Saturday, July 26, 2014

What Happens to Obamacare if Subsides in Federal Exchanges Continue to Be Disallowed?

Megan McArdle wrote an outstanding column about the status of Obamacare in the wake of the Halbig and King rulings last week.  I encourage you to read the whole article here.  Below is an excerpt of her work followed by my commentary.
... [R]ight now, [the prospect of Halbig being affirmed is] the only one possibility interesting enough to explore. So let’s hop to it.

...[H]ow many states decide to create exchanges? I’ve heard from several people today who thought it was obvious that most of the 36 states now on federal exchanges would simply withdraw and build their own in order to keep the subsidies flowing. This seems quite possible, because voters hate losing stuff, and especially subsidies. And state legislators do love them some free money.

On the other hand, that outcome is hardly inevitable. Law professor Jonathan Adler pointed out in a conference call yesterday that Ohio would have to amend its constitution to allow the government to establish a state exchange, and barriers in some other states are high as well. State exchanges cost millions to build and to run. States can still apply for federal money to build exchanges, Adler said, but the annual operating costs have to come out of either user fees or tax revenue. In lower population states, or poor states, that might be enough to keep legislators on the sidelines. So might the fear of primary challenges, even if the administration comes up with some easy administrative workarounds to lower the cost.

In the states that don’t establish exchanges, the most likely outcome is a death spiral. For one thing, without the subsidies, fewer people would be subject to the mandate, because the cost of a policy would become “unaffordable” as the Internal Revenue Service defines it for the purposes of assessing mandate penalties. Even if that weren’t the case, without the subsidies, a lot of people would find it cheaper just to pull out and pay the penalties. The most likely people to do this? Healthy youngsters paying more in premiums than they get in health services. If they exit the exchanges, premiums will rise, and the markets will spiral downhill. ...

The most interesting question, I think, is what an adverse ruling would do to the insurance companies. A lot of big insurers mostly stayed out of the exchanges for the first year, waiting to see how they’d develop. Perhaps because the administration has sweetened the pot considerably for insurers over the last eight months, this year, they seem to be wading in deeper, albeit still cautiously.

But what if the pot of subsidy money starts shrinking, rather than growing? That was always going to be a problem, because the risk corridor program, through which the government has funneled many of its pot-sweeteners, ends in 2016, and starting in 2019, the law changes its indexing formula in a way that may require subsidized families to pay a higher share of their income toward premiums. ...

In the end, some states will probably create their own exchanges, and many probably won’t. That wedge between the states with subsidies and the states without would leave an unstable fault line at the heart of the law, one that might cleave at any moment and destroy the whole thing.
I added the emphasis because I wholeheartedly concur with her conclusion.  Most states will not rush to open an exchange except, possibly, the very blue-est of the blue.  Large corporations operating in non-exchange states will have a clear competitive advantage in employee compensation and benefits.

They will be able to chose to offer healthcare benefits as they see fit for their market-segment without the herculean administrative and legal task of compliance with PPACA.  Mini-meds will be back on the table for low-wage and youth dominated industries.  And employers won't have to pay extra to TPAs, brokers and attorneys for the excessive new regulatory and plan requirements. 

Obamacare was 2,400 pages when passed.  It is somewhere in the neighborhood of 25,000 to 40,000 pages now, including regulatory releases and court decisions.  If it holds to the same reg-pages to statute-pages ratio as did Medicare and Medicaid, it will likely be north of 140,000 pages when it is fully implemented.  Let that sink in.  Granted, no one business or person would ever need to read all of that as many aspects would relate to matters not-impacting your specific situation.  But if someone did want to read the entire law, they'd have to read 383 pages a day, every single day for a year - no days off. 

John Conyers would not undertake the challenge.  Remember this?  

The economic advantages for employers in the more free, exchange-less states will be monumental.  Hiring will be better, employees won't be tethered to artificially depressed sub-30-hour work-weeks and the entirety of Obamacare would crumble as the exchange states are forced to abandon the Rube Goldberg Machine of healthcare in order to remain remotely competitive.