Obamacare versus the Affordable Care Act

A similar version of this Health Alert appeared at Forbes.

In March 2010, Congress passed, and President Obama signed, the Patient Protection and Affordable Care Act (ACA). The ACA was never implemented as written. The ACA authorizes subsidies to health insurers operating in state-established exchanges, but not the federal exchange. Some 37 states opted not to establish their own exchanges. Nevertheless, the Administration has been paying subsidies to insurers in those 37 states.

On March 4, the Supreme Court heard oral arguments in King vs. Burwell. At stake is the Administration’s payment of subsidies to health insurers operating in states which use the federal exchange. The Supreme Court is expected to announce its decision by July. A decision to uphold the ACA, as written, will surely cause millions of people to stop paying premiums that will double, triple, or more after the Supreme Court strikes down the illegal subsidies.

Many assert that this will cause an immediate crisis that Congress and the President will have to resolve immediately. This is an overly dramatic reading of events.

First, those who will drop Obamacare plans are not enthusiastic consumers of Obamacare. Last year, about one in five Obamacare enrollees stopped paying premiums. Rather, employer-based health benefits have been shrinking as Obamacare has increased the regulatory burden of offering benefits on employers, and incentivized them to reduce working hours. According to the Congressional Budget Office, there will be 2.5 million fewer full time jobs in 2017 than if Obamacare had not been enacted.

States which accept the loss of the illegal subsidies will also lose the employer and individual mandates to buy government-defined health insurance. These are generally the most reviled features of Obamacare and any governor or state legislature that re-imposes them will face the wrath of many businesses and workers. States will also recognize that relief from the mandates give their businesses a comparative advantage against competitors in states where Obamacare still lies heavy.

Nevertheless, the President will surely ask Congress to amend the law to open the subsidy spigot again. This creates an opportunity. Unfortunately, it is not the opportunity to repeal and replace the ACA, which most Americans have waited for five years. It has to be an amendment that the President will sign. Making it more difficult, the President has the advantage of being able to propose a simple, one-page bill that simply amends the ACA to pay subsidies through the federal exchange.

Congress need not panic. Here are four proposals that both Congress and the President should find acceptable:

First, because exchanges are the cause of the problem, Congress should get out of the exchange business. People who had never paid much attention to Obamacare were appalled at the Rube Goldberg websites were rolled out last year to enroll them in Obamacare. Obamacare was proven to be the DMV on steroids. Instead of forcing people to buy health insurance through a government exchange, allow us to buy health insurance however we want: Online from private exchanges, or on the phone or in person from an agent or broker.

Second, eliminate the individual and employer mandates. These are red lines for individuals and employers, which the President crossed. Repealing the individual mandate would reduce the deficit; and repealing the employer mandate will increase employment among low-income workers.

Third, subsidize individuals, not insurance companies. This tax season, millions of Obamacare beneficiaries are going into shock as they learn from the IRS that the Obamacare policy they bought was overly subsidized. Having the IRS claw back the subsidies is causing financial hardship. Instead of subsidizing health insurers through exchanges, allow individuals to apply for tax credits themselves.

Fourth, re-scale the subsidies to make them fair. Obamacare subsidies phase out as household incomes increase, creating a high effective marginal tax rate for households with incomes up to about $80,000. Earning more pay results in a significant loss of subsidies. As a result, these workers demand fewer working hours, an extremely perverse incentive. The scale of subsidies should be made more fair by flattening it significantly, and eliminating the punishment for work.

These and other suggestions are all politically popular, would reduce the burden of Obamacare, and keep the door open for further reform under a future President. On the other hand, a Congress which simply caves in to the President’s demands to expand Obamacare’s subsidies will lose the trust of the people who elected it.

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