Obamacare’s Mugged by Reality Moment

Published November 4, 2013

The Weekly Standard

As  metaphors go, “train wreck” turned out to be pretty apt. That’s how retiring Democratic senator Max Baucus described his expectations for the implementation of Obamacare at a hearing last April. If anything, he could be accused of soft pedaling the fiasco that has been on full display since the beginning of October.

The main entry point into Obamacare for citizens in 36 states is healthcare.gov, an online portal through which consumers are supposed to enter personal information and then shop for health insurance. But healthcare.gov is so poorly constructed that it is essentially useless as an enrollment system. This is a website the Obama administration had three years to build. It is absolutely essential to making Obamacare work, if it is going to work at all, because the program relies on broad enrollment, especially among young and healthy Americans, to keep premiums low for everyone else. Administration officials note that applicants can apply by phone and submit paper applications to get the process started, but that approach takes weeks to complete and eventually the information must still go through the same automated systems. Without a functioning healthcare.gov, Obamacare will never get off the ground.

The 14 states that chose to construct their own exchanges have been modestly more competent at building the front-end user interface than the federal government. But even these states must rely on federal systems to determine eligibility for subsidies financed by federal taxpayers. And those “back-end” federal systems are as badly mangled as the entry point for consumers into the federal portal.

The result is that Obamacare’s launch has been far worse than a dud. For the moment, the program is at a standstill.

The administration is trying to convey momentum by pointing to unverifiable estimates of nearly 500,000 “applicants.” But these numbers are meaningless. One of the main problems with healthcare.gov is that it requires any curious consumer to submit an “application” and establish an account before looking at the insurance options, including the premium amounts and cost-sharing requirements. How many of the 500,000 supposed applicants are people who have other insurance today but want to see what Obamacare has to offer? And how many of these applications are for people who will decline to enroll once they see the high premiums they must pay, or are households with incomes that will put them into Medicaid instead of the federally facilitated or state-run insurance exchanges?

A clearer picture of what is happening emerges from data provided by the participating insurers. After all, if someone actually enrolls in a health insurance plan, and by so doing agrees to pay a monthly premium for the coverage, the insurer selling the product surely knows this and has the consumer’s relevant information. From numerous media reports, it is clear that insurers have so far received only a trickle of enrollees—maybe in the thousands, but far, far less than 500,000. The applications that have been received by insurers have made it through the entire process only because low volume has allowed the transactions to be completed through direct contact with the customers. The automated systems have been utterly unreliable and therefore are not trusted by the insurers.

There is no prospect that these enrollment systems will be fixed anytime soon. The surest sign of that came with the administration’s announcement that it has recruited the IT industry’s “best and brightest” to help repair the problems. The thought that outside, unpaid advisers could parachute into a multiyear IT project and untangle the mess in a matter of weeks could only come from people unfamiliar with the actual operational realities of the federal government. The truth is that fixing the problems will almost certainly require another massive investment in software programming, and probably with the same contractors who wrote the first batch of bad code. Switching now to a whole new team of players would only delay any possible fix by months.

It remains possible that the administration could pull these systems together into a minimally functioning whole by late November or early December. Doing so would be a near-miraculous feat, given the complexity of what’s involved. But it’s possible.

But that wouldn’t be the end of Obamacare’s woes. The other reality now emerging is that millions of Americans are going to be pushed into these exchanges against their wishes, and they aren’t going to like what they see.

The problem will be most acute for the 19 million or so people who today purchase individual insurance. As industry expert Robert Laszewski has pointed out, today’s individual market is essentially being replaced by the Obamacare exchanges. Some insurance plans can continue operating into 2014 outside of the exchanges if they are “grandfathered.” But very few insurance plans qualify for grandfathered status under Obamacare because the rules strictly prohibit even the smallest changes in coverage or cost-sharing. Consequently, about 16 million Americans will shortly find out that they can’t keep the plans they have.

If and when they are able to look at their options on healthcare.gov or the state-built websites, many of these consumers will quickly become unhappy. The Obama administration keeps arguing that the premiums in the exchanges are below what was expected, based on hypothetical estimates produced by the Congressional Budget Office four years ago. But that’s not the relevant comparison. Consumers want to know how much more they are going to pay for insurance under Obamacare in 2014 than what the pre-Obamacare market offers them today.

