Why The Healthcare Reform Bill Went Down In Flames

Via Global Macro Monitor,

OK, comrades, let’s check our partisanship at the door and deal with some real analysis on the health care bill that just went down in flames. Here are a few of our thoughts on why the Trump/Ryan healthcare bill to repeal and replace Obamacare went down and some economics behind it…

1)  Most important, the bill had no support throughout the country.   The latest poll released Thursday afternoon showed that only 17 percent of the country supported the plan.

The Quinnipiac University poll, released Thursday afternoon, shows fewer than one-in-five voters, 17 percent, approve of the Republican plan to replace Obamacare. The majority, 56 percent, disapprove, with slightly more than a quarter, 26 percent, undecided on the proposal.- Politico

2)  Ceteris Paribus (all other things equal) doesn’t hold in negotiations.  Almost every concession Trump/Ryan made to the hard-right Freedom Caucus resulted in a loss of moderate Republicans, such as the Tuesday Group.   The last straw seemed to be the gutting of the services provided by a typical insurance policy.

House Republicans leaders promised hard-right conservatives yet another concession on the health care bill on Wednesday, but it has already lost key support from House moderates and may seriously endanger their chances of getting the bill through the Senate. Ahead of the vote on Thursday, GOP leaders said the Senate would gut Obamacare’s Essential Health Benefits rule after the House passes the American Health Care Act.

That rule requires insurance plans to cover a basic minimum of health care services. These benefits include maternity and newborn care, pediatric care, emergency services, substance abuse treatment, and prescription drugs. Organizations representing 400,000 doctors wrote a letter to Congressional leaders earlier this year asking them to keep these requirements in a replacement of Obamacare. – Think Progress.

3) The legislation was a “corner solution.”   That is,  it only had the support of Republicans and was not a nonpartisan bill.  President Trump sounds like he has learned through this process that the country wants affordable health care for all and will reach out to Democrats on the next iteration.  This should neuter the Freedom Caucus in blocking the next bill.

4) Bad numbers.  The CBO’s estimate that 24 million would be kicked off health care and 14 million next year, in an election year, was devastating.

CBO and JCT estimate that, in 2018, 14 million more people would be uninsured under the legislation than under current law. Most of that increase would stem from repealing the penalties associated with the individual mandate. Some of those people would choose not to have insurance because they chose to be covered by insurance under current law only to avoid paying the penalties, and some people would forgo insurance in response to higher premiums.  – CBO

5)  Conservatives complained health care premiums did not come down enough.  Bingo!   There are many other reasons health insurance premiums are rising rather than just Obamacare.  Premiums were skyrocketing before Obamacare.  We know firsthand.  Second, the simple demographic dynamics of the U.S. of an aging population are a fundamental reason why insurance costs are rising.  The pool of insured is getting older and hence the higher costs.  This is the whole philosophical basis behind Medicare — older folks are priced out the insurance market and need government subsidies.

6) Bad economics.   The health care act would have had a deleterious economic impact.  The Achilles heel of the economy is the disparity in the distribution of income and wealth, probably at its worst in the nation’s history.  If you provide relief to the higher income groups, who have much lower marginal propensities to consume and tax the lower income groups through higher healthcare costs, who have higher marginal propensities to consume, economic activity is depressed.

the American Health Care Act, and the results are not pretty. An $883 billion tax cut, $274 billion of it going to the richest 2%. $880 billion stripped from Medicaid. And 24 million fewer insured individuals over the next ten years. – Forbes

That is is kind of mean, no?

7) The bill was rushed.  It should have been debated and tweaked through the normal committee process and will in the next iteration, which will need 60 votes in the Senate. Therefore a bipartisan bill.

8) The Upshot.  Aside from the Freedom Caucus, we believe the American government, Republicans, in particular,  have learned from this political disaster, the large majority of the country wants universal affordable health care and the next bill will be one to repair Obamacare.  This marks a philosophical win for President Obama.

How will the loss affect President Trump’s agenda going forward?   Not positive, but hard to assess its lasting impact.  He is definitely weakened politically, however.   Will the Freedom Caucus now feel more emboldened to block tax reform if it adds to the budget deficit?    This keeps the disastrous Border Tax Adjustment (BAT) in play, which is tantamount to the government playing Dr. Frankenstien with the U.S. economy.

We did warn last month of policy overreach by a president who lost the majority of the vote — 25K people rallies, aside.

What worries us most is the government is misinterpreting the November victory as a big mandate, which leads to policy overreach and massive pushback by the population resulting in social instability.  – GMM, February 2017

Stay tuned.