Like Senator Rubio, I’ve been arguing that Congress should stop taxpayer money from being spent to cover health insurance companies’ losses on the Obamacare exchanges. Jonathan Cohn makes an ingenious argument against my position, and without the squealing and sputtering of some other liberals confronted by the possibility of political resistance to this transfer of cash.
Before making that ingenious argument, though, he makes two others. First he says that the insurers might just end up with balanced risk pools and thus not need taxpayer money. And it’s true, the exchanges could self-finance, although I wouldn’t bet on it–and in any case the possibility is not a good reason for Congress to refrain from ending taxpayer exposure. Second he says that if they do need tax funds it won’t be “a ton of money,” just a few billion dollars at most. Right again, and eliminating this subsidy would not be what I’d do if I could make just one spending cut in the whole federal budget. But that doesn’t mean it’s not objectionable.
Cohn’s final argument is that what taxpayers shell out to cover the insurers’ losses will be made up by what they’re not paying to defray the cost of health premiums. If I understand him right, what he’s saying is this: The insurers thought they were going to get a healthier population of customers than they may end up getting, and as a result set their premiums too low. That means they may make losses, triggering the subsidies; but it also means that taxpayers won’t be paying as much to help customers afford the premiums. So it nets out.
It’s true that in both cases–subsidies to help people afford premiums and subsidies to cover insurers’ losses–taxpayers pay and insurers benefit. But in the first case they benefit incidentally, and in the second their benefit is the proximate purpose of the transfer. Does this matter? Well, liberals have generally considered food stamps different from agribusiness subsidies, even though the latter could be described as a way to make sure that there’s food for everyone (and sometimes cheaper food than there otherwise would be). Almost nobody thinks of tax breaks for various types of saving and investment as equivalent to a bailout for the financial sector. The financial industry may well argue that such bailouts are actually for the indirect benefit of the public as a whole, not them, and there may in some instances even be truth to the idea; but there are good reasons we look at such transfers with disfavor and try generally to avoid them. One reason we disfavor them is that the expectation that the government will cover the financial industry’s losses might induce the industry to take more of the risks that generate those losses. The risk corridors have the same effect: They made it more likely that insurers would underprice their products. In the case of the financial industry, the expectation was based on an implicit promise; the risk corridors, of course, are explicit law (albeit law that’s being reinterpreted).
Now if you think of the health-insurance industry under Obamacare as essentially part of the public sector with a bit more freedom to lobby than most government agencies, then how exactly the money flows to it from the Treasury becomes a lot less important. And I can see a strong case for seeing them that way these days. But I oppose that state of affairs, and almost nobody explicitly defends it in those terms. All in all, I still think Republicans should do what they can to limit taxpayer exposure, which includes making Democrats defend that exposure. Democrats may of course then use Cohn’s arguments–it’s only a few hundred million dollars, and Obamacare is constructed so you pay it no matter what you do–at which point we’ll get a chance to find out how the question strikes voters.