Sign up for a daily newsletter defining what matters in business and markets

Stories

How Obamacare replacement shifts the balance of winners and losers

When Obamacare passed Congress, the Democrats who wrote it tried to balance competing interests and minimize winners and losers. Once it's repealed, Republicans will have to do the same thing with its replacement.

It's not clear that they can.

They'll try, but unless the new system covers as many newly insured people as Obamacare, everyone who benefits from more paying customers will be hurt -- and hospitals and other health care providers are bracing for the biggest hit.

The tradeoffs: Every time there's a major reform of the health care system, there are bound to be winners and losers. Some of it can be minimized. With Obamacare, insurers had to cover more expensive patients, but they were also rewarded with new, paying customers.

Hospitals got cuts in their payments, but they also got more insured patients. And drug companies had to pay new fees, but in return, Democrats didn't go after them on drug prices.

But there are some tradeoffs that are impossible to avoid. If sick people gain coverage, as they do under Obamacare, healthy people pay more to cover the costs -- because that's how health insurance works.

And if the new system is better for healthy people, it's probably going to be worse for sick people.

--Example: Republicans want to cover pre-existing conditions only for people who have stayed insured for a long time. That's supposed to keep them from only signing up when they get sick, which drives up costs for healthy people.

--But not everyone can afford to stay insured, so that approach leaves a "gaping hole," said John McDonough, a member of the Axios board of experts and a former Senate Democratic aide who helped write Obamacare.

That's why independent health care experts are skeptical of GOP promises of better health care at lower costs for more people. "I don't buy that. There's going to be a tradeoff if we do things differently," said Mark Pauly, a health economist at the University of Pennsylvania.

And Democrats who worked on Obamacare are skeptical that Republicans will be able to strike the same kind of deal with industry groups. That's because the groups' main incentive for accepting payment cuts in 2010 was to gain more insured customers -- which has now happened, and isn't likely to happen again.

Why it might work: Needs some official GOP response here -- Ryan? Hatch?

One way to minimize winners and losers: let current Obamacare customers keep their coverage and subsidies as long as they need it, and only switch to the new system when they're ready, according to James Capretta, a conservative health care expert who has worked on replacement plans.

And a lot of problems could be solved if insurers have more flexibility in the benefits they offer, according to Chris Condeluci, another member of the Axios board of experts.

If people can buy more basic, lower-cost plans than they can under Obamacare, more people might sign up and coverage might actually increase, said Condeluci, a consultant who was a Senate Republican aide during the passage of Obamacare.

Republicans do want to simplify the benefits, but it's not clear whether they'll "grandfather" the Obamacare coverage -- so the impact on the other health care sectors could be hard to control.

Why hospitals are worried: Take Chicago as an example. John Jay Shannon, chief executive officer of the Cook County Health & Hospitals System, says his hospitals needed $481 million in local taxpayer funds in fiscal year 2009. This year, it only needed $111 million.

Overall, most hospitals came out ahead under Obamacare, with big reductions in uncompensated care costs -- though hospitals in states that didn't expand Medicaid had less relief than hospitals in expansion states. Here's a chart that shows the difference.

"For the first time in the history of this safety net organization, we're taking care of a majority insured population," Shannon said. If newly insured people lose their coverage, he said, his hospitals will need more state and county funding again -- and they probably won't be able to get it.

What to watch for: Most industry officials and experts say it's too early to predict everything that will happen, since there's no official replacement plan yet. But based on the leading ones that have been proposed, here's how the balance of winners and losers could change.