The unraveling of Obamacare?
Paul Krugman has a recent post defending the exchange subsidies and tax credits that the Republicans wish to cut, talking with Jonathan Cohn about the “premium apocalypse” (and here). Whether or not one agrees with Krugman normatively, the arguments if anything convince me that Obamacare probably is not financially or politically stable.
To recap some history briefly:
1. Prior to passage, ACA advocates assured us that all three “legs of the stool” were necessary, most of all the mandate, to prevent adverse selection and skyrocketing premia. That argument made sense and was accepted by most economists, whether or not they favored ACA.
2. Obamacare passes by razor-thin margins, with a mandate.
3. The mandate proves extremely unpopular. Whether or not it is efficient, it puts a disproportionate share of the cost burden on other policy purchasers through the exchanges. The Republicans run against ACA and make some big gains.
4. Trump in essence “saves” Obamacare by in essence defusing enforcement of the mandate. The people who hated paying the very high premia could now back out of the system without getting into real trouble. As a result, much of the opposition to Obamacare, and the scare stories about expensive policies, dissipates.
5. Contrary to the predictions of the economists, Obamacare does not collapse. Enough people kept on signing up, perhaps because there is often a fair degree of “positive selection” into insurance coverage. Still, one has to wonder whether this will last.
6. Under the Biden administration, the Democrats support the continuation of premium support, but not with massive enthusiasm. It is expensive, though of course the Democrats did understand this is a centerpiece of Obamacare and they cannot give up on it. If you are calling the current situation a “premium apocalypse,” a lot of money has to be involved.
7. Putting aside the current Trump plans and the government shutdown and concomitant fight, how stable is this budget allocation over time? Is it possible that the economists (including Krugman and David Cutler) were right all along, albeit with a long lag, and the exchanges ultimately cannot work without a mandate? And that the premium support will just get more and more expensive?
It seems to be this scenario, while hardly proven, is really quite possible. One can blame Trump of course, but maybe the allocation no longer is sustainable over the medium term?
During the ACA debates, Megan McArdle frequently made the point that such a big policy passed by such small margins could not so easily last. A lot of people wanted to look past that observation, but was she so wrong?
Addendum: By the way, how are we supposed to pay for all of this? Repealing the recent Trump tax cuts and raising taxes on the rich doesn’t seem to come close to bringing the budget into balance. Endorse a VAT if you wish, but then do so! And let us have that debate. In the meantime everyone is just playing games with us.