Last Tuesday’s announcement by UnitedHealthGroup, the nation’s largest health insurer, that it will dramatically scale back participation on Obamacare’s exchanges next year illustrates the law’s inherent flaws. Obamacare isn’t too big to fail, but it is too big, and it is failing; more bailouts will not solve the problem.
Even as the remaining Republican presidential candidates put forward their specific ideas for a conservative alternative to Obamacare, they should immediately declare—as health insurers prepare their bids for the 2017 plan year—that they will halt the tide of taxpayer funds the Obama administration continues to shovel insurers’ way.
With enrollment in exchanges dramatically below initial projections, and enrollees sicker than average, those insurers face mounting Obamacare losses. In 2014, insurers lost a collective $4 billion selling individual health insurance, and likely lost a similar amount last year. UnitedHealthCare said it would scale back its Obamacare involvement after losing more than $1.1 billion in the individual insurance market the past two years.
Cut the Cost-Sharing Subsidies
Congressional oversight has exposed health insurers lobbying for what amounts to a cash-for-clunkers swap, in which only additional taxpayer funds will keep them in the exchange game. Thus far, attention has focused largely on the temporary transition programs created for the exchanges’ first three years—reinsurance and risk corridors—and the way in which the administration has flouted the plain text of the law to sweeten those pots for insurers.
But if Jesse James went where the money was, he would focus on Obamacare’s cost-sharing subsidies—a permanent program, unlike risk corridors and reinsurance. This program, intended to reimburse insurers for reductions they make in certain low-income individuals’ deductibles and co-payments, comes with a significant catch: The text of the law nowhere appropriates funds for the subsidies—and Congress has not done so since.
In 2013, the administration initially accepted that Obamacare contains no explicit appropriation for cost-sharing subsidies; it requested new funding from Congress, and conceded these subsidies, if funded, would be subject to a budget sequester. Months later, however, the administration started paying cost-sharing subsidies to insurers. It now claims that Congress provided an appropriation for the cost-sharing subsidies by funding the law’s premium subsidies.
That premise defies the plain text of the law, which pays the subsidies to different entities. (Individuals qualify for premium subsidies, whereas insurers receive cost-sharing subsidies.) The House of Representatives, protecting its “power of the purse,” has sued the administration for violating the Constitution by spending funds never appropriated; oral arguments in district court in Washington are pending.
We Spend What We Want
Irrespective of the status of litigation against the Obama administration in January 2017, a future Republican administration can—and should—turn off the taps of unappropriated funds for the cost-sharing subsidies. According to the Congressional Budget Office, Washington will spend $130 billion on cost-sharing subsidies in the coming decade—all without an express appropriation from Congress.
Lest any argue that cutting off these funds qualifies as an Obama-esque use of imperial power, such a move would actually represent constitutional modesty—the executive deferring to Congress on whether to spend taxpayer dollars. In 1975, a unanimous Supreme Court ruling in Train v. City of New York meant that “[t]he President cannot frustrate the will of Congress by killing a program through impoundment”—that is, the executive failing to spend funds appropriated by Congress. Surely the inverse premise—that the president cannot frustrate congressional will by spending funds never appropriated—should likewise apply.
Both Donald Trump, who prides himself on not being beholden to special interests, and Ted Cruz, famous for his 2013 fight to defund Obamacare, have every reason to stop the flow of billions of dollars in unappropriated taxpayer funds. Moreover, by pledging to administer the law as actually written—as opposed to how the Obama administration has unilaterally rewritten it to help insurers—they would show its unworkable nature. Insurers must submit their 2017 plan bids by May 11, but few would do so if they knew they would not receive an estimated $9 billion in cost-sharing subsidies next year—funds Congress never appropriated in the first place.
Like a patient in intensive care, President Obama continues to administer billions of dollars to insurers as a form of fiscal morphine, hoping upon hope the cash infusions can tide them over until the exchanges reach a condition approaching health. But only markets, and not more taxpayer money, will turn this ailing patient around. Republican candidates should, sooner rather than later, pledge to end the morphine drip on Day One, and outline the prescription for freedom they would put in its place.
Mr. Jacobs is Founder and CEO of Juniper Research Group, a policy consulting firm based in Washington.