We did not grasp until recently the reason Republicans put repealing and replacing Obamacare ahead of tax reform in 2017. It has little to do with the private health insurance market, although that is what is getting all of the attention right now.
Rather it is about the fiscal reality of the Medicaid expansion. Thirty-one states and the District of Columbia broadly expanded Medicaid eligibility under provisions of the Affordable Care Act. The impact on the federal budget has been stunning.
The state expansions are projected to cost the federal government $1.1 trillion over the next decade. House Majority Leader Kevin McCarthy recently told financial network CNBC that unchecked, the Medicaid costs will wipe out discretionary spending in the federal budget over the next decade.
That's why the GOP is so intent on repealing the ACA. If it wants to do tax reform, rebuild the military and ramp up infrastructure spending, it has to jettison these enormous Medicaid costs. It proposes to do so by defunding the state expansions in 2020.
We find it a little surprising in this context that most of the media hue and cry still centers on private insurance. But the GOP is probably fine with that.
The truth about the ACA is that the private insurance segment of the program is a bigger flop than has generally been reported. The vast majority of people who obtained coverage under Obamacare did so via the free ride provided under Medicaid.
A report by the non-partisan Congressional Budget Office found expanded state programs brought total Medicaid enrollment in 2016 to 68 million people -- 16 million more than ACA planners had projected. On the flip side the number of low- and middle-income people who signed up for government-subsidized private health insurance numbered 12 million. ACA planners had projected that total to be 21 million by 2016.
Kentucky, which expanded Obamacare under former Democratic Gov. Steve Beshear, is a microcosm. About 80,000 people signed up for private insurance. But more than 420,000 signed up for Medicaid -- more than double the number Beshear had expected.
Republican Gov. Matt Bevin succeeded Beshear by running on a promise to reverse Kentucky's Medicaid expansion. Financially he has little choice. Beshear left the state substantially bankrupt after eight years of papering over the problems of the state's worst-in-the-nation public employee pension funds. But if the federal money for expanded Medicaid goes away in 2020 (the federal portion is about 90 percent of total funding) the game's over anyway.
Republicans continue to engage in magical thinking on the private insurance side of their replacement plan. One provision drawing fire is a change that would allow insurance companies to charge the oldest enrollees five times what the youngest pay. Obamacare limits the multiple to three.
McCarthy on CNBC defended this move by saying it is necessary to lower rates for younger people to a level where they will buy insurance. But the problem is that young people just don't buy health insurance. It has long been so. They are generally healthy and see themselves as invincible.
What Republicans ultimately come up with on private insurance may not matter much in the end. Their real fiscal problem is the cost of the Medicaid expansion. Republicans are intent on getting rid of it. From the fiscal perspective it is easy to see why.
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