McCain Pulls the Plug on Obamacare "Skinny Repeal" Without Replacement

Markets Motley Fool

Republicans have been fighting to repeal and replace the Affordable Care Act since it was passed by Democrats in 2010. After winning Congress and the White House last November, many republicans thought a repeal-and-replace of the ACA, or Obamacare, as it's more commonly called, would come swiftly.

Continue Reading Below

However, efforts to replace Obamacare with Trumpcare have hit roadblocks because conservative republicans want to avoid replacing Obamacare altogether, and moderate republicans want to protect coverage for voters in states that have expanded enrollment in Medicaid under Obamacare.

So far, republicans' Trumpcare proposals have included drastic cuts to Medicaid that could lead to 15 million Americans being pushed off of Medicaid's rolls.

Maine's Susan Collins and Alaska's Lisa Murkowski have been among the Senate's most vocal republican opponents to Trumpcare so far, but this week, John McCain joined the two to sink yet another Trumpcare proposal that would have repealed certain parts of Obamacare without replacing it.

McCain's vote last Thursday came shortly after he was diagnosed with glioblastoma, a form of brain cancer, and two years after Trump said McCain was a "loser" and "not a war hero" because of his capture while serving our country in Vietnam.

A big impact on the industry

Continue Reading Below

Healthcare industry participants, including industry watchers and investors, are monitoring Washington this year because a repeal-and-replace of Obamacare could have a big and long-lasting impact on the sector.

Over 10 million people get their health insurance coverage via plans sold through Obamacare's exchanges, and more than 15 million Americans have been enrolled in Medicaid in states that have implemented Obamacare provisions expanding Medicaid eligibility to people earning up to 138% of the federal poverty level per year, or $33,948 for a family of four.

Obamacare has successfully decreased the uninsured rate to its lowest on record, and in the process, it's increased demand for healthcare services, products, and medicine. According to a RAND Corporation study, uninsured patients who got private insurance coverage in 2013 and 2014 (when Obamacare was implemented) filled 28% more prescriptions in 2014 than in 2013. Patients who were uninsured and then got insurance from Medicaid because of Obamacare filled 79% more prescriptions in 2014 than in 2013.

It's also decreased bad debt related charge-offs and charity care at hospitals, and it's been a boon to insurers that run state Medicaid programs. However, it's been tough going for insurers selling plans in the individual marketplace.

Families that don't qualify for Medicaid are required to purchase insurance in the private market, or pay annual penalties. These private plans can be bought on Obamacare marketplaces, but most insurers have yet to turn a profit selling them. Because healthy Americans are paying the penalty, rather than getting coverage, insurers are increasing premiums to cover the costs associated with insuring older and sicker Americans, or their exiting the marketplaces altogether. For example, UnitedHealth Group, the nation's biggest health insurers, announced it was exiting most state marketplaces in 2017 last year following hundreds of millions of dollars in losses caused by selling individual plans. UnitedHealth Group, however, does still manage Medicaid programs for states that expanded Medicaid, and that business is reporting record financial results.

Among the Obamacare provisions that republicans in Congress most want to see repealed are the individual requirement for coverage, requirements that make companies offer insurance to workers if they employ over a certain number of people, and taxes on high-income earners and the industry that help offset federal spending on the program.

Since conservative and moderate republicans have objected to various repeal-and-replace proposals in the Senate so far, a last-ditch effort to pass a "skinny repeal" that would remove these requirements was proposed on Thursday night.

If the skinny repeal had passed, it would have erased these provisions, but it also would have led to more healthy individuals canceling their plans and less tax revenue to support the program. In turn, insurers that still participate in the marketplaces would have had to charge even higher insurance premiums, or exit the marketplaces, too. Collins, Murkowski, and McCain were the only republicans to vote against the skinny repeal plan, and they did so because they weren't confident that voting in favor of the plan would lead to substantive negotiations to create a replacement option.

In explaining his vote, McCain said that one of his big objections to Obamacare is that it was passed by democrats without input from republicans. If republicans did the same to democrats, then repealing it without offering an alternative to the millions of Americans who are insured under Obamacare would be no different.

What's next

Despite having years to iron out details to win support across all conservative and moderate republicans, efforts to repeal and replace Obamacare have hit a roadblock.

Healthcare companies and families ideally want a low-cost solution that keeps the uninsured rate low, but proposals so far have yet to demonstrate they can accomplish those competing goals. Perhaps a solution that maintains access to healthcare and reduces healthcare costs won't be discovered until proposals adequately address the supply side of healthcare, too, rather than just the demand side.

10 stocks we like better than Wal-Mart
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, the Motley Fool Stock Advisor, has tripled the market.* 

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Wal-Mart wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of July 6, 2017
The author(s) may have a position in any stocks mentioned.

 

Todd Campbell has no position in any stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.