Since Obamacare “hit” its “enrollment” “target,” Democrats, liberals, and their friends in the press have enjoyed some old-fashioned taunting of Republicans. This would be justifiable if (a) Republicans had destroyed the website that needed fixing or (b) predicted that nobody would sign up for the program in the first place.
Neither condition holds, of course. The website was totally the design of CMS, HHS, and the White House, which are all run by Democrats. Meanwhile, as Michael Cannon argued, it is no big feat to get people to sign up for a heavily subsidized product.
All of this Democratic triumphalism makes it a good time to restate in summary form the conservative case against Obamacare.
For starters, its recent success is grossly overstated.
Eight million “enrollments” is an enormous exaggeration, so much so that you cannot in good faith say that Obamacare “beat” its expectations. In fact, last week the Congressional Budget Office stuck with its most recent prediction of 6 million enrollments:
CBO and JCT estimate that, over the course of calendar year 2014, an average of 6 million people will be covered by insurance obtained through the exchanges. The total number who will have such coverage at some points during the year is expected to be more than the average because some people will be covered for only part of the year.
The 6 million number is not, and apparently never was, the number of paid subscribers arrived at when the enrollment period ended. And why should it be? That has become a politically important number, but from a federal budgetary perspective, a coverage perspective, or an insurer financial perspective, it has no value. What really matters is the annual average.
So, is CBO’s 6 million still justifiable as an estimate? If we take the administration at face value on its monthly enrollment numbers, assume that 90 percent of initial enrollees pay their first month premium, and then a 1 percent non-payment rate thereafter, the annual average for 2014 would be about 5.5 million, and the final enrollment as of December would be about 6.6 million.
It is worth noting on this front that a study from the U.C. Berkeley Labor Center projects that 40 percent of enrollees in Covered California will leave the individual market by the end of the year, either migrating to employment based insurance or Medicaid.
Whether this estimate turns out to be true, or whether California is indicative of the rest of the nation, is beside the point, which is this: The paid enrollment prediction made by CBO and adopted last year by the White House is substantially different than the numbers promulgated by the White House. In reality, the White House has invented a statistic that has no policy relevance whatsoever, and successfully sold it to a credulous press corps frustrated by the website’s collapse and eager for good news. Additionally, as insurance industry expert Robert Laszewski has noted, it would not be all that hard for the White House to compile and release the data relevant to the actual performance of the program. That the White House has not done this, nor has any plans to do so, should tell you everything you need to know.
The most fair assessment of Obamacare, given the data constraints imposed by the president for political purposes, is that the program will probably get in the neighborhood of 6 million paid enrollments on average this year, which is what CBO predicted earlier this year, but is just 67 percent of what the budget scorekeepers predicted would happen after the Supreme Court ruling.
Conservative objection #1: Obamacare has no legitimate funding mechanism.
Sure, the Congressional Budget Office says it is “paid for,” but one must be careful to read the fine print of every CBO report. It is the very model of a good faith agency in the government, but CBO must still render its judgment based on scoring conventions that can be gamed by legislators.
Chuck Blahous of the Mercatus Center recently released a thorough review of the program’s financing problems. Here is just a brief summary of what’s wrong:
a. It cut the Medicare Part A Hospital Insurance (HI) Fund in ways that CMS thinks will be politically unsustainable. These cuts are back-ended into the later years of the CBO scoring range, a typical trick for legislators who want to use unfeasible means to pretend to keep deficits in line.
b. It double counts money taken from the HI Fund. Because of peculiar CBO scoring conventions, money taken from Medicare Part A is not scored as borrowed money, even though it in fact is intragovernmental debt.
c. It cuts Medicare Advantage in ways that even congressional Democrats, including those who voted for the law in the first place, pressured the White House to restore.
d. It makes use of a “Cadillac Tax” on “high end” insurance plans, but it does not take sufficient account of the growth in health insurance costs, meaning that there will be enormous political pressure to overturn this draconian instrument. These cuts are also back-ended into the later years of the CBO scoring range.
e. It relies on politically unsustainable mandates. The business mandate has already been delayed altogether, and the individual mandate has been significantly watered down.
f. There are other politically unsustainable or otherwise dishonest funding mechanisms in the bill. The medical device tax will almost surely be repealed. The Community Living Assistance Services and Supports (CLASS) program is subject to adverse selection, which is why HHS decided not to implement it. However, CLASS was written so that it would accept premiums for several years without paying benefits, which meant that CBO had to score it as helping pay for the program.
