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How Republicans Could Cripple Healthcare Reform by "Defunding" It

[Updated throughout with post-election analysis.]
Republican leaders have vowed to block the federal funding required to implement the healthcare reform law, and now that they've regained control of the House, they're in a position to make good on that threat. The implications for consumers and for the healthcare industry could be immense.

Overall repeal of the Affordable Care Act really isn't in the cards. Not only do Democrats retain the Senate, but repeal would have to get past President Obama's veto pen. That won't stop Republicans from trying to cripple the reform effort by striking at the funds necessary to support complicated but crucial pieces of the plan.

Generally speaking, the most vulnerable parts of the ACA are new regulations governing health-insurance companies and its expansion of coverage to the uninsured. Areas Republicans may target include payments to the states for the following:

  • Expansion of Medicaid, which is expected to enroll more than 16 million new recipients under the reform law
  • Maintenance of current Medicaid programs and the CHIP setup that covers otherwise uninsured children
  • Setting up "health insurance exchanges" for small businesses and individuals
It's the third item that presents the biggest threat to healthcare reform. The state-level insurance exchanges are intended to tame health-insurance markets by forcing insurers to offer individuals and small businesses plans that cover minimum benefits and compete on price. Should Congress block funding for those exchanges, it could cripple a centerpiece of reform and trigger a cascade of unintended consequences.

Here's how that could happen. First, some states might bail on their plans to set up exchanges, citing their unaffordability in the absence of federal support. Second, the feds would have no money to set up its own exchanges in states that fail to do so, as the ACA requires.

Any failure to create exchanges in states by 2014 would in turn block federal insurance subsidies to individuals and tax credits to small firms in those states. So individuals would still be required to buy insurance, but their employers would be less likely to cover them. If they didn't have insurance through their employer, they'd have to purchase it on their own without government help.

The natural result: a consumer revolt in which many people would simply refuse to buy coverage, preferring to pay the government fines instead.

Another major repercussion involves insurance premiums. If a large number of people remained uninsured, but insurers were required to accept everyone who applied for coverage, health plans would naturally jack up rates to handle the increased risk of covering the population. That would set off a health insurance death spiral, with more businesses dropping employee coverage, boosting the ranks of the uninsured and inevitably making insurance too expensive for most anyone to afford.

Do the Republicans care about this scenario? They probably view it as a political wedge that will enable them to "repeal and replace" the Affordable Care Act. In other words, when we're on the verge of total disaster, they hope to persuade enough Democrats to join their cause so they can rescind the legislation. What comes after that? The deluge.

Image supplied courtesy of Wikimedia Commons.