Republicans want to generously subsidize Obamacare in blue states

The Wall Street Journal reports that "Congressional Republicans say they won't move to preserve consumers' health insurance tax credits if the Supreme Court strikes them down."

Another way of saying this: Congressional Republicans say they will spend billions of dollars generously subsidizing blue states if the Supreme Court rules for the plaintiffs in King v. Burwell.

Or yet another way of saying this: the GOP's plan to stop Obamacare has slowly become a plan to rip themselves off. It would end not with Obamacare's repeal, but with a terrible financial deal for red states.

To understand what Republicans are doing here, you have to realize that Obamacare, as written, took money from blue states in order to spend it in red states. It was, as Alec MacGillis wrote in the Washington Post at the time, "a rare triumph of principle over parochialism."

But before you think Democrats the only ones capable of putting principle before party, consider what has happened since the law's passage. Republicans have been busily remaking Obamacare into a subsidy from red states to blue ones.

If the Supreme Court rules for the plaintiffs in King v. Burwell, the subsidies will basically shut off in (mostly) red states. And congressional Republicans won't do anything about it. That means Republicans in those states will be paying the taxes and bearing the spending cuts needed to fund Obamacare but getting none of the benefits.

Which is to say, the biggest fight in American politics in recent years began with Democrats creating a law that was a giant subsidy from blue states to red states and has evolved into Republicans working to turn the law into a giant subsidy from red states to blue states. It is very, very weird.

A bad deal for blue states

Pete Rouse/White House

When the Affordable Care Act was first grinding its way through Congress, some liberal writers noticed just how bad a deal Democratic states were getting. "Those in the red states still smarting over Barack Obama's election victory can perhaps take solace in this," MacGillis wrote. "The Democrats' No. 1 domestic policy initiative, universal health care, is likely to help red America at the expense of blue."

Health reform spends more in states with more uninsured residents. And red states have higher rates of uninsurance than blue ones. In 2013, of the 25 states with the highest rates of nonelderly uninsured, 18 of them had voted for Mitt Romney in the 2012 election.

So all else equal, a bill that spends its money covering the uninsured is going to spend more money in red states than blue ones. But all else isn't equal. The way Obamacare pays for itself also favors red states.

One of Obamacare's major pay-fors is a 3.8 percent tax on investment income earned by richer taxpayers. This hits blue states harder than red states because blue states are, well, richer. Of the 25 states with the highest median income, 19 voted for Obama in 2012.

Another way Obamacare funds itself is through its tax on "Cadillac" health-care plans, which begins in 2018. The tax is really just a levy on very generous employer-provided plans — which are more common in blue states, with their history of unionization, than red ones. That means the Cadillac tax will hit harder in blue states than red ones.

The Republican plot to give Democrats their money back

A devious plan to lower the effective cost of Obamacare for blue-staters. (Jim Watson / AFP / Getty)

In June 2012, the Supreme Court ruled that the federal government couldn't use preexisting Medicaid dollars as leverage to force states into accepting Obamacare's Medicaid expansion. That meant the states could, without penalty, sit that part of the law out. But why would they? Even after the ruling, the expansion was an incredible deal: the federal government would pick up 100 percent of the cost for the first three years, and 90 percent after that. To put that in perspective, the federal government typically pays 57 percent of the cost of Medicaid, with states kicking in the remainder.

But after the Supreme Court's ruling, Republican governors and legislatures in state after state rejected the expansion. Rejecting the Medicaid expansion, however, doesn't exempt a state from the taxes and spending cuts Obamacare uses to fund the Medicaid expansion. A September analysis from McClatchy estimated that "if the 23 states that have rejected expanding Medicaid under the 2010 health care law continue to do so for the next eight years, they’ll pay $152 billion to extend the program in other states — while receiving nothing in return." That's a helluva gift from (mostly) red states to (mostly) blue ones.

Now the Supreme Court will take up King v. Burwell, in which the plaintiffs argue that the text of the Affordable Care Act makes it illegal for subsidies to flow through federally-run exchanges. If they're successful, then it will be possible for a state that opposes to Obamacare to withdraw from both the Medicaid expansion and the exchange subsidies — that is to say, from pretty much all of Obamacare's benefits. But they will still pay all of its costs. They will still pay the law's taxes and their residents will still feel the law's Medicare cuts. Obamacare will become a pure subsidy from the states that hate the law most to the states that have embraced it. It's like a fiscal version of reverse psychology.

Most states won't want to rip themselves off that badly, at least not for long

Most states won't want to rip themselves off that badly, at least not for long. And all a state would need to do to receive full benefits under the law is say yes to some form of the Medicaid expansion and build their own exchange. But Obamacare is powerfully politicized, and some Republican governors or legislatures might hate the law enough to hold their state back.

We can get a rough idea of which states might go full refusenik in the (unlikely) event that the Supreme Court rules for the King plaintiffs by looking at which states have both refused to accept the Medicaid expansion and refused to set up their own exchange. We can start by eliminating the 28 states (plus DC) that have accepted the Medicaid expansion (Kaiser has a helpful list here), and the 24 states that have set up their own exchange, or are running an exchange in partnership with the federal government. It's probably also safe to eliminate the seven states currently haggling with the federal government over Medicaid waivers; those are states that are trying to find a way to take the Medicaid expansion, and they'll likely get there sooner or later.

The Refusenik states

That leaves 15 states who haven't accepted the Medicaid expansion and haven't built their own exchange: Alabama, Florida, Georgia, Kansas, Louisiana, Maine, Mississippi, Missouri, Nebraska, North Carolina, Oklahoma, South Carolina, South Dakota, Texas, and Wisconsin. Those states, according to 2013 Census numbers, had about 103 million residents — or roughly a third of the country's population. If the Supreme Court rules against the Obama administration in King and these states don't decide to change their stance on Obamacare, then they will be massively subsidizing the other two-thirds of the country. They will be paying for Obamacare and getting nothing for it.

Ripping yourself off out of political spite is not an obvious electoral winner

Ripping yourself off out of political spite is not an obvious electoral winner, of course. "I’ve warned folks there is a bit of a be-careful-what-you-wish-for dynamic here," says Jonathan Adler, the Case Western Reserve University law professor behind the King lawsuit. "It’s not entirely clear to me what the political consequences of a victory for the plaintiffs are. It’s relatively easy for a governor in a red state not to worry about Medicaid expansion. But if you look at who’s affected by the loss of tax credits or subsidies, it’s a different group — and a group I suspect is more politically powerful."

Conservative elites know it, or appear to. The Wall Street Journal editorial board warned the GOP that "this threatens to replay the 'if you like your doctor, you can keep your doctor' controversy in reverse, with Republicans accused of denying care to the sick." But they go on to counsel Republicans to only restore the subsidies if Obama agrees to make them less generous and deregulate the insurance exchanges. It's an unusual bargaining position: give us what we want or we'll give you hundreds of billions of dollars and get nothing in return!

But this is Washington. It's easy to imagine Obama and the Republicans finding themselves at an impasse — and the Republican leaders in the refusenik states feeling it's a matter of party honor to hold firm. The result would be a stunning example of how totally ideology can trump self-interest in modern American politics.

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