The Heritage Foundation has carefully looked at this question, and the results are dismaying. The average family of four will see a premium increase in the exchanges of 10 to 30 percent. For young Americans, the premium hikes are much worse, in the range of 50 to 100 percent or more for 27-year-olds, including 71 percent in Nebraska and 170 percent in Georgia. And these premiums are for plans with, in most cases, very high deductibles, ranging from $2,000 to $2,500 for the so-called silver plans and $4,000 or more for bronze plans.

These realities of Obamacare are surfacing in the days following the GOP’s failed effort to roll back, or at least delay, Obamacare as part of the government shutdown/debt ceiling fight. Ironically, the fallout from that failure is leading some conservatives to recommend pulling back from another Obamacare showdown during the next round of budget wrangling, at the end of this year or in early January 2014. They would like to broaden the focus to spending restraint and modest entitlement reforms, of which Obamacare changes might be one element.

An important subtext of this shift in emphasis is that Obamacare’s woes are now so pronounced and intractable that perhaps the best tactic for the GOP is to stand back and let its flaws speak for themselves. There are many conservatives who fully expect the law to collapse under its own immense weight, and who anticipate that they will reap the political benefits of that collapse in 2014 no matter what they do now. So why engage in another politically risky showdown with the president?

Certainly the GOP shouldn’t repeat the mistaken tactics of the last month. But there’s every reason to continue making a delay of the individual mandate the GOP’s top priority in the negotiations with the Obama administration and Senate Democrats over the coming months.

For one thing, there will never be a better time to press the case for a mandate delay. The rollout of Obamacare is a complete mess. The voters can see for themselves that enrollment in Obamacare is a completely unreasonable proposition at this stage, even with the administration’s recent announcement that it will treat any enrollment commitments made before April 1 as satisfying the coverage requirement (previously, the cut-off to avoid the uninsured tax was thought to be mid-February, because the law allows for three months without coverage in a calendar year and it can take several weeks to go from an enrollment submission to initiation of insurance coverage). It should be obvious that the system for determining subsidy amounts for households has not been tested nearly enough to ensure it is reliable and will not waste billions in taxpayer dollars. It will be impossible for the administration to continue its defense of the individual mandate if these conditions remain substantially unchanged through the end of 2013.

The GOP can strengthen its hand further by moving legislation to protect people who are losing their individual plans. Many millions of these currently insured Americans have already received or will be receiving soon notices from their insurers advising them of the termination of their existing plans, effective January 1. Insurers are halting these plans because Obamacare’s rules won’t let them continue to offer coverage (even outside the exchanges) under today’s rules, which generally allow lower premiums for younger and healthier consumers. But with healthcare.gov nearly impossible to navigate, individual market enrollees are losing their current plans without access to a viable alternative. And the clock is ticking. Those losing their coverage on January 1 will need to have a new plan in place by December 15 to ensure no lapse in coverage. And many would no doubt prefer to have a new plan picked sooner, to be on the safe side.

The GOP should come to their rescue with legislation allowing insurers to continue to offer the same plans they are offering today. Some insurers may choose not to reopen plans they have already decided to close, but others will likely resurrect their closed plans. If healthcare.gov’s problems persist into November, as they almost certainly will, legislation of this kind will have great resonance with an anxious electorate.

The GOP can have leverage in the next round of budget wrangling without resorting to absolutist threats. The president and Senate Democrats would like two things out of the budget process in coming months: greater certainty for 2014, and more spending on domestic programs. There’s no reason for the GOP to give on either of these objectives without getting something very significant in return. So long as the GOP continues to support “clean,” short-term appropriations bills to keep the government open, they can resist pressure from Democrats to provide higher, full-year funding amounts without significant concessions to GOP priorities.

Delaying the individual mandate would not be a small victory, either. The entire edifice of Obamacare is built on the premise that the individual mandate will create a stable insurance pool for the new program. That’s a dubious assumption. But there’s no doubt that some number of Americans will feel compelled to sign up with Obamacare just to avoid the uninsured tax. If the GOP were able to delay the mandate, and simultaneously to allow consumers to stay with their current individual market plans, it would dramatically change the trajectory of Obamacare and open up new possibilities for moving in a better direction in the future.

There are other important priorities on the GOP agenda, including spending restraint and entitlement reform. But by far the most important issue over the coming year will be Obamacare and its implementation. It is evident that the law is failing, that is true. But that’s all the more reason to keep the pressure on and not abandon the fight.

James C. Capretta is a senior fellow at the Ethics and Public Policy Center and a visiting fellow at the American Enterprise Institute.

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