In short, the Democrats used every trick in the book to avoid actually paying for this. There was no public appetite for a program akin to Medicare, which assesses a broadly based tax to pay discrete benefits. So, they increased taxes on the wealthy, added a few other small taxes, and then got the rest of the way there by smoke and mirrors.
Conservative objection #2: Obamacare has created a socially perverse array of winners and losers.
There is no doubt that some will be made better off because of Obamacare. It closes the Medicare Part D “donut hole.” Many people will get a good deal thanks to the subsidies, despite increased costs and narrow networks. It provides coverage to people with pre-existing conditions. It allows young adults under 26 more time on their parents’ insurance plans. This is why no serious conservative opponent ever declared that nobody would join Obamacare. It is why serious conservatives have put together policy alternatives that help these people.
However, the law makes losers out of a vast array of people, whose economic status usually makes them “off the table” when it comes time to fund new social welfare programs.
a. Seniors on fixed incomes will see their Medicare Advantage costs go up.
b. Seniors’ access to hospitals will be diminished because of cuts to the Hospital Insurance Fund.
c. Many in the small group marketplace will see their costs go up and coverage options decrease, but will not be eligible for subsidies.
d. Many kicked off their existing plans, especially those with sensitive medical conditions, had to experience grave uncertainty as to whether their new coverage would be sufficient. When the special exemption for old plans ends in a few years, many more will experience the same uncertainty.
e. Many in the individual marketplace will see their costs go up and coverage options decrease, despite the subsidies (assuming they are eligible for them).
f. Many will not find sufficient value in any of the plans, and choose instead to pay the mandate penalty and remain uninsured.
g. Rural communities where competition is sparse and enrollment weak will see premiums increase more relative to urban areas where those conditions don’t hold.
h. The premium support formula results in young people at a given income level subsidizing older people at the same level, despite the fact that the latter are finishing up their peak earning years and should be more able to pay.
For a comprehensive accounting of the program’s winners and losers, see this interesting analysis by Chris Conover of Duke University.
Importantly, none of these people had to be harmed. In fact, this is of a piece with the previous critique: it all has to do with hiding the true costs of the program. To do that, congressional Democrats and the president not only used a series of phony cuts and tax increases, they also spread the burdens of the bill far and wide, so that these people are paying an implicit tax to expand coverage.
Look again at these aforementioned “losers,” and you will see that they are not, by and large, the richest 1 percent, 5 percent, 10 percent, or even 20 percent. For instance, premium subsidies disappear for an individual making $45,000 per year, or a family of four making $90,000; and prior to these thresholds, the subsidies become quite measly relative to the cost of insurance. These are middle class people whose condition in this economy is often tenuous. Medicare serves the entire elderly population, which means these cuts are going to cut across income lines. The people who find insufficient value in exchange plans, and choose instead to pay the fine, will almost assuredly be middle income people, often young. A 25-year old making $50,000 is probably not in as good a shape economically as the 60-year old in the same condition whom he subsidizes, as the former still has student loan debt and is soon to take on mortgage debt.
These people should not have been harmed for any reason, let alone reasons of political convenience.
Conservative objection #3: Obamacare restricts choices and increases costs.
Liberals have been trumpeting CBO reports that talk about insurance premiums coming down. This is misleading for two reasons. First, they are coming down relative to CBO projections made at the time the bill was passed. In real terms, premiums have been going up. Check out this analysis from the Manhattan Institute. Also, consider these estimates from the American Enterprise Institute on how young people in particular will pay more. Also, see this study from Morgan Stanley showing a dramatic spike in premiums over the last six months. And premiums, of course, are only one way to increase the burdens on consumers. Co-pays and deductibles have also gone up.
