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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.

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