Liberals had hoped, and some conservatives had feared, that the legislative Frankenstein’s monster known as Obamacare would become more popular as its sundry measures were implemented. But the Patient Protection and Affordable Care Act is no more popular now than when it was passed, as Americans have come to realize that it will neither protect patients nor provide for affordable care. While full repeal of the law is not within the realm of short-term political reality — the presence of Barack Obama in the White House and a Democratic majority in the Senate ensures that — repeal should nonetheless remain the end goal, either one piece at a time for now or root and branch.
The price tag for Obamacare has gone from shocking to preposterous. In March 2010, the Congressional Budget Office estimated the ten-year cost of the law at $898 billion; by February 2013, that number had climbed to $1.6 trillion, and it is likely that further revisions will be in the upward direction. That is a very high price to pay for a system that will, by the admission of its own supporters, leave some 30 million Americans uninsured. Long gone is the fiction pronounced by President Obama and repeated by his media enablers that the law will not add “one dime” to the deficit; the latest estimate is that Obamacare will add as much as $6.2 trillion to the long-term national debt, according to the Government Accountability Office. No thinking person takes President Obama seriously on fiscal questions, but those alleged experts and pundits who argued for Obamacare on fiscal grounds should be regarded as thoroughly discredited.
As mind-boggling as its price tag is, expense is not the main reason to repeal Obamacare. What is not sufficiently understood is that Obamacare does not reform or regulate health insurance: It effectively abolishes health insurance. Health insurance functions by creating pools of beneficiaries large enough that the incidence of particular health-care expenses — for everything from heart attacks to injuries in car accidents — can be predicted by actuaries with some statistical reliability, thus enabling costs to be distributed among beneficiaries over time. Obamacare demands that all insurance beneficiaries be offered identical rates regardless of health-related variables, and severely restricts the kinds of plans that may be offered. The most important variable is, of course, the question of whether somebody already is sick. Under Obamacare, an uninsured person who develops a serious illness can demand that he be insured at a rate no different from that of a person who had been purchasing insurance for decades before he became ill. The “individual mandate” was supposed to prevent that problem by requiring all Americans to purchase health insurance, but it is a mandate that manages to be both too invasive and too lax at the same time: The mandate will invite the micromanagement of individuals and businesses by the federal government, but Americans will in many cases find themselves financially better off paying the tax for not getting insurance (as Chief Justice Roberts has reformulated the mandate) until they become sick and need insurance. Because of that defect, the main rationale for Obamacare — bringing all Americans into a large insurance market that can then be regulated and subsidized to bring it into accord with the tastes of the central planners in Washington — will prove impossible to realize.
Obamacare proposes to control health-care costs by empowering a small panel of unaccountable political appointees — the Independent Payment Advisory Board (IPAB) — to keep a lid on medical costs by imposing price controls. We have two relevant bodies of experience from which to draw insight on how this is likely to play out: Medicaid payments are subject to similar price controls, and doctors have responded to low rates of reimbursement by refusing to see Medicaid patients. Medicare is supposed to be subject to similar price controls, but, because the elderly are more politically influential than the poor, Congress has declined to actually cut payments to Medicare doctors, year after year after year, knowing that doing so would make doctors just as unwilling to take Medicare patients as they are to take Medicaid patients. The result in the former case is price controls that work by hurting Medicaid’s intended beneficiaries, who often have worse health-care outcomes than those with no coverage at all; the result in the latter case is price controls that do not work, period.
During the debate over Obamacare, the president and his supporters promised that enacting the law would cause insurance premiums for the typical family to decline by some $2,500 a year. In fact, premiums have continued to go up, now at an accelerated pace. In 2008, the year Barack Obama was elected president, health-insurance premiums rose by 0.6 percent. In 2009, the year Obamacare was passed, they rose by 1.3 percent. In 2011, they rose by 9.6 percent, or 16 times as quickly as they did the year before the law was passed. Expenses are expected to rise the most severely for young and healthy people. Because of the perverse incentives the law creates, the CBO estimates that the number of people insured through the subsidized health-insurance exchanges will begin to decline quickly after 2018 as the young and healthy realize that paying the fine is more economical than paying ever-higher insurance premiums. That means that those remaining in the insurance pool will be on average older and sicker, which is why the CBO estimates that the cost of subsidizing them will grow by almost 6 percent a year. Put another way, the cost of subsidizing the exchanges is expected to double every twelve years.
In short, the system created by this ill-advised law would prevent the emergence of normally functioning markets in medical services and health insurance. Instead, it establishes a top-down system of price controls and subsidies that will discourage healthy people from buying insurance in the first place, reward those who exploit the system’s defects, and discourage doctors and other health-care providers from extending their care to those who most need it.
IPAB, the price-fixing board, remains one of the least popular aspects of Obamacare. It is also an anchor of the scheme. Republicans should begin by promoting legislation to eliminate it. Republicans should also work to eliminate some of the most unpopular taxes associated with Obamacare, such as the tax on medical devices, a move that already is supported by many Democrats (79 senators have voted against the tax this week). Capping Medicaid spending per beneficiary and giving states a free hand to decide how to allocate their Medicaid dollars would be prudent from both the fiscal and the medical points of view. Here Republicans have an advantage: Democratic opposition to such measures as these is by no means unanimous, but Republicans are very much united in their opposition to Obamacare.
Repeal is only one part of a two-step solution. Republicans made a critical error during the debate over Obamacare when they left the impression that they approved of the U.S. health-care system. In truth, that system was deeply defective before Obamacare was passed, marred by expensive and poorly designed entitlements on the one end and on the other by a tax preference for employer-based insurance that left millions of Americans either uninsured or entrapped by the threat of losing their insurance by losing their jobs. A better system would allow Americans to shop for insurance in a large, nationwide market, securing for themselves benefits that cannot be stripped away simply because they change jobs, become unemployed, or get sick. With a functioning market in place, offering assistance through tax benefits or direct subsidies becomes a much simpler set of challenges, as does enacting targeted, narrow regulation to curb the abusive practices toward which the health-insurance industry is occasionally inclined.
As Ramesh Ponnuru and Yuval Levin argue in our most recent issue, Obamacare is too flawed in in its basic conception to be improved through reform. It must be replaced, either all at once or step by step. Replacement remains a viable option because the law is still unpopular and still unlikely to work. Indeed, the next phase of its implementation promises to be a chaotic enterprise that will further undermine the standing and credibility of the law and its architects. Republicans can and should begin taking it apart and building something better on the ruins.