the national interest

‘Obamacare Bailout’ Does Not Exist, Confirms Government; House Republicans Demand Its Repeal Anyway

US Republican Senator from Florida Marco Rubio speaks at the BuzzFeed Brews newsmaker event in Washington on February 5, 2013.
Well then, I will wish the Obamacare Bailout into existence so I CAN repeal it. Photo: Nicholas Kamm/AFP/Getty Images

As of yesterday, House Republicans were torn, Sophie’s Choice-style, over what to demand in return for lifting the debt ceiling to accommodate the budget they passed. (Caveat: I’ve never seen Sophie’s Choice; I assume it’s a movie about a bungling kidnapper who has to choose what ransom she should demand.) One option was the Keystone XL pipeline. The other was the risk corridor provision in Obamacare, which they falsely call a “bailout.”

Here’s what happened next. First, the Congressional Budget Office released its annual budget report, and, among other things, it utterly annihilated the premise that there is any such thing as an “Obamacare bailout.” Having seen their imaginary claim conclusively debunked, Republicans are now leaning toward demanding its repeal anyway:

The Obamacare Bailout repeal plan is “gathering momentum” this morning. Tomorrow, the House Oversight & Government Reform Committee is holding a hearing entitled, “Obamacare: Why the Need for an Insurance Company Bailout?”

The alleged bailout is actually one of three provisions in the Affordable Care Act designed to prevent insurance companies from cherry-picking healthy customers. One of them, called “risk corridors,” would impose a kind of tax on insurance companies that sign up healthier-than-expected customers, and reimburse the firms that sign up sicker-than-expected customers. (The same thing exists in the prescription-drug benefit enacted by Republicans in 2003 – the only difference is that Obamacare’s version of risk corridors only last for the first three years, while the Medicare Part D version lasts forever.)

The Republican Party has decided that this amounts to a bailout, and has been pounding away at the theme for weeks, with major figures like Marco Rubio and Charles Krauthammer leading the way, and pretty much everybody else in the party following along.

One obvious rejoinder to the charge is that bailout is not just a term of opprobrium you can hurl at any government program you don’t like. As Mike Konczal has explained, bailouts are a specific kind of government intervention – “these actions are special rules that go into effect only when a firm is already about to fail, and the moves are decided on a case-by-case situation (that is, bailouts are ex post and ad hoc).” If any government subsidy that prevents financial distress were a bailout, then roads would be a bailout for the auto industry and Social Security would be a bailout for bad investors.

The bailout lingo is popular, of course, because the bailout of Wall Street, even if necessary, created justifiable animosity that conservatives are eager to transfer to other, non-bailout government programs. The distinction between bailouts and subsidies “strikes me as a semantic quibble,” argues Reason’s Peter Suderman, because risk corridors have been “transformed from the revenue-neutral risk sharing program that was originally envisioned into a mechanism for the federal government to pay off insurers.” Likewise, Ramesh Ponnuru asserts, “the exchanges as a whole will be unbalanced and in need of a taxpayer bailout.”

Maybe the Obamacare Bailout doesn’t exist, or maybe it was MURDERED IN BENGHAZI. Photo: Brendan Hoffman/Getty Images

Note that they’re both assuming not only that any subsidy can be fairly called a bailout, but also that a subsidy will surely exist. The risk corridor program could end up paying more than it takes in, in which case it will wind up subsidizing insurers. Conservatives have assumed as a simple given that the risk corridors will pay out more than they take in.

Today’s CBO report predicts just the opposite: that insurance companies will be paid $8 billion, but will pay back $16 billion. The risk corridor program is therefore predicted to result in a net expenditure of negative $8 billion. Repealing risk corridors would increase the projected deficit. If we accept the spurious equation of a subsidy with a bailout, then the Republican plan to repeal risk corridors would be a bailout, and the risk corridors would be the opposite of a bailout.

Conservatives have assumed that of course risk corridors will pay out more to insurers, because of course the exchanges in Obamacare are failing to attract healthy customers and must be propped up. The quietest news in the CBO forecast is that there’s no evidence this is happening. Yes, the bungled health-care launch lost two months of valuable outreach time, and implanted plenty of skepticism about the new law among consumers who knew little about it beside the failed website. Right-wing intellectuals spent last fall arguing not whether Obamacare was collapsing, but whether the entire liberal project was collapsing. (Yuval Levin last November: “it looks as though we may be witnessing a failure of the administrative state on a level unimagined even by its staunchest critics.”) Only a couple weeks ago, I futilely attempted to rebut two conservatives claiming the law was already “beyond repair.”

Today’s report projects that the bungled launch will mean enrollment in the exchanges will collapse all the way from seven million people to … six million people. Now, the number of people in the plan isn’t the only or best measure of its success, but it is a measure critics have seized upon. The existence of the nefarious Obamacare Bailout was a second reason – as the House Republican hearing asks, why the need for a bailout, if not to save a doomed law? There’s no reason why the lack of an Obamacare bailout should prevent conservatives from feeling anger at it anyway.

Repeal Imaginary Obamacare Bailout, GOP Insists