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The Allure of 'Repeal and Delay' for Obamacare's Critics

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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Right after Donald Trump was elected, I pointed out that it was going to be a wee bit harder to repeal and replace Obamacare than Republican politicians had promised on the stump. Since most didn't really expect Trump to win, conservatives are only belatedly grappling with that reality. The tone among Obamacare’s opposition immediately after the election was “Nananana, nananana, heeeeeyyy, goodbye!” Now they seem to be nervously eyeing each other and saying “Hey, guys, um, anyone got an idea about how we actually do this?”

The idea of the moment is “repeal and delay”: pass a repeal bill now, but delay its implementation for three years to give Republicans some time to come up with a replacement bill.

The arguments for doing this are not crazy on their face. Obamacare’s implementation was delayed for almost four years, giving the Obama administration time to build the exchanges (well, almost) and make decisions about the trillion-and-one fiddling operational details that accompany any massive new policy change. Even then, they had a running head start; a national health system had been a major priority of Democratic wonks for decades. They had spent a lot of time, and cultivated a lot of expertise, mapping out what that system should look like. Health-care reform has never been a similar priority for Republicans. Their stock of experts and white papers is much smaller, their consensus on what (if anything) should be done much weaker. Delay would give them time to put something coherent together.

Unfortunately, repeal and delay has serious problems, for reasons that pundits on both the left and the right have elaborated. The most fundamental issue is what economists call “regime uncertainty”: when businesses don’t know the rules under which they will operate in the future, they are unwilling to invest in that future by taking risks or expanding operations.

There is some degree of regime uncertainty whenever an administration changes; had Clinton been elected, insurers would have had to worry about a public option that would compete with their offerings on the exchanges. But they could have been pretty confident that the administration would keep the exchanges in place, with much the same rules, and perhaps more importantly, that the administration would be doing its best to keep insurers profitable enough to entice them to stay on the exchanges.

Repealing Obamacare on a time-delay, on the other hand, ratchets regime uncertainty up to “Defcon 1.” The exchanges have so far mostly been unprofitable for insurers (although with big rate hikes in many states, that may change this year). The companies have stayed in largely because they’re hoping that the exchanges will be profitable in the future. If you announce that the law creating those exchanges will sunset in three years, to be replaced by some unspecified new program, then the companies' incentive to keep offering insurance vanishes, and the exchanges will probably completely collapse in 2018, with a replacement plan still years away.

This is a compelling argument that repeal and delay is apt to go awry. But supporters of Obamacare shouldn’t take too much comfort in that fact, because whether or not Republicans pass “repeal and delay,” insurers will be facing considerable regime uncertainty -- at a time when the exchanges were already so fragile that it’s far from clear they can withstand another blow.

I have already written about the problems facing the exchanges extensively; I won’t rehearse those columns here except to summarize thusly: in order for the exchanges to work in the long run, they need to be profitable for insurers, and right now it’s unclear that there is any price at which insurance can be sold profitably on the exchanges. Next year, I wrote, would be the make-or-break year for the exchanges; either insurers started making money, or there was a very high risk that the market would enter a death spiral.

That was the state of play when I thought that Hillary Clinton was going to become president, and do everything in her power keep the exchanges going, and insurers happy. Now Trump has been elected, and nominated a strong Obamacare opponent to head his department of Health and Human Services. That amps up the uncertainty for insurers quite a bit. Passing repeal and delay would amp up that uncertainty still further -- but so would saying “We’re going to do something, but we need to take a little time and figure out what”. In six months, insurers have to start submitting their proposed policy and premium details to state insurance regulators. If the Republicans are still studying the matter, but promising action real soon, how many of those insurers are going to gamble on another year?

If they’re making money, probably a fair number. (Then it’s not really much of a gamble, is it?) But if they’re losing money? If there’s a good chance that Republicans are eventually going to repeal the exchanges, or substantially alter them, then those losses no longer look like an investment in a new market that will eventually be profitable, or even a loss leader for regulatory goodwill; they just look like a foolish waste of money.

There is thus a pretty high risk that even if Republicans don’t repeal Obamacare -- even if they do absolutely nothing -- the exchanges will collapse under their own weight. Repeal and delay looks very bad in comparison to a world in which the exchanges are basically stable, because it leaves a multi-year gap when we essentially have neither the old system nor the new. But it’s not so bad compared to a world in which the exchanges are going down anyway.

For Obamacare's critics, of course, allowing the exchanges to collapse under their own weight might be politically preferable to passing a bill that can then be blamed for the inevitable denouement. Republicans are now discovering the unhappy truth first learned by the Obama administration: Talking about what you’d like to do with America’s convoluted health-care system is a lot easier and more enjoyable than actually doing it.

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