Fraser Forum

No matter who wins in 2016, Obamacare will have to be renegotiated

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For more than five years now, Republican politicians have succeeded in appeasing the conservative American voting base by pledging to “repeal and replace Obamacare,” the health reform passed by a Democratic majority Congress and signed by President Obama in March 2010.

Obamacare promised to bring about the progressive commitment to heath care as a right by mandating that Americans buy health insurance from private insurers—an arrangement that had previously been voluntary. By imposing this mandate, Obamacare has driven up health costs. Even though Obamacare does not cover Canadians, it’s layering costs on hospitals and physician practices that will be reflected in higher premiums for Canadians who winter in the U.S. and buy snowbird travel insurance.

Few experts actually expect every last sentence of Obamacare (which the president signed in 2010) to be repealed. That being said, Obamacare will have to be renegotiated fairly early in the next president’s first term.

The reason?

The Obamacare health insurance market is designed to pool risks across insurers. Insurers which enroll people who are sicker than expected receive payments from insurers who enroll people who are healthier than expected. Unfortunately, it performs this adjustment very poorly. Overall, way more sick people enrolled than healthy ones did. Insurers are losing lots of money, and it’s likely that few, if any, insurers will be willing to provide Obamacare health plans beyond another year or two.

Obamacare committed federal loans to establish new, non-profit, cooperative health insurers to compete against established insurers in the exchanges, which began operating in 2014. As of writing, 10 of 23 of these cooperative insurers have stopped writing new policies, usually because state insurance regulators determined they were at risk of insolvency.

How did this happen? Let’s look at a pleading press release from the Colorado co-op, responding to being shut down:

This morning, the Colorado Division of Insurance (DOI) announced that Colorado HealthOP will not be able to sell its plans on the Connect for Health Colorado marketplace... Colorado HealthOP’s closure is the latest in a series of CO-OP shut downs across the country, spurred by the federal government’s failure to pay billions of dollars in promised funding.

The co-ops expected to be able to go back to Congress for unlimited bailouts, of which they were assured with a nudge and a wink from politicians in the Congress, which passed Obamacare. Unfortunately for the co-ops, the Congress elected after Obamacare passed had no interest in bailing them out.

Larger, established insurers are also losing money on the Obamacare exchanges (as I discussed in recent testimony to Congress). They can absorb losses longer than the co-ops could. However, they will also need bailouts that (the now-Republican majority) Congress has repudiated.

Health insurers will be increasingly unwilling to keep losing money in Obamacare’s exchanges, stranding millions of Americans in a broken marketplace. This will force both Republicans and Democrats to re-open the health reform debate.


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