Meanwhile, lost in the media’s celebration of CBO’s announcement of low premiums was the fact that premiums came in lower than expected in part because insurers cut provider networks, a reality that new enrollees are already experiencing. In California, they’ve taken to calling it “medical homelessness.”
All of this is a consequence of two policy decisions made by the Democrats. First, they chose to allow relatively sick people to pay the same price for health insurance as relatively healthy people. Those extra costs must be borne somewhere, and they are coming in the forms of higher premiums, copays, and deductibles, and narrow networks. Second, they mandated that insurers cover a vast array of health services, regardless of whether people want them. Again, that costs money, and for many people these benefits provide little or no value.
Conservative objection #4: Obamacare hurts businesses.
The only way the country becomes more prosperous is through the creation of jobs in the private sector. The government cannot create wealth. It can only redistribute it, and Obamacare burdens businesses through its vast redistributive program. There are the administrative burdens, the employer mandate, and the requirements that insurance must take a certain form.
And make no mistake: those costs will often be transmitted to the employees. Health care for part time employees is being cut by big employers. Hours are similarly being cut. Conservatives believe that, when the mandate goes into effect, it will cut the number of jobs as well as wages. All told, a recent study by the American Health Policy Institute estimated that gross compliance costs for the largest employers would be between $4,500 and $5,000 per worker.
Conservative objection #5: Obamacare is probably unsustainable … in the long run.
Conservatives who understand how the law works were not predicting a death spiral as of last fall, when the exchanges were supposed to work. For a time, it looked like it might happen because of technical problems, but that was not the original prediction.
Instead, the expectation is that the weak mandate to purchase insurance, plus the fact that Obamacare is a bad deal for many people, would make it disproportionately attractive to older and sicker individuals, the types for whom the program is a good deal but who cannot make an insurance market prosper.
Why will this only happen in the long run? The answer has to do in part with three Obamacare programs designed to serve as a backstop for insurers: risk corridors, reinsurance, and risk adjustment. Reinsurance pays marketplace insurers for their losses per patient from a tax on everybody else’s insurance. Risk corridors are supposed to transfer funds between insurers based on profit and loss margins, but leaves open the potential for government funds going directly to insurers. These two programs end after 2016, which means by that point Obamacare will have to stand on its own, without the feds guaranteeing insurer profits.
Conservatives think the weak mandate, combined with the higher costs and relatively small value for many people, means that after these backstops go away the program will struggle. Whether that results in a “death spiral,” or simply increasing costs for the federal government through ever-larger premium tax credits, is another matter. Historically speaking, the better bet is unsustainability because of evermore costs to the taxpayer. That is the core problem with Medicare: the program was designed in a way that grew costs far beyond the capacity of the funding mechanism to keep up. For this reason Medicare is set to hit a crisis point in the next decade. Conservatives think that Obamacare will suffer a similar fate, perhaps sooner.
In conclusion, any one of these objections would merit virtually uniform opposition from conservatives to Obamacare. But take them all together, and most American conservatives have arrived at the same conclusion: this law is fatally flawed, must be repealed entirely, and replaced with something that is sustainable and not overly burdensome to taxpayers, middle class families, or businesses. After all, fixing each of these problems would result in a new law that bears only the faintest resemblance to Obamacare as it is today.
Moreover, a lot of conservatives believe that liberals have the exact same opinion. While publicly applauding the expansion of coverage, some of them must understand the grave problems inherent to this law. This helps explain the sense on the right that, for liberals, this is simply a stalking horse for single payer: first, sign up new people under a federal entitlement that cannot practically be taken away, then deal with the various harms to middle class voters, burdens on businesses, and extreme cost overruns . . . by proposing “Medicare for all.”
The irony here is rich indeed: the very same liberals who prefer such a “repealing and replacing” of Obamacare are actually criticizing Republicans for wanting to repeal and replace with a conservative alternative.
© 2014 Weekly Standard LLC. Reprinted with permission.