Diagnosis: Heartburn

Last week, insurance giant Anthem announced it was pulling out of the Obamacare exchanges in Nevada, leaving most of the counties within the state without even one insurer to cover demand in the individual marketplace. This latest development only increases the pressure on Congress to do something.

If history is any guide, conservatives should prepare themselves for some kind of bailout of the insurance industry—a backstop of some sort to keep insurers on the exchanges, offering policies that are not prohibitively expensive. Such a subsidy, while sure to generate bad headlines, would be perfectly in keeping with the corporatism that has defined our welfare state for more than half a century.

Obamacare is no outlier in our vast, byzantine system of entitlements. Instead, it was an extension of a typical approach to providing benefits to the citizenry. Public assistance can take one of two forms—direct cash payments or in-kind benefits. Direct cash payments include Social Security and unemployment benefits. In-kind benefits come mostly in the form of health care—Medicaid, Medicare, and now Obamacare.

Importantly, the government does not offer in-kind benefits directly, at least not in most cases. Care through the Veterans Administration is done by government doctors in government hospitals, of course, but Medicaid, Medicare, and Obamacare employ private intermediaries to provide the promised benefits.

The enactment of Medicare was the government’s first effort to provide health care to the masses, and the primary providers employed were hospitals (covered under Medicare Part A) and doctors (Medicare Part B). The original terms of the Medicare contract grew outdated, so it has been updated in the last 25 years. Now, Medicare Advantage employs private insurers, and Medicare Part D subsidizes prescription drugs, which similarly ropes in the pharmaceutical industry.

All of these groups serve as mediators between the citizens and the government. The government promises eligible citizens that they will receive a specified form of care, and then contracts with these groups to provide it. Because these mediators are all private entities, they only agree to provide the care on behalf of the government if it is in their interests.

This approach to entitlements is not without problems. One main challenge has been cost overruns. The original terms of the Medicare contract between the government and providers was open-ended. Doctors and hospitals were asked to charge a reasonable rate, with no statutory definition of what that meant. Little wonder that the costs of the program exploded in the 1970s, and required strenuous efforts in the 1980s and 1990s to rein them in. With the aging of the baby boomers, the costs of Medicare remain a challenge for policymakers.

Our mediated welfare state also creates civic problems, as it gives the government a decidedly corporatist gloss. The citizenry is not directly involved in the details of the benefits they receive. Instead, those are worked out between the government and providers, who have an incentive to invest heavily in the political process. This is a main reason why the medical services industry is such a major contributor to campaigns and spends so lavishly on lobbying. Before Medicare, it had little incentive to involve itself so deeply in public affairs.

This has been a bipartisan process almost every step of the way. It was, after all, Republicans who spearheaded Medicare Advantage and Medicare Part D, which expanded the scope of intermediaries acting at the behest of the government. And the medical service industry, like most major financiers of politics, contributes to both sides of the aisle—often based on its estimate of who is mostly likely to win the next election. Corporatism is a bipartisan ideology in Washington.

Far from reforming this approach to health care when enacting Obamacare, the Obama administration and congressional Democrats doubled down on it. While drafting the bill, they were exceedingly solicitous of industry support—for they knew full well that when push came to shove, the government would depend upon medical service providers to make Obamacare work. In its current form, Obamacare provides health insurance to individuals by making it in the interests of health insurance companies to offer it to them—so, in effect, the government provides a backstop for the insurers’ profits in the individual marketplace.

But the individual marketplace is of course malfunctioning now. Enrollment among healthy people in the private exchanges is lagging, so insurers are exiting the marketplace because it doesn’t pay to remain. If this continues, it will effectively nullify the entitlement provided by Obamacare, and worse, people who are not eligible for Obamacare subsidies but who need insurance through the marketplace will not be able to acquire it.

Having won total control of the government, in no small part based on their pledges to fix health care, Republicans are on the hook for this problem. They must find a way to keep insurers from bolting the individual marketplace, and also keep the price of policies within reason. One way to do that would be to get rid of the strategy of mediation altogether, and give money directly to citizens so they can purchase their own care for themselves. Another way would be through deregulation, which would make it easier for insurers to make a profit and thus rejuvenate the individual marketplace.

But with the effort to repeal and replace Obamacare having failed, the chances of implementing any bold reforms have been greatly reduced. The most likely alternative is some kind of bailout for the insurance industry—a cash infusion to continue to make it profitable for them to remain in the exchanges.

Conservatives, of course, should be appalled by this. After all, one of the key failures of Obamacare was in its shoddy design of the marketplaces. It would be awful to see Congress write the insurers a check rather than fix the market it screwed up in the first place. And the political implications would be disappointing as well. One of the main conservative successes during the Obama years was the GOP effort to limit the Department of Health and Human Services’ discretion in channelling funds to the insurance industry. A bailout of the insurers now would undermine all that good work.

Nevertheless, a bailout would be the easiest thing, and perhaps the only thing, that could acquire bipartisan support—which Senate Republicans like Lamar Alexander and John McCain are now emphasizing. GOP rhetoric about small government notwithstanding, the congressional party has long had a decidedly corporatist tilt to it—especially as regards federal entitlements. There are solid conservative members who will oppose such a subsidy, but if the party leadership ropes in enough Democrats, they are bound to be outvoted.

The unfortunate truth is that many Republican politicians are much more comfortable with Obamacare than they have let on these last seven years. Push comes to shove, they like its corporatist approach, and rather than doing the hard work to reform it will prefer simply to write a check to the insurers.

Jay Cost is a senior writer at The Weekly Standard.

This post originally appeared on Weekly Standard


Leave a Reply