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The Obamacare Bailout

Big government in bed with big insurance.

Feb 3, 2014, Vol. 19, No. 20 • By JAY COST
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Obamacare is like an onion: The more layers you peel back, the worse it smells. The latest revelation about this horrible law is the presence of a “risk corridor,” a euphemism for an insurance industry bailout that will occur sometime in the next year. 

Dave Malan

Dave Malan

The law depends upon the voluntary participation of insurers. Private citizens are compelled to purchase insurance, but insurers are free to walk away from Obamacare. To prevent that from happening, congressional Democrats put in place guarantees to cover insurance industry losses for the first few years of the program. The total cost of this bailout could feasibly run into the tens of billions of dollars. 

Conservative thought leaders have begun to sound the alarm. In a Washington Post column in early January, Charles Krauthammer argued that ending the bailout should be the “first order of business” for conservatives in 2014. Similarly, James Capretta, Yuval Levin, Ramesh Ponnuru, and others have argued that the bailout should be a focus of conservatives looking to stop Obamacare.

This is all to the good. Yet the impending bailout of Obamacare insurers is part of a much larger story about the growing entanglement of business and the federal government. To attack Obamacare as effectively as possible, conservatives must understand this story better, and situate the bailout within the broader narrative of how businesses’ rent-seeking—their manipulation of the political process to increase their wealth—has come to dominate public policy.

Conservatives have made common cause with business groups for well over a century, as the two have overlapping interests in limiting the ability of organized labor, consumer advocates, and the environmentalist left to use government to regulate the economy. For conservatives, the goal is to limit Washington’s power; for businesses, it is to protect the bottom line. Buttressing this strategic alliance has long been a shared belief that America’s free enterprise system is the surest means to generate broad-based prosperity and encourage the flourishing of individual initiative. 

Tight as this relationship may be, it remains a coalition, not a union. It is contingent upon shared goals and values, but conservatism and business are not coterminous. This is why conservatives should be troubled by the rise of rent-seeking behavior among businesses. Ideologically speaking, this should be as anathema to conservatives as any capricious exercise of federal power. A tax carve-out to General Electric is no different from a politically motivated exemption for the United Auto Workers from the National Labor Relations Board; in both cases, politicians use the government’s power for personal or political ends. 

Worse, conservatives inevitably get the blame for business rent-seeking because of their longstanding alliance with the business community. Professional Democrats since the 1980s have been well aware of this problem for Republicans, and accordingly have played a double-game. While bemoaning corporate fat cats, they rake in corporate donations hand over fist. Nobody perfected this hypocrisy quite like Bill Clinton. For instance, he funded the 1996 Democratic National Convention via enormous donations from corporations like Seagram’s and MCI, while his partisans bemoaned the grip that big business had on the Republicans.

This problem has gotten worse in the last half-century. During the 1960s, the New Left joined organized labor in demanding governmental regulation of the economy in general, and business in particular. This pushed business into an advocacy role that it had not so prominently occupied since the age of John D. Rockefeller, Andrew Carnegie, and the giant trusts of the late 19th century. But what else was it to do? If Ralph Nader was liable to show up on any given day in 1967 to warn some congressional subcommittee about the danger your product posed, you better have a lobbyist of your own on hand to warn about the dangers of Nader. 

As it turned out, business was simply better at influencing politicians than anybody else. History on this subject is replete with irony. Worried that the federal courts would declare their political action committee illegal under the Taft-Hartley Act, organized labor leaned heavily on its Democratic allies in Congress to pass the Federal Election Campaign Act of 1971, which legalized labor PAC activity. Long hesitant to join the fray because of the dubious legality of PACs, businesses subsequently jumped in with gusto. Today, contributions from business and professional association PACs dwarf those from organized labor.

Not only was business very good at playing defense, it grew quite adept at playing offense as well, using expert lobbying and smartly placed campaign contributions to tilt the public policy needle in its favor. Moreover, businesses are happy to play both sides of the aisle in this effort. It is not really about defending the free enterprise system against the radical New Left, which is what initially induced businesses to get into the lobbying game so aggressively in the 1960s. It is now about padding the bottom line. Thus, a quasi-socialist Democrat can be a friend of business, provided he is willing to fight for a special carve-out during an obscure subcommittee markup of a complicated, 1,000-plus-page bill about which the public knows nothing.

Political scientists used to speak of “iron triangles” connecting lobbyists, bureaucrats, and legislators. Today, the old triangles have morphed into vast networks of embedded, interconnected interests that depend upon and support one another. Politicians, bureaucrats, lobbyists from all sorts of factions—very much including labor, consumer, and environmental groups—can all coordinate to channel public funds for private plunder. To borrow a phrase from political scientist Theodore Lowi, this is “interest group liberalism” run amok, with businesses now playing a dominant role in the dispensing of goodies by Uncle Sam. Indeed, the surest sign that Obamacare was going to be bad for America was the announcement that Walmart and the Service Employees International Union had joined with the left-wing Center for American Progress to push for the business mandate. 

Cleaning out this hornet’s nest of access and favoritism should be the policy priority of conservatives, for three reasons. First, it is an obvious political winner. Politicians are always in search of “valence” issues that split the public 80-20. Inappropriate access to government largesse is such an issue. Ordinary Americans, whether liberal or conservative, Democrat or Republican, hate it. Second, leadership from conservatives on this issue would help rebrand their movement, or at least make it harder for Democrats to have their cake and eat it, too. 

Third, it is necessary to deal with this problem in order to peel back Obamacare, the quintessential product of today’s venomous policy-making process. So much of the debate about Obamacare overlooks the fact that the Democrats effectively purchased private sector buy-in through such policies as this “risk corridor.” In fact, Obamacare is festooned with payouts to every imaginable business and trade group that has a stake in American health care. These were important not merely in securing passage of the law in the first place, but also in sustaining it over time because they give these groups a vested interest in its “success.” 

Conservatives are right to acknowledge that to repeal Obamacare they must highlight how the law is hurting people, develop feasible policy alternatives, and generally keep the issue front and center before the public. Fine. But in addition it is necessary to expose the perverted method by which bills become laws in 21st-century America. The federal register is chock-full of laws that the public does not like or that unjustly hurt people, but that persist because some well-placed interest group draws some sort of rent from them. So it is with Obamacare. Until conservatives assault this quid pro quo system, Obamacare will never go away. 

One place to start this project is the impending insurance industry bailout. Conservatives can hoist liberals on their own petard: The demagogues who railed against greedy insurance companies are now set to bail those companies out, even as average people have to pay increasingly onerous tax penalties to guarantee perpetual profits for the industry. As valence issues go, this one probably breaks 99.9-0.1, with only President Obama, congressional Democrats, and insurance industry CEOs and their immediate dependents opposed. 

 

Yet such a campaign need not end with an attack on this Obamacare bailout. For half a century, government and business have become more and more entangled, with bureaucrats, congressmen, congressional staffs, and lobbyists trading rents not just, crudely, for campaign contributions, but also for information, job opportunities for themselves and their protégés, favors of all kinds. Far too often, the public good is considered last. This is big government at its worst—and one of the best places for conservatives to take a stand.

Jay Cost is a staff writer at The Weekly Standard.

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