Republicans seek to turn health reform over to the states

AFTER Republicans failed to agree on a replacement for the Affordable Care Act earlier this year, the cause of Obamacare repeal looked dead. Yet a revival was always possible before September 30th, when a budget measure allowing a health bill to pass the Senate with only 51 votes, rather than 60, expires. The ticking clock has spurred four Republican senators, led by Bill Cassidy of Louisiana and Lindsey Graham of South Carolina, to have one last stab at getting a bill passed.

Messrs Cassidy and Graham are not brimming with new policy ideas. Instead of reforming Obamacare themselves, they want to pass the baton to state governments. Like past Republican bills, their proposal would limit the federal government’s role in Medicaid (health insurance for the poor) to providing a fixed grant to the states for each person enrolled. The new bill extends that approach to the individual market, in which 17m people who do not get health insurance from some other source buy it for themselves. From 2020, the federal funds that currently subsidise poorer buyers would instead be divvied up among states in proportion to the distribution of Americans earning between 50% and 138% of the federal poverty line. States could spend this cash on health care mostly as they saw fit. They could also opt out of many of Obamacare’s regulations, such as those preventing insurers from charging more to those who are unhealthy.

Federalism of this kind is often desirable. Widespread experimentation with health policy would surely lead to innovation, including in ways Democrats might like: states could decide to provide universal taxpayer-funded coverage, for example. Yet there are three clear downsides to the Cassidy-Graham plan.

First, states might not be up to the task. Each would have two years to decide what its health-care system should look like, and to find the money to top up the federal grant if necessary. By 2026 almost every state faces a cut compared with what it can expect under current law, according to the Centre for Budget and Policy Priorities, a left-leaning think-tank. The more a state’s residents have enrolled in Obamacare’s programmes, the harder it will be to maintain the status quo, especially in places in poor fiscal shape, such as Illinois or New Jersey. Any state keeping Obamacare’s regulations in place would risk acting as a magnet for Americans with chronic health conditions, further raising costs. States’ record here is not good: before Obamacare, many ran “high-risk pools” to care for the sick, but they were badly underfunded.

Second, the bill would concentrate risks. Were a state to face a fresh drug epidemic or outbreak of disease, it would get no additional money. By contrast, Obamacare’s subsidies rise and fall automatically in proportion to local health costs.

Mr Graham argues that the spread of money across states would nevertheless be fairer, because California, New York, Massachusetts and Maryland currently receive 40% of all funding. This criticism makes little sense. California and New York get a lot of money in part because they are large. For the same reason, Florida and Texas each get more cash than either Massachusetts or Maryland, which Mr Graham has picked for their Democratic politics. The states which miss out on cash are those that have not expanded Medicaid or enrolled as many people in the individual market. According to our calculations, New Mexico, a state whose residents are in relatively poor health, gets the most Obamacare funding per head (see chart).

The final problem with the bill is that it does too little to fix the immediate problems ailing Obamacare’s markets: rising premiums and a lack of insurers. In fact, it would probably make these problems worse, by scrapping a requirement that people buy health insurance or pay a fine, thereby allowing healthy people to flee the market. States would have to deal with the fallout at the same time as constructing their own systems in time for 2020.

Senator Cassidy says his bill does not preclude a bipartisan attempt to shore up the individual market. But an effort to find such a compromise collapsed on September 20th. Insurers must sign contracts governing premiums in the individual market by September 27th. Unfortunately, that deadline seems to lack the power to motivate Congress to act.