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Unwinding Obamacare

Jan 27, 2014, Vol. 19, No. 19 • By JAMES C. CAPRETTA and YUVAL LEVIN
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Obamacare is no longer a theoretical proposition. It is now being implemented, if with some notable exceptions for the portions of the law the Obama administration finds particularly inconvenient. Millions of Americans are experiencing its consequences directly, and millions more are forming their opinions of it based on what they are hearing of its effects. Those opinions are generally not positive. The fact that many of the law’s congressional supporters are now running scared for fear of voter backlash is a good indication of how poorly the rollout is going.

Gary Locke

Gary Locke

Obamacare’s travails seem likely to play into the hands of the law’s Republican opponents this year, even if the GOP does very little to try to reverse or slow the law’s implementation. The inevitable displeasure of those forced into inferior coverage with diminished access to care at higher cost because of Obamacare (and the concern of those who fear they might be) appears set to overwhelm the approval of those benefiting from its redistributive mechanisms, and so to swing the political pendulum at least somewhat to the right. Off-year elections in an incumbent president’s second term already tend to go poorly for that president’s party, and Obamacare appears likely to exacerbate that trend.

But to fully capitalize on the political opportunity before them, and to set the stage for a genuine rollback of Obamacare and its replacement with a far better alternative, Republicans in Congress cannot be satisfied to sit back and watch the disaster unfold. They should take the initiative, as they did at several crucial moments in 2013, and push legislation that would speed up the process of unwinding Obamacare and lay out for the public their concrete plans for a real reform.

The GOP should begin by renewing its commitment to protect Americans from being coerced into Obamacare. That means jettisoning, or at a minimum delaying, the individual mandate. The mandate has always been among the least popular elements of this unpopular law, and it has grown increasingly difficult to defend as the rollout has proceeded and more Americans have found themselves forced out of coverage they liked and faced with the prospect of paying a penalty (or a tax, as Chief Justice Roberts would have it) for not buying coverage they don’t like.

The Congressional Budget Office’s most recent estimates (made before the rollout of Obamacare began) assumed some $2 billion would be collected in 2015 from households forced to pay this uninsured tax for 2014. If the average payment is $500, that would mean 4 million Americans. And the number could be much higher if enrollment in exchange coverage is as low as it is now expected to be.

It is hard to imagine Democrats being able to sustain support for such an unpopular proposition, especially in light of the president’s unilateral decision to exempt those with canceled 2013 individual policies from the tax in 2014. Indeed, it is possible, and perhaps even likely, that the president will eventually take the next logical step himself and waive the tax for everyone in 2014 (though he would presumably wait to take such a step until after the enrollment period closes at the end of March). This is all the more reason why Republicans should make repealing this mandate, and codifying the president’s own delay of the employer mandate, their top priority in 2014, just as it was in 2013.

In addition to a repeal or delay of the individual and employer mandates, Republicans should hammer the other weak link in the Obamacare chain: the back-door subsidy that promises a massive bailout for insurance companies. Like the mandate, the promise of bailouts is there to persuade insurers to play ball despite the system’s irrationality.

Especially troubling is the “risk corridor” provision of the law, under which taxpayers are on the hook for covering large portions of the losses that insurers incur on the Obamacare exchanges. If an insurer pays out claims that exceed 108 percent of its premium collections, taxpayers would cover about 75 percent of its losses.

A mirror-image provision is also supposed to recoup 75 percent of any profits above 108 percent of premium collections. But because Obamacare’s design is so flawed and its rollout has been so bungled, enrollees in the exchange insurance plans are likely to be significantly older and sicker than the insurance company actuaries assumed (there was also a great deal of political pressure on insurers to lowball their premiums in this first year of the program). There will thus likely be few if any insurers rebating profits under this risk-corridor provision, only a large cost to the taxpayer. The insurers are counting on this massive bailout to avoid a bloodbath of losses from Obamacare.

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