Why Some Conservatives Are Unhappy About New Obamacare Cuts

Republicans scored their biggest victories against the Affordable Care Act in thetax-and-spending deal that congressional negotiators struck late Tuesday night: They won two-year delays in the collection of taxes on pricey health insurance plans and medical devices, along with a provision blocking what they say is a bailout of insurance companies.

All together, the changes will make Obamacare more costly to taxpayers and could prompt more insurers to drop out of the exchanges. So why are some conservatives so unhappy about it?

Both the so-called “Cadillac tax” and the medical device tax have been unpopular since the law’s passage in 2010, and they’ve been on the chopping block for some time. Democrats included them originally to help pay for the law and fulfill President Obama’s promise that it would not add to the deficit. Additionally, supporters of the Cadillac tax argued that by discouraging employers from compensating workers with unnecessarily generous health plans, it would help drive down soaring health-care costs and potentially push companies to increase wages instead. Yet it faced strong opposition from unions who offer those plans, and the push to scrap the tax gained momentum when Hillary Clinton came out against it earlier this fall. A two-year delay likely means the tax is gone for good, since neither Clinton nor a Republican president would be expected to restore it. 

Republican leaders boasted about the changes in unveiling the year-end package, which came despite opposition from the White House. But they were able to secure their inclusion because many congressional Democrats also wanted the taxes gone out of fear that the Cadillac levy, in particular, would lead to higher premiums and more angry constituents. And it’s their support for the delays that has caused consternation among conservatives.

Take Heritage Action, the hardline political arm of the conservative D.C. think tank. Heritage has fought the health-care law at every turn and opposes the taxes on principle, but the group has criticized the two-year delay in the “Cadillac tax” precisely because it could make Obamacare more politically palatable and thus, harder to fully repeal. “The Cadillac tax is a political nightmare of epic proportions for a party that claims to represent the people,” wrote Michael Needham, Heritage’s CEO, in a piece published earlier this week.

There is no reason for Republicans to leave Obamacare’s foundation in place during any future effort to enact health care reform. And despite what some Republicans may argue, a delay of the Cadillac tax would not undermine Obamacare, nor would it make full repeal more likely come 2017. If any of those things were a possibility, President Barack Obama would have issued an immediate veto threat. Instead, Obama left the door open to signing a delay.

Conservatives should therefore be skeptical of any such changes that look to delay bad provisions of Obamacare and aim to move in the opposite direction.

It’s telling that earlier in the debate over the tax extenders package (likely to serve as the vehicle for delay of the Cadillac tax), there was also talk about providing additional funding for health insurance industry “risk corridor” bailouts. This is yet another example of policies Republicans need to oppose.

Republicans will be on firmer ground in considering health policy changes by internalizing this principle: If it stabilizes Obamacare or pays off special interests at taxpayer expense, it is bad policy.

Another conservative group, FreedomWorks, often opposes the Republican leadership and criticized the $1.15 trillion spending package. But it hasn’t taken a position on the tax bill that includes the Obamacare delays. “We’re a little ambivalent on that one,” said Josh Withrow, the group’s legislative affairs manager. He said he agreed with Heritage’s analysis of the political dynamic but that “it’s hard to ever be terribly unhappy about a provision that will actually have the effect of saving a ton of people from their premiums spiking even higher. The Cadillac tax would have caused people a lot of real pain.”

Still, Withrow said that like Heritage, FreedomWorks was “very careful not to get too excited about provisions that would potentially strengthen the law by merely removing its worst parts.”

The trouble for these conservative groups is that is increasingly the direction in which Congress is going. While Republicans will finally succeed in sending a full repeal of the Affordable Care Act to Obama’s desk for a veto, lawmakers have simultaneously made more significant bipartisan changes to the program in 2015 than in any year since it passed. Following Supreme Court rulings that have confirmed Obamacare’s legal standing, both parties have been more willing to consider changes that stop short of gutting the law or changing its essential structure. Josh Earnest, the White House press secretary, acknowledged that the administration opposed the delay in the taxes, but he downplayed their importance to the law as a whole. “When you consider their ambitions,” he said of Republicans on Wednesday, “the steps that are included in their proposal are quite, quite meager.”

Democrats were also amenable to delaying taxes in the law because they don’t undermine the expansions in access to health care and insurance that were central to the program. As we’ve noted, the deficit has shrunk by more than half since Obamacare was enacted, and concerns about the nation's budget shortfall have faded in Congress.

The policy change that might undermine the health law the most is one that was first included in last year’s omnibus spending bill and which Republicans insisted on keeping this year. That would be the so-called “risk corridors” restriction, which limits the government’s ability to protect insurance companies who suffer financial losses in the exchanges. Republicans liken it to a bailout of insurers, and Marco Rubio has claimed credit on the presidential campaign trail for making sure it was included in the 2014 spending package. Insurers have blamed the government’s reneging on its promise of help for the rash of market failures in the last year. In The New York Times last week, Robert Pear wrote that the restriction on risk corridors had “sent tremors through health insurance markets and rattled confidence in the durability” of the entire law. Democrats fought to have the provision taken out this year, but they settled for giving insurers a separate tax break that they hoped would soften the blow.

The conservative groups praised the inclusion of the risk-corridors limit as a saving grace on spending legislation that on the whole, they found deplorable. As for the delays in health-care taxes, they had no such kind words. What doesn’t kill Obamacare, they worried, could make it stronger.