Republican leaders in Congress and the incoming Trump administration have said that they plan to move quickly to repeal the Affordable Care Act (ACA) in the early weeks of 2017, with a delay in the date of when key aspects of the repeal would become effective until perhaps 2019 or 2020. This is the so-called “repeal and delay” option. They have also pledged to replace the law in separate legislation, or a series of bills, that would come later, although it is not clear what the replacement would look like or when it would pass.

We do not support this approach to repealing and replacing the ACA because it carries too much risk of unnecessary disruption to the existing insurance arrangements upon which many people are now relying to finance their health services, and because it is unlikely to produce a coherent reform of health care in the United States. The most likely end result of “repeal and delay” would be less secure insurance for many Americans, procrastination by political leaders who will delay taking any proactive steps as long as possible, and ultimately no discernible movement toward a real marketplace for either insurance or medical services.

Congress should instead roll back elements of the ACA in the same legislation that moves U.S. health care more deliberately toward a functioning marketplace that is less dependent on federal coercion and control. This approach provides the best chance of constructing a replacement plan that moves decisively in a better direction without unnecessarily creating chaos during the transition.

Possible Legislative Scenario

While “repeal and delay” seems to be the preferred approach of GOP leaders at the moment, there is still considerable uncertainty about what that will actually mean in practice and what specific changes will come out of it.

To begin with, “repeal” may not really mean full repeal of the ACA. Congressional leaders have mentioned using H.R. 3762 from the just-completed Congress as the blueprint for what they plan to do in the new year. H.R. 3762 was passed early in 2016 (and then vetoed by President Obama) using the budget reconciliation procedure, which allowed it to be approved in the Senate with a simple majority vote. In practical terms, that meant Republicans could pass it without needing any support from Democratic senators. The assumption is that a similar bill could pass again in 2017. (The GOP will have 52 seats in the Senate in January.)

However, the budget reconciliation process comes with strict rules about what provisions can be included in the legislation. Only provisions that directly change taxes or entitlement spending can be included in such bills, which means H.R. 3762 could not repeal large sections of the ACA that are more regulatory than budgetary in nature. A partial repeal bill passed using reconciliation could put an end date on funding for the premium credits and cost-sharing subsidies provided in the ACA, and reduce the federal government’s payments to states that have adopted the ACA’s Medicaid expansion. It could also terminate the taxes that partially financed the legislation when it was enacted in 2010. The repeal bill will almost certainly eliminate the tax penalty associated with enforcement of the individual mandate but is likely to delay repealing the tax credits and Medicaid expansion until at least 2019.

What a reconciliation bill cannot do is eliminate, or amend, the ACA’s rules regarding regulation of insurance. The law’s current requirements regarding essential health benefits, and the prohibition on the use of a person’s health status by insurers when setting premiums or benefit offerings, were not altered in H.R. 3762; they could not be altered in a reconciliation bill taken up in 2017, either. Consequently, a partial repeal of the ACA will necessarily result in an untenable situation in the marketplace: insurance rules that presume large subsidies for insurance and strong enforcement of the individual mandate, both of which would be eliminated by the repeal bill.

Congressional leaders have said that they would move forward after enactment of the partial repeal bill with a replacement effort that could involve a series of bills rather than one large reform plan. Some portion of the replacement plan, particularly those provisions affecting taxes and spending, might be included in a second reconciliation bill later in 2017. Other steps might be taken in other, non-reconciliation bills, which means they would likely need to draw some Democratic support in the Senate. These bills might be considered in 2017 or 2018. Proponents of “repeal and delay” suggest that the looming termination of key ACA provisions, such as the premium credits, would encourage Democrats to cooperate with the GOP in enacting parts of the replacement plan.

