seems more likely that, as Daniel Horowitz says, the Ryan plan will accelerate Obamacare’s death spiral. If so, the consequences will be disastrous both in terms of policy (coverage numbers will plummet, for one thing) and politics (for the GOP).

Why the accelerated death spiral? Because, says Horowitz, the Ryan plan in essence keeps the Obamacare benefit (in the form of tax credits rather than subsidies) but eliminates the mechanism that pays for the benefit (the individual mandate).

Horowitz writes:

By leaving the price-hiking regulatory and subsidy structure in place, yet repealing the individual mandate, this bill will exacerbate the death spiral because people like myself — who are getting crushed with ridiculous premiums — will dump their insurance. Likewise, employers who are now forced to provide insurance will quickly dump their employees from their plans.

The Ryan proposal does contain a substitute funding mechanism to replace the individual mandate. John’s colleague Peter Nelson points to a provision in Ryan’s plan that imposes a 30 percent penalty on people who buy coverage after having failed to maintain continuous coverage.

Will this penalty induce enough people not to dump their insurance once the Obamacare penalty for not having it disappears? I don’t know, but unless premiums go down significantly, I’m guessing that it isn’t. (And if premiums go down, will the purchasing of insurance provide the money needed to keep the system afloat?)

In sum, I could understand a decision by Republicans to adopt an Obamacare-lite approach to reform as a way of minimizing political risk. However, I doubt that the Ryan proposal minimizes that risk. To the contrary, it may well increase risk by accelerating an Obamacare death spiral for which Republicans will be blamed.

Or so it seems to me, through my non-expert eyes.