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On Obamacare, the GOP Lays a Trap for Itself

By James Surowiecki, The New Yorker

18 November 14

few days after the midterm elections, the Supreme Court announced that it would hear King v. Burwell, a challenge to the Affordable Care Act in which the plaintiffs are arguing that people who live in states which have not set up their own health-insurance exchanges—and who therefore find their insurance through the federal exchange, Healthcare.gov—are not eligible for tax credits that the law provides. These people are currently receiving subsidies, but if the plaintiffs win those subsidies will disappear. While victory for the plaintiffs once seemed utterly improbable—it was generally accepted that Congress intended for the subsidies to be available, and the entire suit is based on a phrase that’s often described as a typo—getting a hearing before the Court suggests that, at the very least, they now have a chance. Republican politicians are, as of now, gleeful at the prospect of the Court delivering a blow to Obamacare. But, once the economic and political consequences of those disappearing subsidies kick in, Republicans could well end up wishing King v. Burwell had never seen the light of day.

The lazy description of King is that if the plaintiffs win it could “scuttle” Obamacare. It can’t. Even if the Court finds for the plaintiffs, the rules and regulations that Obamacare put in place will remain intact—insurance companies will still have to accept all applicants, without regard for preëxisting conditions, and they’ll still be prohibited from charging people with those conditions higher prices. And the tax increases that fund the subsidies and the cost-saving initiatives in the law won’t go away, either.

What a victory for the plaintiffs in King would do is create two classes of citizens when it comes to Obamacare. For people who live in one of the fourteen states that have set up their own exchanges, like California and New York, things will remain as they are now. Residents of those states will continue to be eligible for those federal health-insurance subsidies, depending on their income, which means, for most of them, that insurance will be quite affordable. And, because the subsidies make insurance so affordable, lots of healthy people (meaning mainly young people) in these states will continue to buy insurance, with the result that the risk pools in these states will be more balanced and not overloaded with people who are older or who are sick. That will help to hold down price increases in those states in the years ahead.

By contrast, life is going to get much harder for people who live in states that have not yet set up their own exchanges. They’ll no longer be eligible for the subsidies, which means that many of them will have to pay hundreds of dollars more a month if they want to stay insured. Many of them won’t be able to afford that, which means they’ll return to being uninsured. And the problems won’t end there. Plenty of healthy, young people will decide to go without insurance, gambling that they won’t get sick. As a result, the risk pools in these states will be dominated by sick people (who will try, at all costs, to remain insured). Insurance companies will respond by raising the price of insurance to try to cover their costs, and that will drive more healthy people out of the market, leading to more price hikes, and so on. What these states may end up facing, in other words, is the insurance “death spiral” that the individual mandate and the subsidies were designed to avert.

At first glance, this might all sound good from a Republican perspective. After all, if Obamacare is an unacceptable imposition on individual freedom and an unworkable intrusion into health care, anything that makes it less effective would seem to be welcome. Yet the disappearance of subsidies is going to put governors and legislatures in states that haven’t established their own exchanges (nearly every red state) in a very difficult position. After all, their refusal—mostly politically motivated—to establish those exchanges will be the reason that their citizens lose subsidies, even as people in states like California and New York are reaping all the benefits of the law. The state legislatures will also, in effect, be responsible for insurance suddenly becoming far more expensive for millions of people. Finally, the politicians will also be putting a severe dent in the bottom line of insurance companies in their state, since the absence of subsidies guarantees that insurance companies are going to lose the customers they want (healthy people with low health-care costs) and get stuck with those they don’t (sick people whose health-care costs are sure to dwarf their premium payments).

The Republican hatred of Obamacare is so powerful, and Republican politicians’ fear of being challenged from the right is so strong, that there will undoubtedly be states where governors and legislatures hold firm and basically tell citizens that they can’t have, and shouldn’t want, the free money that the federal government is offering them. (Something like this already happened, after all, when some states opted out of Obamacare’s expansion of Medicaid, even though the federal government was going to pay almost all the costs.) But, given that this will wreck the individual market for health insurance in these states, that it will (unlike Medicaid) affect plenty of middle-class voters, and that Democrats will be able to point to states where the subsidies are still intact as obvious success stories, staying true to conservative principles is going to be a very hard political sell—even in truly red states. Republican politicians have been able to reap the political rewards of inveighing against Obamacare without actually having to strip benefits from anyone. Now they’re going to have to put up or shut up. Obamacare’s opponents may win when the Supreme Court finally decides King, sometime next year. But it could turn out to be a fight they’d have been better off losing.