Next Step in De-Funding Obamacare

On May 3, the House of Representatives voted to repeal Obamacare’s new health-insurance exchanges and rescind funding for setting up those exchanges. Like the earlier House-passed measure to repeal all of Obamacare, this legislation is unlikely to pass the Democratic Senate. And even if it did, it would face a presidential veto.

While such symbolic measures have their place, it is important that congressional opponents of Obamacare also pursue strategies with better prospects for stopping other funding in the near term.

A case in point is the continuing resolution to fund the federal government for the remainder of the current fiscal year. It was passed and signed into law in early April, and it rescinded $2.2 billion of the $6 billion appropriated in Obamacare for the Department of Health and Human Services (HHS) to distribute as start-up grants and loans to create so-called co-op health plans. As House appropriators begin drafting appropriations bills for the next fiscal year, rescinding the remaining $3.8 billion of co-op funding would be a good next step.

House appropriators could include a number of separate provisions to de-fund discrete elements of Obamacare in future appropriations bills. The advantage of this strategy is that it gives the House multiple “bargaining chips” to deploy when negotiating in conference with the Senate over the final versions of those appropriations bills.

There some good reasons to put full de-funding of the co-op provisions at the top of House appropriators’ agenda. The co-op provisions in Section 1322 of Obamacare are a case of Congress trying to reinvent something that already exists in a way that is likely to prove unworkable.

Apparently, those who drafted Obamacare were unaware that policyholder-owned, cooperative insurance companies have existed in the U.S. for well over a century. Such entities are called “mutual” insurers, and some of them (such as Northwestern Mutual Life or State Farm) are today major insurance companies. In fact, mutual insurers were among the earliest types of insurance companies organized when the modern insurance industry first developed in the mid–19th century.

Thus, there is no need for Congress to specify, as it does in Section 1322, how a “cooperative” insurance company is to be organized or operated, or to spend billions in tax dollars promoting the concept. Indeed, if Congress wants to encourage true “cooperative” health insurers — which is a reasonable idea — a simple and almost no-cost change in tax law granting mutual health insurers tax-exempt status (the same as currently enjoyed by credit unions, which are essentially “cooperative” banks) would suffice. But that is not the case under Obamacare.

Furthermore, several provisions in Section 1322 actually make it less likely that these co-ops will work. To start with, the legislation expressly prohibits the most likely and sensible path to setting up a co-op insurer, namely, a divestiture or conversion by an existing health insurer. Thus, neither an existing nonprofit health insurer (such as Kaiser Permanente) nor an existing stockholder-owned insurer (such as Aetna) could become a co-op under the provisions of Section 1322. Nor would either of them be allowed to spin off a portion of their existing business as a co-op. The only way to create one of the proposed co-op insurers is to start one from scratch — an inherently lengthy, uncertain, and expensive task.

The $6 billion in federal funding for start-up grants and loans for co-ops was included as Congress’s solution to overcome this flaw. However, even that approach is unlikely to work, since Section 1322 also specifies that “no portion of the funds made available by any loan or grant under this section may be used . . . for marketing.” Because Section 1322 requires new co-ops to be organized as nonprofit entities, they will clearly be unable to sell equity stakes through public or private share offerings to raise the start-up capital needed to fund initial sales and marketing. It is also hard to envision why anyone would loan money for that purpose to a new business that has no sales or customers. Thus, as a practical matter, it is uncertain whether any co-op insurers will actually be created.

Finally, all of the remaining $3.8 billion in co-op funding can be rescinded, as HHS has not yet obligated any of the funds. Indeed, HHS hasn’t even produced the necessary co-op regulations, which it must first do before it can even begin the process of soliciting applications for co-op funding. And there is no political constituency behind Obamacare’s co-op provisions, so de-funding them will not generate interest-group opposition.

In sum, Obamacare’s co-op funds are over-ripe, low-hanging fruit for congressional budget-cutters. It is true that, in the context of the federal government’s broader fiscal imbalance, $3.8 billion may not seem like much. But in the (possibly apocryphal) quip attributed to the late senator Everett Dirksen, “A billion here, a billion there, and pretty soon you’re talking about real money.”

— Edmund F. Haislmaier is a senior research fellow in health-policy studies at the Heritage Foundation.

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