Reforming the Affordable Care and Dodd-Frank Reforms

Two things seem obvious to me by now.  First, neither of President Obama’s most significant legislative accomplishments, the Affordable Care Act and the Dodd-Frank, are working nearly as well as their proponents hoped. In fact, each is likely to be increasingly bogged down by complex rule making and unintended consequences. Second, neither can be substantially changed without Democratic support. This is partly because Republicans will not control the Presidency and both house of Congress for at least four years. But it is also due to the fact that both address a widely recognized policy problem and contain positive aspects that should be kept. So what can be done to improve them?

The conventional wisdom seems to be that neither bill can be reformed because the Administration will not accept any changes that are not carefully limited in scope and pre-negotiated with the opposition. I believe this is overly pessimistic. Sensible reforms are possible, but only if Republicans and industry are willing to pursue a disciplined strategy that gives the President a reason to accept reform. Although this observation applies to both pieces of legislation, the following discussion focuses on financial reform because that is the issue I know most about and worked personally on.

The first observation is that, especially in this climate, the opponents of both acts cannot beat something with nothing. As mentioned above, both pieces of legislation addressed what were widely perceived to be serious national policy problems. Rather than put forward legislation that responded to the popular demand for a solution, Republicans and industry by and large opposed all efforts to pass a bill. This is not an unusual strategy for the minority party and successfully stopped legislation on climate change. However, it failed with health care and financial reform. Any effort to substantially change those bills now will have to be proceeded by the development of one or more well-defined partial reforms that truly do a better job of addressing the social problem that the public perceives.  Right now such an alternative does not exist.

The second observation is that the Administration must be increasingly aware of the vulnerabilities created by its current unilateral approach. Although health care costs have increased at a slower pace for the last few years, this is not due to the Affordable Care Act and is likely to be temporary. At the same time, there are strong indications that employers and providers are likely to respond to the Act in ways that will upset the public. Insurers are indicating that they will ask for significant price increases, employers are exploring whether to reduce workers hours or raise premiums, some employees will likely have to buy insurance that is too expensive for them, and almost half of the states are opposing implementation in one way or another. In financial reform at least three problems are increasingly obvious: 1) Dodd-Frank did not fix the too-big-to-fail problem and may have made it worse; 2) regulators are struggling with the complexity and market consequences of reigning in such a large and fluid industry; and 3) the legal position of the Consumer Financial Protection Bureau is questionable. On the last item, there is a strong chance that the President’s appointment of Richard Cordray as its director was unconstitutional. If so, it would negate much of the rulemaking that the Bureau has done so far.  Even more serious, the Administration cannot be certain that the Bureau itself is constitutional.  Its concentration of power in one person and its freedom from appropriations makes it largely immune from control by either Congress or the President.

In this atmosphere, it is possible that a well-articulated and defined reform that better addressed one or more of the most problematical aspects of either bill could obtain the support of voters and some Democratic members. This would put pressure on the administration to at least consider reforms. The Administration might be even more amenable to changes if it was clear that accepting them would place a clear bipartisan stamp on the broader approach and eliminate much of the political and industry opposition to implementation. Control of the House assures Republicans that they can pass legislation through at least one chamber, raising the visibility of their alternatives. For Dodd-Frank two of the most sensible reforms would be the addition of a new chapter dealing with financial institutions to federal bankruptcy law and structural reforms to CFPB to subject it to appropriations and place it under a bipartisan commission rather than a single director. A new bankruptcy chapter should substantially reduce the too-big-to-fail problem by providing an alternative to government takeover of a financial institution. A deal on the CFPB could include the appointment of designated individuals to the commission and affirm all prior regulations issued by it, thus giving the Administration certainty that its work would continue.

The problem is that Republicans have not developed such a firm alternative. A good model for an alternative can be found in the Pew Financial Reform Project which convened at Task Force of bipartisan financial experts to develop a consensus plan for reform.  The plan called for many of the key components of financial reform but did so in a way that addressed the legitimate concerns of both sides of the debate. Although the proposal was  never translated into legislative language, it remains a possible template for ideas. Without offering the public or the Administration a better alternative that meets its legitimate needs, Republicans and industry will continue to find themselves following rather than leading the debate.  Both pieces of legislation may eventually run into more serious obstacles, but even if they do, the public will likely continue to trust Democrats on the issue. For industries struggling to adapt to rapid change and a party in need of revival, that is not a prescription for success.




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