Wishful Thinking Can't Hold Obamacare Together
The Obamacare story is as much a political story, and a media story, as it is a policy story. If people think that the Patient Protection and Affordable Care Act won’t work, then it probably won’t; the politicians will start passing “fixes” that undermine the functionality of its interlocking parts, and companies and consumers will abandon the fledgling markets. If people think that Obamacare will work -- well, it might not work anyway, because the real world does not always deliver rhetorically pleasing symmetry. But it certainly has a much better shot.
Of note, then, is one development you saw over the weekend: People are starting to talk about repeal. In early October, most people -- including me -- would have ranked this as wishful Republican thinking, along the lines of “repeal the Fed.” But the weekend brought us the National Journal’s Josh Kraushaar suggesting that Democrats might begin calling for repeal if things don’t get better soon.
Sounds crazy, right? After all, once entitlements are expanded, they never get pared back, unless they maybe go to welfare mothers. But not middle-class entitlements.
Actually, that’s not quite true. The New York Times looks back at the catastrophic-care program, or "Cat Care," the 1989 Medicare expansion that passed with overwhelming bipartisan support and got rolled back less than 18 months later after Congress was besieged by mobs of angry seniors. (Not hyperbole; Representative Dan Rostenkowski was actually chased by such a mob at a town-hall meeting with his own constituents. Afterward, he plaintively asked his press officer how long it would be before the media foofaraw blew over. "Let me put it this way," the flack is said to have replied. "When you die, they will play that clip." Which turned out to be entirely accurate.) As former Massachusetts Congressman Brian J. Donnelly, a Democrat, who was then on the House Ways and Means Committee, put it:
“It blew up,” said Mr. Donnelly, who left the House, served as an ambassador and is now retired. “A lot of people in the United States already had this coverage. Almost every retired union member had the coverage through negotiated benefits.”
In addition, the revenue from the new premium was projected to exceed what was needed and quickly build a surplus, feeding a perception that the catastrophic-care program was a backdoor route to reducing the deficit through a tax on retirees.
To their chagrin, advocates and critics of the measure also discovered that many people who were supposed to be thrilled about the new plan misunderstood it and thought it was going to ease one of their great fears -- the expense of living in a nursing home. When consumers came to realize that it did little to help with long-term care, enthusiasm dipped.
In a foreshadowing of the angry town hall-style meetings on health care in 2009, older voters began to protest the measure. They were inflamed by an aggressive direct-mail effort by the relatively new National Committee to Preserve Social Security and Medicare, which found itself fighting with the American Association of Retired Persons, a champion of the new law.
So it’s not actually impossible, just difficult. And there’s one grim lesson for Barack Obama's administration: Cat Care gave new benefits to the majority of seniors. But to pay for that, it charged higher premiums to a substantial minority: more affluent seniors, many of whom already had supplementary insurance to cover the benefits it provided. The majority who were getting a free new benefit was not enough to counterweight the minority that was getting something taken away from them.
"But it’s such a small minority" is the administration’s rejoinder; the entire individual market covers just 5 percent of the population, and some of those people will be net beneficiaries of Obamacare, thanks to the subsidies. This logic was always a bit shaky -- all the people who are ultimately expected to get additional coverage from the new law, including the Medicaid expansion, amount to only 7.5 percent of the population, so if 5 percent is too small to worry about, then probably so is the number of uninsured. But it’s not even true. I mean, it’s true that only 5 percent of the population gets its coverage from the individual market. But Obamacare is also making significant changes in the employer market. Twelve percent of workers are expected to be affected by the “Cadillac tax” on especially generous health-care benefits when it kicks in in 2018. When those people find out that they too will be in the group of people who can’t keep their plan, even though they like it, they will be livid. The unions, who will be disproportionately affected by this, are already getting restive.