Greater Instability With ‘Repeal and Delay’

“Repeal and delay” would further destabilize an already unstable insurance marketplace. The ACA-regulated insurance markets have been suffering from an unbalanced risk pool in many parts of the country, with many enrollees who need extensive medical attention but few who don’t need much care. Collectively, the insurance industry has lost several billion dollars over the period 2014 to 2016. In response, many large carriers pulled back their participation in the exchanges for 2017, and those that remained increased their premiums by an average of 25 percent. Thirty-six percent of the national marketplace is being served by only one insurer in 2017.

Without rapid action to stabilize the exchange markets, we are likely to see more insurers dropping out and another round of sharply increasing premiums. Insurers must make initial decisions about their participation in the exchange markets by next April. This leaves very little time to take steps that might encourage insurers to offer exchange coverage in 2018. An immediate repeal of the individual mandate’s penalty will lead some younger, healthier enrollees in ACA insurance plans to stop paying premiums. Even if the number of those dropping out in 2017 is small, it will be lead to further losses for insurers, and make it even more difficult for them to justify continued participation in 2018. There is a real danger that many parts of the country would be left with no insurance plans at all offering coverage on the ACA exchanges in 2018.

If Congress delays enacting a replacement plan, uncertainty about what might be in that legislation would further destabilize the exchange market even if ending the tax penalty for non-enrollment is tied to the ending of the premium credits and cost-sharing subsidies. Some number of current exchange enrollees, as well as insurers, are likely to view the coming termination of the ACA as a reason to withdraw their participation. Consumers may think they will eventually be spared any tax penalty even if they drop out of coverage, and insurers (and their shareholders) are likely to think it is unwise to make any kind of continued investment in a program that could soon disappear.

A process focused solely on reversing the ACA and not on putting something better in its place could easily backfire on the GOP. The political firestorm that would ensue from several million people losing their insurance could be enough to force the GOP to reverse course and take steps to provide some kind of emergency insurance for this population, which could be even more costly than the ACA. The episode could also sour the public on the whole concept of repeal and replace.

Some in the GOP will argue that the exchanges would have been unstable in 2017 and 2018 even if Congress and the Trump administration had done nothing to change the status quo. But it will not be possible for the GOP to avoid being held accountable for what happens in the insurance marketplace if they move legislation to repeal key parts of the ACA while providing no clear roadmap for replacing it.

Steps to Stabilize the Exchanges Difficult to Enact

It will be even harder for the GOP to escape responsibility for the state of the exchanges if, as seems likely, the incoming Trump administration makes decisions in the early weeks of 2017 that create even more uncertainty about the financial viability of the market.

The cost-sharing subsidies are a case in point. The Obama administration has paid exchange insurers to reduce the level of cost-sharing for exchange enrollees with incomes below 250 percent of the federal poverty line. The House of Representatives sued the administration, arguing that the ACA did not provide an appropriation for this purpose and therefore these payments should be terminated immediately.

If the Trump administration agrees with that reasoning, insurers would no longer receive federal payment for these subsidies. However, the ACA requires exchange insurers to provide those subsidies to low-income enrollees regardless of the funding. The substantial losses that would result would cause many insurers to withdraw from the market before the end of 2017.

Another critical issue for insurers is reinsurance payments. Reinsurance is funded by a tax on insurers, with $20 billion in the first two years going to fund the program and $5 billion to go toward deficit reduction. Faced with a shortfall in revenue collection, the Obama administration used all of the funds for reinsurance and none for deficit reduction. Key GOP leaders in Congress have argued that this decision is contrary to the law. If the Trump administration reverses the decision of its predecessor, there would be $5 billion less to help insurers with high insurance claims and more insurers are likely to exit the market.

A third critical issue is enforcement of the individual mandate. Even without legislation to repeal the mandate’s penalties, the Trump administration might broaden the criteria used to exempt individuals from the penalty, potentially allowing many more people to escape any tax liability. Loosening enforcement of the mandate could lead healthier individuals to drop exchange coverage, further tilting the risk pool in the ACA exchanges toward those with expensive medical conditions.

