The Corner

The Central Front in the War against Obamacare: Cap the Spending

Senator Rubio has an important op-ed in the WSJ today, in which he exposes another slight-of-hand in the administration’s implementation of Obamacare: HHS intends to manipulate “risk corridor” provisions in order to bail out the insurance industry once Obama’s reversal of health-insurance cancelations starts to create big losses for insurers. From Senator Rubio’s op-ed:

While risk corridors can protect taxpayers when they are budget-neutral, ObamaCare’s risk corridors are designed in such an open-ended manner that the president’s action now exposes taxpayers to a bailout of the health-insurance industry if and when the law fails.

Subsequent regulatory rulings have made clear that the administration views this risk-corridor authority as a blank check, requiring no further consultation or approval by Congress. A final rule handed down in March by HHS and the Centers for Medicare and Medicaid Services states: “Regardless of the balance of payments and receipts, HHS will remit payments as required under section 1342 of the Affordable Care Act.”

On Nov. 14, the American Academy of Actuaries issued a press release saying that President Obama’s plan to reverse health-insurance cancellations “could lead to negative consequences for consumers, health insurers, and the federal government.” More specifically, the academy said, “Costs to the federal government could increase as higher-than-expected average medical claims are more likely to trigger risk corridor payments.”

It is a damning indictment of ObamaCare’s viability when the president’s only response to people losing their health insurance plans entails putting them on the hook for bailing out insurance companies.

Obamacare exposes the taxpayer to fearsome losses in two other ways. First, through the more-or-less open-ended subsidy for insurance purchased on the exchange, and second, through the massive expansion in Medicaid enrollments. The costs of Medicaid expansion are slowly becoming clearer, but the costs of the exchange subsidy are still a matter of guesswork: We don’t know the extent to which adverse selection (healthy people staying off the exchange) will drive per-unit costs up for health insurers, so we have no idea what the federal exposure is to that subsidy, which is the embryonic single-payer entitlement in the law.

Every one of these cost drivers is likely to add explosively to the federal deficit. If the Republicans accomplish nothing else this year, they should fight for a hard cap on total federal spending on Obamacare. The president said Obamacare would reduce health-care costs. The absurdity of the claim was obvious when it was made, but if we’re going to hold the president to just one promise on Obamacare, that’s it. If Obamacare proponents are correct about the cost projections, then they have no reason to oppose a hard cap. But if opponents are correct, a hard cap on overall federal spending will prove fatal for Obamacare, because it will remove the federal cushion from the death spiral that is already well in train.

As the experience of the failed state reforms of the 1990s suggests, Obamacare will be repealed once private insurers exit the market to avoid the systematic losses Obamacare is already imposing on them. The law’s proponents will then fight desperately to keep them in, by shifting those losses onto the public. Prevent that forced transfer, and Obamcare is finished. Therefore, preventing that forced transfer should be the GOP’s number one priority right now. Kudos to Senator Rubio for leading the way.

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