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Hisham Uadadeh enrolls in a health insurance plan under the Affordable Care Act with the help of A. Michael Khoury at Leading Insurance Agency on February 13, 2014 in Miami, Florida. (Joe Raedle/Getty Images)

There Is No Fix

Jeffrey H. Anderson

With Aetna’s announcement that it is pulling out of most government-run exchanges, Obamacare’s death spiral has begun to accelerate. Few but the sickest or most heavily subsidized people want anything to do with the (inaptly named) Patient Protection and Affordable Care Act’s high-priced, high-deductible, narrow-network plans. Insurers are responding to sicker risk pools and bigger losses by raising rates, which makes the plans even less attractive to the young and healthy—which makes the risk pools sicker, which makes the rates rise further. And the spiral continues, like water circling the drain.

No less of an Obamacare cheerleader than the New York Times‘s Paul Krugman admits this is “genuine bad news” that shows “some real problems are cropping up.” Supporter Charles Gaba calculates that the average requested premium hike in 2017 for Obamacare plans is 24 percent. McKinsey & Company, in an analysis done for the New York Times, found that about 1 in 50 Americans didn’t have a choice of insurers under Obamacare last year and thereby faced a private monopoly; next year, McKinsey says, it will be 1 in 6. Pinal County, Arizona, is poised to have no Obama-care plan at all.

In its announcement that it is exiting exchanges in all but four states—following similar decisions by United-Health Group and Humana—Aetna emphasized that insurance can’t be affordable without “a balanced risk pool,” and made clear that too many people are gaming the system and buying “insurance” only when they need immediate care: “Fifty-five percent of our individual on-exchange membership is new in 2016,” Aetna reports, and “in the second quarter [of 2016] we saw individuals in need of high-cost care represent an even larger share of our on-exchange population.” In other words, the risk pool isn’t just bad; it’s getting worse.

This was predictable. Last year, Seth Chandler, who teaches insurance law at the University of Houston, wrote that data released by the Department of Health and Human Services showed “the beginnings of an adverse selection death spiral that threatens the stability of the system of insurance created by the Affordable Care Act.” Chandler added, “Private health insurance is fragile. It generally does not well withstand the sort of underwriting regulation imposed by” Obamacare.

Indeed, it doesn’t. And that’s why Obamacare is unfixable: The coercive mandates on which it relies are incompatible with a vibrant—or even solvent—private insurance market.

President Obama and his congressional allies undermined the core idea of insurance—that one must buy it before the thing happens that one is protecting against. They mandated that insurers cover all comers, no matter how sick or injured, pretty much at any time, at the same price as those who had been buying insurance all along. And they banned insurance that didn’t cover things they thought it should cover, like pediatric dental care for people without children. The combination caused prices to skyrocket.

To try to limit such escalating costs, Obamacare relied on additional layers of coercion. It mandated, for the first time in American history, that private citizens buy a product or service of the federal government’s choosing from a private company. It required that taxpayers fund huge subsidies so that a chosen subset of the population—the near-poor and near-elderly—could get heavily discounted, or even “free,” plans. And it instituted an insurer bailout, putting taxpayers on the hook for a large portion of insurers’ potential losses. This combination of mandates and redistribution was supposed to hold down the rising premiums spawned by Obamacare’s redefining of “insurance.”

It didn’t. The individual mandate, the fine for which is supposed to be at least $695 this year for a single person and more than $2,000 for a married couple with two kids, has proven relatively easy to escape. Thanks to a long list of loopholes and lax enforcement by the Obama administration, the Congressional Budget Office estimates that only $3 billion in individual-mandate fines will be collected this year out of 27 million uninsured people—an average of just $111 per person. The subsidies for the chosen few do nothing to drop premiums for the typical 36-year-old single man or woman making $36,000, as they are too young and too middle class to qualify. Congressional Republicans, meanwhile, nixed the insurer bailout in the 2014 “Cromnibus” legislation—one of the GOP’s most important wins in the Obamacare fight to date.

The only way to “fix” Obamacare would be to double down on these same unpopular approaches—by dramatically beefing up enforcement of the individual mandate (to get a lot more young and healthy people into the insurance pool) and ramping up Obamacare’s various taxpayer-funded subsidies to insurance companies. Indeed, that’s exactly what Krugman calls for. But these “fixes” aren’t politically viable. The individual mandate is probably the least popular part of Obamacare—there’s a reason Obama isn’t aggressively enforcing it. Increasing subsidies for those who already get them—which Republicans won’t do—wouldn’t do a thing for those who don’t qualify for them. And Republicans aren’t about to reinstitute the unpopular insurer bailout. So the Democrats’ only real hope for “fixing” Obamacare—that is, for making it even more coercive and fiscally reckless—is to regain control of the House and Senate, both of which they lost because of Obamacare.

Even if they were to regain control of both houses (while also retaining control of the presidency), Democrats would focus less on “fixing” Obamacare than on using it as a stepping stone to the government monopoly they have long desired. Already, Hillary Clinton has called for adding a “public option“—a government-run, government-subsidized insurance plan—to Obamacare. And she has called for making 55 the new age of eligibility for Medicare, a program that is already driving us toward bankruptcy.

All this suggests Obamacare is going to be repealed and replaced—either with a conservative alternative that will take things in the opposite direction or the government monopoly to which its supporters always intended it to lead.

The conservative alternative to Obamacare’s coercive regime of centralized power is to fix what the federal government broke decades ago, thereby revitalizing the individual market. Those who buy insurance on their own shouldn’t be denied a tax break like the one received by those who get insurance through their jobs. A good alternative would offer simple, non-income-tested, refundable tax credits of something like $1,200 for those under the age of 35, $2,100 for those between 35 and 50, and $3,000 for those 50 and over, plus $900 per child. These would be legitimate tax credits, not direct subsidies to insurance companies masquerading as tax cuts. People could use them for the insurance they want and put anything left over in a health savings account.

The American people are clearly on conservatives’ side on this issue. Liberals, meanwhile, are looking in vain for a political escape-hatch. After Aetna’s announcement, Neera Tanden, longtime Hillary Clinton adviser and president of the Center for American Progress (which works hand-in-glove with the Obama administration), said that Clinton “was hoping we had just moved beyond a fight on” Obamacare. That was pure fantasy. With rates escalating and options shrinking, the truth is that—six years after Obama signed his namesake into law—the Obamacare fight is nowhere near over. If anything, it is intensifying.

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