‘Obamacare Bailout’: The New Death Panel

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Photo: Chip Somodevilla/2012 Getty Images

Hiroo Onoda, the Japanese soldier who refused to accept defeat in World War II until finally surrendering in 1974, died today. In thematically related news, Obamacare opponents have organized their latest campaign to repeal the “Obamacare bailout.”

“Bailout” may be the single most unpopular policy concept in American politics. So now that Republicans have discovered, nearly four years after the passage of the law, that Obamacare has a provision that they can spin as a “bailout,” it has whipped the party into a frothy mix of genuine outrage and hand-rubbing opportunism, with repentant immigration reformer Marco Rubio leading the charge with a bill in Congress to repeal the “Obamacare bailout.”

There is no Obamacare bailout. A bailout is an ad hoc reward for a company that takes an egregious risk for profit and loses. The “Obamacare bailout” is a provision in the law called risk corridors. Edwin Park has a long explanation, and Jonathan Cohn has a short explanation, but the even shorter explanation for the lazy among you is that it’s a provision designed to make insurance companies in the Obamacare exchanges compete on the basis of price and quality, rather than cherry-picking the healthiest customers. The way it works is that companies that wind up with unexpectedly healthy customers pay some of their windfall back to the government, and companies with unexpectedly sick customers get compensated for their losses.

The Congressional Budget Office assumed that the gains and losses would probably cancel each other out, resulting in no cost to the taxpayers. It’s possible that there will be more sick customers than expected in the system as a whole this year, and the payout will exceed the payback. Conservatives have already taken it as a given that this will happen. Yuval Levin and James Capretta wax indignant in the Weekly Standard:

Because Obamacare’s design is so flawed and its rollout has been so bungled, enrollees in the exchange insurance plans are likely to be significantly older and sicker than the insurance company actuaries assumed.

It may be the case that enrollees in the exchanges are older and sicker than originally forecast. If so, the bungled website rollout would be one reason for this. (Another, smaller reason would the massive public relations campaign by conservative groups and Republican politicians to persuade young, healthy people to boycott the exchanges — which is to say, conservatives are now angry that taxpayers might have to cover the losses that they have done everything in their power to create.)

But it’s far from certain the exchanges will have unexpectedly sick customers. Aetna's CEO told Sarah Kliff that the demographics of the customers so far are “better than they I [sic] thought they would have been.” That’s just one firm, and others are more cautious. [Update: Kliff has a more detailed report suggesting insurers may indeed be getting about the same risk pool they expected.] The open enrollment period lasts through the end of March, and the outreach campaign by the law’s allies is just getting started.

Capretta and Levin, filled with far more certainty about the insurance pool than the insurers themselves (who have more information) can muster, complain that the program might “cost taxpayers hundreds of millions and perhaps billions of dollars.” That is supposed to sound like a large number, in a $3.6 trillion budget. (The dramatically lower-than-expected premiums in the exchanges are going to save taxpayers many times that sum.)

Even if the risk corridors do end up costing some money, they're not a "bailout" any more than government employees who get overtime pay are getting a bailout. A bailout is when private firms can enjoy all the upside of risky behavior, and dump the costs on the public. In this case, there is no risky behavior, and taxpayers also share in the potential upside. "Bailout" is an insanely disingenuous term for a provision that's not only sensible but well-established.

The most revealing passage in Capretta and Levin’s polemic is this: “There is certainly room for risk-sharing and reinsurance in a rational insurance system, should insurers desire it …” Most readers will have no idea why the authors momentarily paused their anger to make such an allowance. Here is the answer: Because there is a risk corridor provision in Medicare Part D. That’s the health-care entitlement program enacted by the Bush administration, in which both Capretta and Levin served. The main difference between the two is that the risk corridors in Obamacare are in place for just the first three years of the program, while the risk corridors in Part D last forever.

Of course, the “Obamacare bailout” bill is not going to be signed into law. It’s an election-year message bill designed to let Republicans use the words “Obamacare” and “bailout” consecutively, and Republican Party advisers like Capretta and Levin see it as their job to provide intellectual cover for useful messaging strategies, however demagogic. This is also another sign of the slow thematic turn of Obamacare opponents from arguing that the law is collapsing to arguing that it is surviving only as a result of devious scheming. “Obamacare is collapsing” is a battle they will have to surrender eventually. “Obamacare is a scandal” is a fight they can keep waging in the right-wing jungles for decades to come.