A foundational belief of modern liberalism is the notion that government has the ability to understand and harness markets in order to guide and improve how they function. Conservatism, on the other hand, is based on the belief that no institution, especially government, is in the position to coalesce and collate dispersed economic information, and thus we rely on individuals’ collective will—as expressed through a free market—to do it for us.
So who is right? Obamacare provides a useful test case.
At its passage, liberals lauded the various levers they pulled and incentives they produced in order to guide the provision of health care towards their desired ends. They set higher standards for insurance plans and created subsidies to handle the price increases. They banned insurers from pricing based on risk and included a coverage mandate to prevent people from only purchasing insurance after they got sick. And they leveled health care prices across age groups (which had the impact of raising costs on young, healthy adults) and then created a tax to incentivize a normal risk pool.
But conservatives saw it as an overcomplicated Rube Goldberg-esque house of cards that was bound to come tumbling down. There was simply no way that the drafters, who cobbled together the bill, could have possibly foreseen the consequences, both intended and unintended, of their various schemes. Events over the past few weeks appear to be proving them right.
First came news that yet another of Obamacare’s co-operatives (non-profit insurers that were meant to create artificial competition in the insurance market) was collapsing. Maine’s insurance superintendent attempted to put Community Health Options—once held up as one of Obamacare’s most successful co-ops—into receivership and terminate thousands of individual policies, a desperate last stab at staving off huge losses (the plan lost $31 million in 2015). Currently, only 12 of the co-ops are still operating, and eight of the survivors are in perilous financial position, the result of inexperienced management being unable to steer a sustainable course through a difficult insurance market.
Next came word that even the most seasoned insurance companies were facing incredible difficulties in the individual exchange market. UnitedHealth, the nation’s largest health insurer, decided to pull out of two state Obamacare markets and is threatening to leave the exchanges altogether in 2017, the Blue Cross Blue Shield Association, gave hints that many of its plans were losing money, and Aetna CEO Mark Bertolini, said that he continues to “have serious concerns about the sustainability of the public exchanges.” The insurers aren’t just blowing smoke. A widely publicized report from McKinsey & Company found that insurers lost money in 41 states in 2014, and were only profitable in nine.
The reason for the losses is simple: Obamacare’s incentives didn’t work at intended, leading to a market that was older and sicker than anticipated, which pushed plans into the red. That means we’re likely to see less competition and higher premium prices next year, an outcome that insurers are already hinting at.
“Given that most carriers have experienced losses in the exchanges, often large losses, it only makes sense that most exchange insurers will request significant rate increases for 2017, Michael Adelberg, a former CMS official under President Obama, told The Hill.
And finally, the Congressional Budget Office issued an expansive report on Obamacare that included a few troubling trends. First, it projected that Obamacare enrollment would decline 40 percent from last year’s prediction of 20 million people. Second, it showed that Obamacare’s total enrollment would fall about 24 million people short of the goal in originally laid out in 2013. As the Weekly Standard’s Jeffrey H. Anderson writes, that’s a big problem:
Indeed, based on the CBO’s own numbers, it seems possible that Obamacare has actually reduced the number of people with private health insurance. In 2013, the CBO projected that, without Obamacare, 186 million people would be covered by private health insurance in 2016—160 million on employer-based plans, 26 million on individually purchased plans. The CBO now says that, with Obamacare, 177 million people will be covered by private health insurance in 2016—155 million on employer-based plans, 12 million on plans bought through Obamacare’s government-run exchanges, and 9 million on other individually purchased plans (plus a rounding error of 1 million).
Together, these stories paint a picture of a law that isn’t working. The impossible balancing act between subsidies and penalties is failing to adequately incentivize the proper mix of healthy and sick, young and old, to purchase insurance. This should be humbling experience for liberalism, and yet, as Reagan said, “the more the plans fail, the more the planners plan.”