Bad news for the doctor, or for patients, or for taxpayers.

Photographer: Spencer Platt/Getty Images

OK, We Agree: Obamacare Needs Some Fixes. Now What?

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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For weeks, rumors have been flying that WikiLeaks would deliver an “October surprise” for Hillary Clinton’s campaign, a bombshell revelation that she would struggle to recover from in the short weeks remaining until the election. (So far, it's a dud -- surprise!)

But Clinton should be worried about a “November surprise” -- the wave of policy cancellations and rate hikes that will attend the debut of Obamacare’s fourth open-enrollment period, on Nov. 1. Just a week before Election Day.

Those rate hikes are going to be pretty hefty. Scroll through the spreadsheet assembled by Charles Gaba of ACASignups.net, and you’ll see a lot of big numbers: Tennessee rates are going up 56 percent. Montana, 48 percent. Illinois, 45; Nebraska, 35; Georgia, 33.

That doesn’t include Minnesota, which just announced that insurers had been granted an average increase of 56.6 percent, along with, in most cases, a cap on new enrollments to control their risk. Those are just the states with the biggest problems. Most of the states he has tracked have granted healthy double-digit increases.

Only six exchanges managed to keep their increases in the single digits: the District of Columbia, Massachusetts, Rhode Island, North Dakota, Vermont and Arkansas (barely). By Gaba’s calculation, the average individual consumer -- not those who are covered through their employers -- can expect insurance premiums to rise by roughly a quarter next year. Though many people will be shielded from that by the subsidies, about 6 million more will not, and they will be mad. If they live in swing states, that anger will matter.

No wonder Clinton isn’t talking up Obamacare on the campaign trail.

Farther from the spotlight, Democrats seem to be coming around to the idea that the program is in serious trouble and needs to be fixed. Clinton’s own husband apparently suggested the system wasn’t working at a campaign event in Flint, Michigan, saying: “It doesn’t make any sense. The insurance model doesn’t work here.” Robert Pear of the New York Times channeled many of the issues that are concerning them into an article this weekend headlined “Ailing Obama Health Care Act May Have to Change to Survive.”

The issues will be well known to readers of this column: Too few young and healthy people have signed up, and there have been strong suggestions that both providers and patients have sought ways to game the system to maximize the amount of health care that insurers pay for, while minimizing the amount of premiums paid. This has raised the possibility that the markets are going into a “death spiral,” in which the premiums keep rising and the healthiest patients left in the insurance pool consequently keep dropping insurance, until the market collapses. That’s old news, although some of the eye-popping numbers are relatively recent.

The real question is what we do about it. Republicans’ responses often consist of looking at their shoes and mumbling about the healing powers of markets and health savings accounts. Democratic answers mostly amount to “Firehose money onto the markets until that burning sensation stops.”

The public option has long been bruited about as a solution to these market woes. The problem is, as I’ve discussed before, that the public option isn’t going to do any better than private insurers unless it takes one of two courses: using the majestic power of the law to force down provider reimbursements quite a lot (politically daunting, and likely to trigger severe financial problems among doctors and hospitals), or tapping heavy government subsidies to cover the losses that are driving insurers out of exchanges all over the country. I think a Democratic Congress would have a very hard time getting the latter option passed once the Congressional Budget Office had put a price tag on the idea; in the legislature we are likely to have, where Republicans will probably control at least the House of Representatives, it will never happen.

Alternatively, we could increase the subsidies. Heavily subsidized consumers seem to be willing to buy Obamacare policies; it’s the folks who get little or no subsidy who are balking at expensive plans with high deductibles and very narrow networks of doctors and hospitals. If we increased the subsidies to higher income levels, presumably some of those people would jump into the marketplace -- potentially enough to shift the insurance pools toward a healthier mix, and stabilize the system.

But this runs into the same problem as a subsidized public option: Which intrepid politician wants to tell the voters that the government needs tens of billions of dollars more every year in order to subsidize a program the majority of voters aren’t very fond of? How much more fond of it will they get when Democrats announce that they’re breaking their promise that Obamacare wouldn’t increase the budget deficit?

One possibility is that they could instead increase the penalty for failing to buy insurance. That counts as a tax, and it offers politicians a nice twofer: Either it raises more tax revenue for them to spend, or it forces younger and healthier folks to buy insurance, helping to stabilize the risk pools. There’s just one small problem, which is that if it’s hard to imagine lawmakers voting to spend large new sums on insurance subsidies, it’s impossible to imagine them voting to increase the penalty on an already unpopular insurance mandate.

That’s pretty much it. I’m out of plausible legal tweaks to the existing system that could stabilize this mess. And judging from Clinton’s silence on the stump, so are Democratic strategists.

That leaves two options: “repeal and replace” (or at least gut renovate the system so that it functions as originally promised), or tweak regulations and hope that’s enough. From a policy perspective, “repeal and replace” obviously seems to be the way to go; no one really likes the kludged-together system created by the Patient Protection and Affordable Care Act, and either Republicans or Democrats could design something that worked more rationally. However desirable this might be from a policy perspective, though, it’s even less plausible than legislative tweaks politically. Undoing what was done in 2010 would involve either repealing things that people like -- like the ban on lifetime caps, and exclusions for pre-existing conditions -- or moving toward something people don’t like, such as heftier mandates or government providing health care directly.

That leaves us regulatory tweaking. The good news about this is that it’s largely invisible to voters, which lowers the political barriers to change. The bad news is that there’s only so much tweaking regulators can do within the law (or even by skating outside it). This is the easiest option, but it’s also the weakest, and the least likely to work. Nonetheless, that’s what we’re going to end up doing, no matter who gets elected president.

To be clear, the Department of Health and Human Services has taken regulatory steps to reduce the problem of gaming, and it’s possible those steps will be enough. But those fixes won’t help Clinton this election year. And if they aren’t enough to stabilize the pools, we’ll get another November surprise in 2017 … and 2018 … and then Democrats will probably get some very ugly surprises on Election Days to come.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor responsible for this story:
Philip Gray at philipgray@bloomberg.net