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Reboot Obamacare

More than half the country agrees with my view that Obamacare should be repealed. But perhaps even the rest of the public could be persuaded that delaying full implementation for at least a year — say, till January 2015 — is a good idea. Why? There are five simple reasons.

First, it would save a boatload of money, thereby greatly improving the odds of reaching a mutually acceptable budget deal. Second, the federal government isn’t ready. Third, the states aren’t ready. Fourth, employers aren’t ready. Finally, the people aren’t ready.

1) Let’s start with the federal budget. The latest CBO figures show that the net cost of coverage expansions under Obamacare in 2014 will be $41 billion. But because projected costs mushroom after that (quadrupling between 2014 and 2023), delaying implementation for one year would reduce the net costs of expansion by 12 percent over the ten-year budget window from 2014 to 2023. Now, $41 billion may seem like small potatoes in the context of the $1.2 trillion in spending cuts that were included in the sequester. But remember that the $1.2 trillion  savings through 2021. In 2013, the sequester requires $42 billion in spending cuts, according to the CBO. Thus, saving $41 billion next year by delaying the rollout of Obamacare until 2015 would be a very big deal. Two federal-budget experts have calculated that delaying Obamacare by two years would reduce the deficit by $200 billion. This is nothing to sneeze at.

2) Kathleen Sebelius has assured the public that her agency will be ready to run health exchanges by October 1. But the reality is that only 17 states (plus the District of Columbia) have agreed to run their own exchanges. Seven states have agreed to a partnership exchange (i.e., jointly run with the federal government), and the remaining 26 states will be entirely reliant on the federal government to set up and run their exchanges. Fully 64 percent of the U.S. population lives in states where the federal government will be partially or fully responsible for running an exchange! This is a massive undertaking. Avik Roy has demonstrated, using quotes from the federal bureaucrats responsible for getting ready, that “officials in the Obama administration are worried that the rollout of the exchanges will be chaotic, given the law’s complexity and unrealistic deadlines.”

Leaving aside whether it is humanly possible to get ready on time, there are also two important unresolved wrinkles in this rollout. First, Health and Human Services never contemplated being responsible for exchanges in so many states. The funds it has available for this task fall far short of what is needed. In FY 2013, more than $1 billion in discretionary funds (i.e., funds subject to the control of Congress) are needed for implementation of the Affordable Care Act. Since Republicans have every incentive to withhold such funding in order to gain leverage for a budget deal more to their liking, it remains to be seen whether those funds will become available. One would like to think that by this time next year, these budget shenanigans will be behind us.

Furthermore, because of an apparent mistake in bill drafting, Obamacare does not permit federal subsidies to be provided in exchanges run by the federal government, a matter that is now being litigated. These income-related subsidies are a critical ingredient of making coverage affordable, especially given that Obamacare’s mandatory insurance reforms (e.g., requiring young people to pay higher premiums so that older people pay lower premiums) and health-benefits requirements (e.g., mandatory coverage of contraceptives) will drive up premiums in the small-group and individual health-insurance markets covered by the exchanges. Legal analyst Stuart Taylor has labeled this “by far the broadest and potentially most damaging of the legal challenges” to full implementation of Obamacare. Given the stakes, any decision handed down at the federal-district-court level is going to be appealed to the U.S. Supreme Court. But at this late date, that cannot happen until the Court’s next term. It would be best for all concerned to have this matter resolved before exchanges become operational.