Congress and the incoming administration could work together to add provisions to a partial-repeal bill to counter the destabilizing effects of the other decisions during 2017 and 2018. Such provisions could include:

  • Full and clear funding of the cost-sharing subsidies. Congress could provide an appropriation to fund cost-sharing subsidies for the years before the termination of the ACA is supposed to go into effect. This would render irrelevant the current dispute over whether a proper appropriation was provided for the cost-sharing subsidies in the original ACA legislation.
  • Funding and Extension of Insurance Risk Mitigation Features of the ACA. Congress could provide full funding for reinsurance payments, and could extend beyond 2016 (to perhaps 2018) the risk corridor and reinsurance programs.
  • Maintain the individual mandate’s tax penalties until the replacement plan is fully operational. In addition, the Trump administration would need to announce that it was planning to enforce the individual mandate fully while it was still in effect.

There are compelling reasons to stabilize the exchanges. Until a new insurance structure is put in place, Americans without access to employer coverage have no other choice but to get coverage from ACA-regulated plans. However, years of GOP rhetoric denouncing the individual mandate, the subsidies for insurance companies, and excessive spending of the ACA will make it difficult for Republicans to pass a bill that includes the kinds of provisions that are needed to stabilize the existing market, even temporarily. Without taking such steps, a repeal-only bill could leave many areas of the country without any exchange insurers and make it even more difficult to assemble sensible and coherent legislation to replace the ACA.

Passing ‘Replace’ Becomes Much Harder Politically After Repeal

According to the Congressional Budget Office, the reconciliation bill that Congress passed earlier this year, and that President Obama vetoed, would have lowered federal spending by $1.4 trillion over 10 years, and reduced taxes by $1.1 trillion over the same period. The net effect would have been to lower the deficit by $317 billion over a decade.

The congressional budget process would allow the savings from repeal to be set aside and used to help finance a replacement bill that would be enacted later. But passing repeal separately from replace could still make it much more difficult to build a broad political coalition for the replacement plan. Once repeal is passed, the current law baseline would be adjusted to reflect both large spending and tax cuts. A replacement bill that provided assistance to low-income households, through either Medicaid or a refundable tax credit, would necessarily increase spending relative to the post-repeal baseline. For many in the GOP, it could be very difficult to vote for a bill that would increase spending by a few hundred billion dollars relative to the post-repeal baseline, even if the overall cost would be less than the ACA.

Congress could try to make up for the lost revenue from repeal of the ACA’s tax increases with additional savings from changes in Medicare and Medicaid. Deeper cuts in these programs would provide more funding to finance adequate refundable tax credits to make coverage affordable for lower-income households. But cuts in Medicare and Medicaid are controversial, even among Republicans. And reforms aimed at achieving savings from more efficient use of services will take time to produce results. It seems certain that whatever is done will leave a replacement plan with far less budgetary space to work with to provide support to households who will struggle to pay premiums on their own.

The Plan to Pass Replace in Steps Signals There Is No Plan

News stories suggest Congress is considering moving forward with a replacement plan in a series of smaller bills rather than one big bill. This is a signal that Republicans in Congress may not have a clear vision of what they want to do.

It is not necessary for Congress to address every issue in a replacement bill. But the solutions to the problems in U.S. health care, and with the ACA, are not be found in tinkering around the edges of existing policy.

Donald Trump and most Republicans in Congress campaigned in 2016 and in earlier elections on repeal and replacement of the ACA. They are now in a position to move forward with that agenda, and it would be unreasonable to expect them not to.

But a plan that is focused on repeal without a clear vision for what will come next, or how it will be enacted, could easily backfire. There are numerous political, budgetary, and procedural obstacles to moving forward with an effective program to replace ACA.

To build a functioning marketplace, and to provide a ready path for all Americans to get health insurance, it is necessary to put together a coherent series of policies across Medicaid, employer-sponsored insurance, and the non-group insurance market. A workable plan will necessarily touch on all of these areas, and will be lengthy and politically contentious. That may not be ideal from a political perspective, but the alternative is incoherence and half-measures that will lead to a system that many Americans will view as worse than the ACA status quo.