Obamacare in the New Year

Analysis: Three things to watch with health-care reform in 2015 / AP

If 2013 was the year of the Obamacare meltdown, 2014 was a year of mitigated success for the president and his signature law. Enrollment went as smoothly as could be expected for the first part of the year, more people signed up for insurance in the fall without any huge hiccups, and the president replaced his secretary overseeing the law with somebody who appears competent.

It is hard to say that "no major problems" is a real success, though, and 2014 only looked good for Obamacare relative to 2013. The law still showed major problems, with the biggest being the contradiction between its name and the reality it has created: Insurance premiums under the Affordable Care Act rose again this year, despite promises from the president that the law would bring costs down.

The new year is shaping up to be vitally important for the future of the health care reform law. Here are three things to watch, from the mundane (but important) to the dramatic:

1. Obamacare’s gears are losing some (green) grease.

One of the more obscure parts of Obamacare was an increase in the amount that primary-care doctors get paid for seeing patients with Medicaid, the government’s health-insurance program for the poor.

This fee increase was an attempt to patch a much bigger flaw with Medicaid. This program systematically underpays doctors for seeing patients—typically poor children and mothers—who are insured through it. The incentive structure encourages the states, who actually run the program largely with federal dollars, to cut the reimbursement rate for doctors, and the result is that Medicaid paid in 2012 about 66 cents for every dollar paid by Medicare, the federal insurance program for the elderly, and closer to 50 cents for every dollar paid by private insurance. (And remember—these are averages; some states pay doctors far, far less for serving Medicaid patients.)

The result is predictable: Doctors are reluctant to accept Medicaid patients because they simply don’t get paid enough.

To solve this problem, Obamacare gave states the money to make Medicaid pay the same as Medicare. This extra money was especially important because Obamacare expanded Medicaid while leaving its structure in place. The money basically greased the system, making it easier for patients with Medicaid to get in to see a primary-care doctor.

This new money expired Dec. 31, since Congress did not extend it in its massive spending bill passed earlier that month, and as a result primary-care doctors seeing patients with Medicaid will see their pay cut significantly in 2015. This pay cut will affect a large number of the newly insured under the law: About 70 percent of the net increase in people with insurance in 2014 was due to the Medicaid expansion.

This payment cut means that at least some people with Medicaid will have trouble getting in to see a doctor. Obamacare’s cogs will be running a little less smoothly in the new year.

2. Republican-led states are looking to expand Medicaid.

Despite the payment cuts, several Republican governors are looking to expand Medicaid in their states.

Obamacare expands Medicaid to a group not typically covered before the law: healthy, childless adults. The Medicaid expansion was originally predicted to take in about half of the newly insured under the law, and the federal government promised to foot the whole bill for the expansion until 2017.

Most Republican-led states refused to accept the expansion, however, arguing that it would ultimately cost their states a lot of money and that the program was poorly constructed.

However, the money is becoming too enticing to turn down forever, and a number of GOP-led states are moving toward expansion.

Tennessee’s governor announced on Dec. 15 that he wanted to pursue a modified version of Medicaid expansion. Indiana’s governor is also pursuing a modified expansion (although he has run into some problems with Obama administration officials, from whom he needs a waiver). Deeply red Wyoming is also pursuing a modified Medicaid expansion, while Alaska’s new independent governor is going to try to get a Medicaid expansion through his state’s Republican-controlled legislature.

These expansions could become some of the most bitter fights this year at the state level, as Democrats dearly want to see this part of Obamacare enacted while many Republicans have deep misgivings about Medicaid’s structure and the expansion’s purpose. However, these expansions could be a place where Republicans are able to innovate and improve how health care is delivered to the poor, as some governors are trying to do.

3. The Supreme Court hears yet another attack on the Obamacare’s legality.

The Supreme Court has agreed to hear a lawsuit brought against the subsidies in Obamacare. This lawsuit has the potential to bring down the law across most of the country.

At the heart of Obamacare lie the insurance "exchanges," where people can go to buy insurance. The law originally envisioned each state setting up its own exchange, but it allows, as a failsafe, the federal government to set up an exchange in place of the states should they refuse to comply. Most states did refuse to comply, and as a result the federal government had to set up exchanges in about 35 states.

In order to attract people to the exchanges, the federal government offered subsidies to help pay the premiums for this insurance. The lawsuit alleges that the text of Obamacare only allows federal subsidies for insurance bought on state-run exchanges—and anybody buying insurance on an exchange set up by the federal government cannot receive a subsidy.

As a result, about four million people would lose the assistance they currently have for buying insurance—likely making the insurance unaffordable for them (especially since it keeps getting more expensive every year). The exchanges would almost certainly fall apart in the states with federally run exchanges, and the heart of Obamacare would be undone across much of the country.

The outcome of the lawsuit will be very interesting to watch. It is likely the last real attempt to undo the law through the courts.

But the lawsuit also poses a challenge to conservatives: Will they be able to formulate a viable replacement plan to fix this system, should it fall apart? Health-care policy experts Jim Capretta and Yuval Levin argued recently that Republicans have to create a back-up plan—otherwise, millions of people will suddenly lose their insurance because of a lawsuit brought by conservatives.

This lawsuit could set up the most leverage Republicans will ever have over the president regarding his signature law, and it creates an opportunity for Republicans to think creatively and responsibly about how to fix Obamacare.

Because of this, 2015 could be the most important year for Obamacare yet.