To be clear, I still don’t think that repeal is probable. But I do think it’s possible, and getting somewhat more likely, though not under Obama’s presidency. Having two outlets talk about this as more than a Republican pipe dream tells you that people are starting to think that this is actually possible. And that by itself makes it more likely to happen. Not all at once, the way the Republican Party dreamed. But it might be dismembered in pieces, until there’s no reason not to repeal what’s left of the desiccated corpse.
To return to what I said earlier, this is no longer mostly a policy story; it’s a political story. And at a deeper level, it’s a story about game theory. Democratic politicians and insurers are locked in a prisoner’s dilemma.
In this classic game-theory case, you and a professional associate are both arrested for theft. If neither of you talks, then you’ll probably get off. But if just one of you talks, then the person who talks will get a reduced sentence, while the other person has the book thrown at them. If you both talk, then both of you go to jail for a long time. The equilibrium is for both of you to talk, just in case the other guy does . . . which is why criminal gangs go to such elaborate lengths to build up trust and dispense punishment for snitches.
Insurers and Democrats are now in a similar situation. Legislators need insurers to help them make this law work by staying in the market and selling policies for affordable premiums. Insurers need legislators to hold this law together, particularly the individual mandate. If both of them hold strong, then Democrats have their best chance to get Obamacare working, and they can hope that voters like it so they can win re-election. Insurers, meanwhile, get a system in which the public is legally required to buy their product.
But if you think the other side might waver, then your best move is to defect immediately. If insurers stand strong but politicians end up repealing the mandate, then they will have lost a bunch of money for nothing. If politicians stand strong but insurers raise prices and/or exit the market, they’ll get slaughtered at the polls.
The moment that it looks like there’s a big risk that Obamacare won’t work, both Democrats and insurers are going to stampede for the exit. Yes, Obama can veto anything that threatens his favorite law. But if it gets that far, he’s already lost. His veto will cost his party big in the 2014 midterms, quite possibly enough to cost them the Senate. But by then it will probably be irrelevant, because if Obama has to veto something like a bipartisan bill to delay or repeal the individual mandate, his presidency will be over, and his signature legislation will be in grave danger. Insurers were willing to risk fairly substantial losses in 2014 to help the law get established and build market share. If it looks like the law is going to fail, they probably aren’t going to be willing to do it again in 2015.
There’s an added wrinkle to this prisoner’s dilemma, which is that outside events can intervene to screw up the law even if the two main parties hold together. Republicans could get big wins in 2014, which is effectively the same as a defection by Democratic legislators; young, healthy customers could simply ignore the mandate, which would force insurers to raise rates even if they would rather not. Both of these scenarios increase the risk that one side will defect, pushing both into the bad equilibrium in which Washington starts dismantling the bill and insurers pull out or raise rates.
This is basically what happened in Washington state, as the Official Blog Spouse has reported:
Around the same time that New York was overhauling its insurance market, Washington state was implementing a similar set of health plan rules. Insurers faced new regulations regarding plans sold to individuals with preexisting conditions, and the requirement that they sell to everyone. For a brief period, there was a coverage mandate, but that never went into effect. The state’s individual market deteriorated. One insurer raised premiums by 78 percent in a three year period. As premiums rose, relatively healthier people left the market, and insurers were left covering a lot of very sick, very expensive individuals. In the end, many insurers simply dropped out of the market rather than lose money. According to a report on the reforms commissioned by the insurance industry, there were 19 carriers in the individual market in 1993. By 1999, there were just two -- and they weren’t taking new applicants.
The law would still be nominally in effect until 2017, but coverage would drop and get more and more expensive. By the time a Republican president came to town, it would be clear that most of the Patient Protection and Affordable Care Act was slated to be repealed in a bipartisan reform.
Democrats and insurers are at a very delicate moment right now. If they can hold it all together until after the 2014 election, then they may well be able to cement this law into place. But November 2014 is still a long way away. And every time a mainstream news outlet suggests that the law might not survive, the odds of that happening increase.