The Agenda

Were the Obamacare Exchanges ‘Doomed from the Start’?

Kimberly J. Morgan sees the disastrous rollout of the Obamacare exchanges as symptomatic of a deeper problem:

The real source of Obamacare’s current problems lies in the law’s complexity. A straightforward way to assure coverage would have been to extend an existing, well-worn program to more people. This is how most other countries guarantee health insurance. In the British National Health Service, there is little that beneficiaries need to do in order to receive health insurance, as all residents are automatically entitled. Other countries rely on private intermediaries that provide insurance — nonprofit insurance funds in Germany or Switzerland, for example, or a mix of proprietary and nonprofit insurers in the Netherlands. Even in those instances, benefits packages and entitlements are highly standardized, making these health-care systems relatively uncomplicated from the standpoint of beneficiaries.

In the United States, political antipathy to government programs precludes this kind of straightforward administrative solution. Faced with such hostility, policymakers regularly rig up complex public-private, and often federal-state, arrangements that are opaque to the public, difficult to administer, and inefficient in their operation — what Andrea Louise Campbell, a professor of political science at the Massachusetts Institute of Technology, and I describe as a Rube Goldberg welfare state — because of the complicated way in which it achieves even basic tasks — and what the political scientist Steven Teles aptly labels a “kludgeocracy.”

In Morgan’s narrative, the exchanges suffered from the fact that the agencies charged with implementing them have been starved of resources, and the challenges involved in meshing various information systems were always going to be difficult. Tellingly, she neglects what appears to have been an essentially political decision that has had deleterious consequences for the rollout, per Avik Roy:

The federal government’s decision to force people to apply before shopping, [Christopher] Weaver and [Louise] Radnofsky write, “proved crucial because, before users can begin shopping for coverage, they must cross a busy digital junction in which data are swapped among separate computer systems built or run by contractors including CGI Group Inc., the developer, Quality Software Services Inc., a UnitedHealth Group Inc. unit; and credit-checker Experian PLC. If any part of the web of systems fails to work properly, it could lead to a traffic jam blocking most users from the marketplace.”

Jay Angoff, a former federal official at the agency that oversees the exchange, told the Journal that he was surprised by the decision. “People should be able to get quotes” without entering all of that information upfront.

The rollout might have gone more smoothly had been people been allowed to browse health insurance options before disclosing their incomes, etc., yet the Obama administration was deeply fearful of the political consequences of “rate shock.” This fear of rate shock is not intrinsic to the idea of an exchange. Nor is the requirement that income verification be an instant process. Peter Suderman has observed that in Massachusetts, the income verification process for premium subsidies has involved filling out a 15-page Medical Benefit Request form, which is then filed along with supporting documents and processed over several days or weeks. This is a slow process, but it works tolerably well. Morgan might counter that it was anti-government sentiment that motivated the desire for instant income verification. A simpler explanation is that the architects of the exchanges overestimated what was possible in their zeal to make enrollment as easy and attractive as possible. 

Morgan concludes by arguing that the central problem with the exchanges is that “administering a complex public-private health-care system often requires more government, not less,” which is absolutely right. This is why centrist critics of the health law, like Eugene Steuerle, have called for a more coherent system of premium subsidies:

Clearly, to create an administrable system, we need some certainty about the size of the subsidy; to be fair, we need to make the subsidy about the same for all those with equal incomes. This suggests that we must give households throughout the middle-income range (and perhaps those in some Medicaid and higher-income ranges too) about the same level of premium support, while eliminating discrimination against workers with employer-provided insurance. Rather than clawing back the subsidy indirectly with a new, hard-to-administer tax, we must use the current tax system to provide fewer subsidies, on net, to those with higher incomes.

And it is why conservative health reform advocates, like James Capretta, have called for relatively straightforward refundable tax credits as the foundation for coverage expansion.

All of this is to say that while Morgan’s criticisms are fair, there is nothing intrinsically wrong with the idea of insurance exchanges or clearinghouses. One danger of the Obamacare rollout, as Avik Roy, Ross Douthat, and Yuval Levin, among others, have warned is that it might discredit the idea of regulated insurance marketplaces, despite the fact that this model has proven successful elsewhere. 

I highly recommend reading Yuval’s assessment of the exchanges in their first few days. Yuval is appropriately tentative about his findings, but he paints a discouraging portrait.

Reform conservatives have been debating whether we ought to press for reforming Obamacare or repealing and replacing it, with a stronger emphasis on the replacement part than has been common in GOP circles. Though it is important to recognize that repeal-and-replace is the more politically challenging of the two options, the idea has gained credence in recent weeks. The challenge now is to identify actually existing lawmakers willing to advance an intellectually serious and administrable replacement proposal. There are a number of Republicans in Congress working on this question, including several who had championed the Patients’ Choice Act during the 2009-2010 debate over coverage expansion. The challenge is that a well-designed coverage expansion effort will entail spending at least some money — considerably less than Obamacare, but not a trivial amount. This would necessitate cuts in spending elsewhere in the budget, higher taxes, or higher budget deficits, all of which will be difficult for Tea Party conservatives to embrace. More on this to come.


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