Is Obamacare Already Beginning To Collapse?

There is a narrative of Obamacare as a triumphant reform of America’s medical system, engineered by the smartest technocrats in the country to create better and more affordable healthcare for us all. The obstructionist denialism of the Republicans was dealt a crippling blow with the Supreme Court’s upholding of the individual mandate last summer, and the 2012 elections finished them off. The Patient Protection and Affordable Care Act is now free to work its glorious magic on the citizenry.

There is another narrative of Obamacare as a hodge-podge, cobbled-together, bureaucratic-bloated, corporate-handout monstrosity that was just barely sufficiently greased around the edges to buy enough votes to pass an overwhelmingly Democratic Congress. The overly ambitious assumptions and interventions supporting this precarious nightmare began cracking and unraveling almost immediately, and are fast accelerating towards a tipping point that will precipitate the inevitable collapse of this inherently unstable behemoth.

Even if every exquisite detail of the 906-page master plan was executed as perfectly as comic economist Jonathan Gruber imagined, my bias still expected the results to be less satisfactory than advertised. The scope of the overhaul was too broad and too deep; the entanglement of the new bureaucracy was too complex; the manipulated inputs into the CBO’s rosy cost analysis projections were too contrived. But, of course, as with any exceedingly large enterprise, the plan has not even proceeded according to plan.

The Early Cracking

Before Obamacare was a year old, the Department of Health and Human Services had granted over 1,000 temporary waivers to various companies to exempt them from the costs of the earliest provisions. In April 2011, just after the law’s birthday, Obama signed the House’s Small Business Paperwork Mandate Elimination Act, which undid some of the bill’s onerous reporting requirements. By October 2011, the budgetary gimmick known as the CLASS act was cancelled after it was almost immediately discovered to be unworkable.

In February 2012, HHS secretary Kathleen Sebelius created an uproar by requiring all businesses to provide “free” birth control in their employee plans; then Obama altered the contraception deal, sort of. Fewer noticed that Sebelius abrogated her own apparent responsibility to finish establishing minimum health benefits and passed it to the states, of which only sixteen met a September 2012 deadline.

In June 2012, the Supreme Court upheld the mandate, yes, but they also struck down the forced state expansion of Medicare – another less crucial but still important piece of the slowly weakening contraption. In fact, the more we move toward implementation of Obamacare, the more the intricate Rube Goldberg machine seems to be falling apart.

The State Exchanges

The biggest roadblocks right now are the state exchanges. Every state is supposed to set up an exchange for buying and selling Obamacare-approved health insurance; if they don’t, the federal government will set it up for them. Remarkably, “Mr. Obama and lawmakers assumed that every state would set up its own exchange,” but it looks like 20-30 of them will not, due to a combination of resistance by Republican governors and continued delays by Obama’s administration in giving them sufficient details and instructions.

Even more remarkably, it appears that the text of the PPACA explicitly limits both the subsidies for buying insurance and the penalties for not buying insurance to the state exchanges (h/t Sonic Charmer). In other words, if the federal government sets up the exchange, they can’t fine businesses or individuals for not paying for insurance – which basically undermines the whole thing! It seems that the IRS issued a (possibly illegal) ruling to try to get around this apparent oversight (which Jonathan Adler and Michael Cannon argue was not an oversight), and Oklahoma is suing. Here we go again!

The Business Responses

We are also beginning to see businesses respond to the new incentives Obamacare is giving them. Some may just be sore-loser CEOs stroking their egos in publicity stunts, but the real effects have massive potential. Since the law requires most businesses to provide full-time employees with health care or face fines, Red Lobster and Olive Garden are experimenting by cutting hours and hiring more part-time workers (a reaction blindingly obvious in hindsight).

Papa John’s CEO was reportedly considering doing the same and/or adding a surcharge, although he has since walked back some of those comments. A Florida Denny’s franchise owner has also walked back comments about a surcharge, but he still seems to be planning to cut hours – along with, allegedly, AppleBee’s, Jimmy John’s, and more. And this is before the real stuff has even been put in place!

The Federal Delays

Some might argue that conservative politicians and CEOs are just trying to spitefully destroy Obamacare by any means possible; there may be some of that, but there are also likely legitimate concerns about costs and uncertainties. Regardless, the Obama administration continues to undeniably share the blame as it continues its waivers, extensions, and delays. The November 16 deadline for state exchange blueprints has been kicked into December, and as a result it’s increasingly unlikely that the next deadlines for embellished plans will be met.

That’s not all; in fact it appears that Obamacare is “behind schedule on nearly half of its legally mandated deadlines” so far, and the likely snowball effect makes it hard not to expect things to get worse. I share Peter Suderman’s prognosis that “ObamaCare’s bureaucratic ambition seems to have exceeded the Obama administration’s bureaucratic capabilities.”

The Future

So what happens next? As businesses increasingly try to shift costs, as governors continue to fight mandates and demand details, as the Obama administration continues to miss deadlines and budgets, as – oh yeah – a bunch of cool Obamacare taxes kick in this January – will this whole thing finally collapse before it even gets going?

Or will the political stonewalling and business bluffing fade away as the less beatific but still pragmatic plan keeps enough working pieces to slowly inch toward an implementation that ultimately improves our health and our budgets?

Anything is possible. You know where my bias lies. Let’s see what happens next…