A Post-ObamaCare Strategy

mex summit

 

WSJ, Editorial Board

The GOP needs a policy response if the Supreme Court kills subsidies.

The U.S. flag flies in front of the Supreme Court building at sunset in Washington, D.C., U.S., on Tuesday, Dec. 9, 2014.
The U.S. flag flies in front of the Supreme Court building at sunset in Washington, D.C., U.S., on Tuesday, Dec. 9, 2014.

With the Supreme Court due to rule on a major ObamaCare legal challenge by next summer, thoughts in Washington are turning to the practical and political response. If the Court does strike down insurance subsidies, the question for Republicans running Congress is whether they will try to fix the problems Democrats created, or merely allow ObamaCare’s damage to grow.

The time to define a strategy is soon, as King v. Burwell will be heard in March with a ruling likely in June. As a matter of ordinary statutory construction, the Court should find that when the law limited subsidies to insurance exchanges established by states, that does not include the 36 states where the feds run exchanges.

But in that event one result would be an immediate refugee crisis. Of the 5.4 million consumers on federal exchanges, some 87% drew subsidies in 2014, according to a Rand Corporation analysis.

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In the GOP debate about how to respond, one side would prefer to wait for the judicial rapture to arrive. ObamaCare has never been popular, they argue, and if the subsidy foundation of the law is undermined, the rest will collapse of its own weight. And because ObamaCare’s mandates and taxes are conditioned on the subsidies, more people will be helped than harmed if they are withdrawn.

l.wsjThis group is right about ObamaCare in the abstract, but the Treasury must comply with court orders 25 days after they’re issued and such an abrupt policy shift will be a mess. The 17% of U.S. GDP that is health care has spent five years reorganizing to accommodate ObamaCare’s dictates, and the watch-it-burn caucus is underestimating the economic, political and media blowback.

The White House could have avoided the problem by obeying its own law and not passing out illegal subsidies, but the public may not notice the difference once the press corps discovers a cancer patient or two who can’t afford her ObamaCare plan without taxpayer support. This threatens to replay the “if you like your doctor, you can keep your doctor” controversy in reverse, with Republicans accused of denying care to the sick.

President Obama will demand that Republicans in Congress pass a one-sentence bill opening the subsidies to federal exchanges. If they refuse without an answer of their own, voters may conclude that they share the blame.

Meanwhile, Republican governors will come under tremendous pressure from constituents and especially hospitals and insurers to establish a state exchange. Some will resist for a time, but will, say, John Kasich of Ohio? If they’re inadvertently coerced into joining the exchanges, repeal will be harder, not easier.

The far better alternative would be for Republicans to respond to Mr. Obama’s ultimatums with their own proposals that address the problems ObamaCare has created. The President won’t agree to any plan that repeals or defunds his signature achievement, but he will be in the position of needing—and not merely wanting—something from Congress.

The subsidies are crucial to ObamaCare because they offset the added costs of the law’s regulations. Covered benefits are standardized and richer than individuals would otherwise choose on their own, while transfers in the name of income redistribution and social equity are hidden in these overpriced policies. Withdrawing the subsidies matters because middle-class consumers would be exposed to the full cost of Mr. Obama’s agenda.

The immediate Republican goal should be to make insurance cheaper so people need less of a subsidy to obtain insurance. This means deregulating the exchanges, plank by plank. Devolve to states their traditional insurance oversight role, and allow them to enter into cross-border compacts to increase choice and competition. Allow insurers to sell any configuration of benefits to anyone, anywhere, and the private market will gradually heal. The liberal states that prefer ObamaCare’s command-and-control can keep it.

In return, Republicans can offer to restore the subsidies for Mr. Obama—albeit smaller and in the form of a fixed-dollar tax deduction or credit for people who don’t benefit from the tax exclusion for employer-sponsored insurance. This could become a pilot program for a larger reform after the President leaves office. Such a deal would inevitably move health care to the center of the 2016 primaries and election. Both parties would be forced to have an instructive debate about their visions for a post-ObamaCare world.

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Maybe Mr. Obama would refuse to compromise under pressure from the left and the talks would fail, in which case the result is no different than doing nothing. But the GOP would show its governing priorities and that there really is a pragmatic alternative beyond the “repeal” slogan.

The other virtue of building a policy consensus now is that it may make the Supreme Court more comfortable with vindicating the letter of the law’s plain language. The Justices are usually above raw political intimidation, but they are also generally reluctant to create real-world problems. They may be more likely to overturn the federal-exchange subsidies if they’re confident that the political branches have a fallback.

But even if the Justices uphold the subsidies, the GOP will be that much further along toward crafting a replacement.

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