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The Downward Spiral
(Burazin/Getty Images)

The Downward Spiral

Jeffrey H. Anderson

Obamacare has an incurable preexisting condition: It eats away at the private insurance market on which it relies. That market cannot survive Obamacare’s hubristic mandates, and Obamacare cannot survive the collapse of that market. On their present course, both are doomed.

The challenge for conservatives is to figure out how, upon Obamacare’s repeal, to rescue private insurance. If conservatives don’t save that market, liberals will—only it will no longer be a market for private insurance, and there will no longer be millions of purchasers, but just one. The question is, will conservatives kill Obamacare and save the private market, or will liberals kill the private market and institute “single-payer” health care?

How to save the private market is no mystery: Repeal Obamacare, encourage the use of health savings accounts, and offer a non-income-tested tax credit to those who buy health insurance on their own—to more or less equalize the tax treatment of employer-based and individually purchased insurance. This is an issue of the highest importance, but Republican presidential candidates have been slow to focus on it.

Aside from advancing serious alternatives, Republicans’ ongoing task is to keep Obamacare from becoming entrenched, while letting it collapse under its own weight. Refusing to set up Obamacare exchanges in many states was a step in the right direction, as was rejecting Obamacare’s Medicaid expansion in many states and—late last year—stopping Obamacare’s insurer bailout.

That last victory was certainly important. Obamacare was originally going to reward insurance companies that lowballed their prices, by having taxpayers help cover their losses. Senator Marco Rubio raised this issue, and others pushed it for many months, among them Heritage Action, the House Energy and Commerce Committee, the House Oversight and Government Reform Committee, Senator Mike Lee, and Representatives Leonard Lance and (now-senator) Bill Cassidy. Eventually, language was included in last December’s CRomnibus legislation requiring the so-called risk-corridor program to be budget-neutral and barring the Obama administration from covering potential shortfalls by tapping other funds. In other words, the legislation prevented the program from functioning as an insurer bailout. The Hill quotes Tim Jost, a prominent health care law professor and Obamacare supporter, as saying of Republicans, “I think this is one of the most effective things they’ve done so far in terms of trying to undermine the Affordable Care Act.”

The CRomnibus legislation, however, runs out on December 11, and with it the language stopping Obamacare’s insurer bailout. Former senior Obama administration official Marilyn Tavenner, who now heads the nation’s largest lobbying group for health insurance companies, calls it “essential” that the risk corridors “work as designed“—that is, at taxpayer expense. The Obama administration shares her goal.

It shouldn’t be difficult, though, for Republicans to stand their ground and insist that any new legislation continue the taxpayer protections—as the public overwhelmingly supports this. The 2017 Project (which I ran) released a McLaughlin & Associates poll last year asking, “If private insurance companies lose money selling health insurance under Obamacare, should taxpayers help cover their losses?” By a tally of 81 to 10 percent, respondents said no. (The poll included 38 percent Democrats and 31 percent Republicans.)

Forestalling the bailout forced insurers to price their Obamacare policies more honestly, thus helping to limit Obamacare enrollment and keep the president’s signature legislation from gaining the foothold he would like. But the reason Obamacare is destroying the private insurance market is its 2,400 pages of harmful mandates. To provide just a partial list, Obamacare forces insurers to take sick or injured people who aren’t really buying insurance so much as heavily subsidized health care, the cost of which gets passed on to everyone else; it lets people flit in and out of the market pretty much at whim; it bans insurers from pricing policies for young people at the low rates the market would naturally yield; it makes it nearly impossible to buy more affordable catastrophic insurance, as everyone’s policy must include such things as pediatric dental care, whether or not one has kids; it discourages new insurers from entering the market and essentially bans the building or expansion of doctor-owned hospitals; and, finally, it encourages the consolidation of both insurance companies and hospitals.

Premiums, unsurprisingly, have risen dramatically, deductibles have risen alongside them, doctor networks have shrunk to appalling levels, and the American people, particularly younger and healthier ones, are rejecting the product—even though they are mandated to buy it.

Professor Seth Chandler, who teaches insurance law at the University of Houston, writes that data released by the Department of Health and Human Services about a month ago show “the beginnings of an adverse selection death spiral that threatens the stability of the system of insurance created by the Affordable Care Act.” Chandler adds, “Private health insurance is fragile. It generally does not well withstand the sort of underwriting regulation imposed by” Obamacare.

Charles Gaba, an Obamacare supporter, has studied premiums in the exchanges and found that the weighted average increase in premiums from 2015 to 2016—reflecting what the typical person is likely facing—is a whopping 12 to 13 percent nationally. Most Americans, needless to say, aren’t getting 12 to 13 percent raises to keep pace with their premium increases. Chandler finds that price spikes are even greater for plans with wider doctor networks—when such plans are even offered. He observes the disappearance this fall of plans with wider doctor networks that were available last year on the Obamacare exchange in Houston—arguably the health care capital of America. “Basically,” he writes, “it is no longer true in [Houston] that you have a choice of doctor if you purchase an Obamacare plan. You get what the HMO or EPO gives you.”

No wonder Americans are disobeying the command to buy Obamacare-compliant insurance. The administration now says it “expects 10 million” people to be enrolled in the exchanges by the end of 2016. That’s less than half the CBO’s projection of 21 million for 2016 that it made when Obamacare was passed and reiterated just this spring.

The nation’s largest health insurance provider, UnitedHealthcare, recently announced it is considering withdrawing from the Obamacare exchanges in 2017, citing heavy losses, and it followed that up by saying it made “a bad decision” to enter the exchanges to the degree that it already has. Nor are United’s woes a product of reckless lowball pricing. Chandler writes,

United prices tend to be fairly close to the median [for plans on the exchanges] and, if anything, tend to be a bit higher .  .  . suggesting that either United had problems on the cost side or simply that it is now facing up to a fact that some other large insurers may wish to deny: Obamacare is in trouble.

Indeed, it is. But it won’t die on its own. It will limp along, wounded and ailing, and dragging the insurers down with it. The key question remains: Will Republicans repeal and replace Obamacare with a conservative alternative in 2017? Or will they apply some pointless “fix,” allowing the next Democratic administration to move us from a government disaster to a government monopoly?

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