Politics & Policy

Obamacare Reboot

The result of rushing into full implementation would be, simply, chaos.

More than half the country agrees with my view that Obamacare should be repealed. But perhaps even the rest of the public could be persuaded that delaying full implementation for at least a year — say, till January 2015 — is a good idea. Why? There are five simple reasons.

First, it would save a boatload of money, thereby greatly improving the odds of reaching a mutually acceptable budget deal. Second, the federal government isn’t ready. Third, the states aren’t ready. Fourth, employers aren’t ready. Finally, the people aren’t ready.

1) Let’s start with the federal budget. The latest CBO figures show that the net cost of coverage expansions under Obamacare in 2014 will be $41 billion. But because projected costs mushroom after that (quadrupling between 2014 and 2023), delaying implementation for one year would reduce the net costs of expansion by 12 percent over the ten-year budget window from 2014 to 2023. Now, $41 billion may seem like small potatoes in the context of the $1.2 trillion in spending cuts that were included in the sequester. But remember that the $1.2 trillion represents savings through 2021. In 2013, the sequester requires $42 billion in spending cuts, according to the CBO. Thus, saving $41 billion next year by delaying the rollout of Obamacare until 2015 would be a very big deal. Two federal-budget experts have calculated that delaying Obamacare by two years would reduce the deficit by $200 billion. This is nothing to sneeze at.

2) Kathleen Sebelius has assured the public that her agency will be ready to run health exchanges by October 1. But the reality is that only 17 states (plus the District of Columbia) have agreed to run their own exchanges. Seven states have agreed to a partnership exchange (i.e., jointly run with the federal government), and the remaining 26 states will be entirely reliant on the federal government to set up and run their exchanges. Fully 64 percent of the U.S. population lives in states where the federal government will be partially or fully responsible for running an exchange! This is a massive undertaking. Avik Roy has demonstrated, using quotes from the federal bureaucrats responsible for getting ready, that “officials in the Obama administration are worried that the rollout of the exchanges will be chaotic, given the law’s complexity and unrealistic deadlines.”

Leaving aside whether it is humanly possible to get ready on time, there are also two important unresolved wrinkles in this rollout. First, Health and Human Services never contemplated being responsible for exchanges in so many states. The funds it has available for this task fall far short of what is needed. In FY 2013, more than $1 billion in discretionary funds (i.e., funds subject to the control of Congress) are needed for implementation of the Affordable Care Act. Since Republicans have every incentive to withhold such funding in order to gain leverage for a budget deal more to their liking, it remains to be seen whether those funds will become available. One would like to think that by this time next year, these budget shenanigans will be behind us.

Furthermore, because of an apparent mistake in bill drafting, Obamacare does not permit federal subsidies to be provided in exchanges run by the federal government, a matter that is now being litigated. These income-related subsidies are a critical ingredient of making coverage affordable, especially given that Obamacare’s mandatory insurance reforms (e.g., requiring young people to pay higher premiums so that older people pay lower premiums) and health-benefits requirements (e.g., mandatory coverage of contraceptives) will drive up premiums in the small-group and individual health-insurance markets covered by the exchanges. Legal analyst Stuart Taylor has labeled this “by far the broadest and potentially most damaging of the legal challenges” to full implementation of Obamacare. Given the stakes, any decision handed down at the federal-district-court level is going to be appealed to the U.S. Supreme Court. But at this late date, that cannot happen until the Court’s next term. It would be best for all concerned to have this matter resolved before exchanges become operational.

3) Those who think that implementation of 51 exchanges across the country will be simple might want to consider the chaos created when Tennessee enacted a massive plan to overhaul its Medicaid program in April of 1993. It tried to set up a version of an exchange and shovel millions of state residents into it, all within a narrow nine-month window. In the words of two health-policy experts: “The first year of TennCare was chaotic for beneficiaries, providers, plans, and the state.” Indeed, it wasn’t until the fourth year the plan was operational that things settled down enough for managed-care organizations to be able to truly focus on managing care and costs. While the whole TennCare experience was driven by budgetary pressures that did not permit delay, everyone would have been better served had TennCare implementation been delayed a year to give everyone time to get ready. This is not a perfect analogy, since TennCare was designed to get most people into managed care (in a state that had relatively little managed-care enrollment when the plan was first enacted). But it most definitely is a cautionary tale about trying to move too quickly on large-scale changes to the health-care system.

Setting up exchanges in the short amount of time remaining will be a challenge for many states. But another consideration relates to the massive increase in Medicaid spending that states will have to absorb regardless of whether they agree to Medicaid expansion or not. Leaving aside federal dollars, state Medicaid expenditures for benefits and administration already grew 19.0 percent in 2011 and another 17.2 percent in 2012. In 2010 and 2011 alone, state-government dollars devoted to Medicaid as a share of total state-government dollars spent rose from 15.8 percent to 17.4 percent, thus squeezing out each state’s ability to pay for other things, such as education and crime control. States would welcome a respite from the unrelenting upward pressure imposed by Medicaid spending.

4) How do we know that employers aren’t ready? The U.S. Chamber of Commerce has formally urged the IRS to give businesses a one-year grace period before enforcing penalties attached to the law’s employer mandate — the provision requiring companies that have 50 or more full-time-equivalent employees to offer them health-care coverage. Employers face a very complicated choice: Is it better to pay the penalty of $2,000 per employee or pay thousands of dollars more than that to provide health benefits? The lowest-wage employees might actually be better off on the exchange (where they would obtain heavily subsidized coverage), whereas higher-wage employees would find themselves worse off if their employers dropped coverage. The employees whose employers shed coverage will be dumped onto the exchange, where  they will face a process that even Obamacare advocates have conceded “is enormously time consuming and complex.” If a 21-page application form requiring 45 minutes to fill out is the best federal bureaucrats can do, perhaps either they need more time to rethink the process or citizens need more time to get educated about it.

5) What about the people? Anger is mounting as news spreads of a growing number of companies cutting their employees to below 30 hours a week to avoid the Obamacare mandate, and the “rate shock” facing those who are expected to buy coverage on the exchanges. Having an extra year would give Congress an excellent opportunity to rethink the wisdom (and fairness) of charging lower-income, lower-wealth young adults (ages 21–29) higher premiums to provide a subsidy to generally higher-income, higher-wealth older workers.  Because Obamacare prohibits insurers from charging their oldest customers more than three times the premium charged to their youngest customers, 80 percent of young adults in the individual-health-insurance market will face higher premiums even after accounting for the subsidies that would be available to them on the exchanges.

Four-fifths of the nation disapproves of the job Congress is doing. I cannot promise that the approval rating would skyrocket, but I am certain tens of millions of Americans would be extraordinarily grateful if Congress gave them at least a temporary reprieve from this unpopular and misguided law.

— Christopher J. Conover is a research scholar at Duke University’s Center for Health Policy and Inequalities Research, an adjunct scholar at AEI, an affiliated senior scholar at the Mercatus Center at George Mason University, and the author of American Health Economy Illustrated. He also is a Forbes contributor at The Health Policy Skeptic.


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