GHEI: Don’t call the option on Obamacare

OPINION:

Obamacare had a bad week. Arguments made before a federal appellate panel Wednesday offer hope that the runaway socialized medicine train can be stopped before the most disastrous provisions are implemented in 2014. The urgency of doing so is also becoming more apparent.

A survey from the respected consulting firm McKinsey & Co. released this week suggests anywhere from 30 percent to 50 percent of employers now expect to drop health insurance as a benefit to employees. The survey found that the more informed the firm was about the legislation’s provisions, the more likely it was to cancel employer-provided insurance in 2014, pay the $2,000 fine per worker and let its employees fend for themselves on the government-subsidized exchanges Obamacare will create.

These numbers are far in excess of the 7 percent of employers the Congressional Budget Office predicted would cease providing health insurance as a benefit in the aftermath of Mr. Obama’s greatest legislative victory. The CBO has originally estimated subsidizing these people would cost about $19 billion. Going by the McKinsey study’s estimates of employers dropping coverage, that figure could now easily triple.

Judges on the 11th U.S. Circuit Court of Appeals in Atlanta this week were also skeptical of the administration’s claim that there was constitutional authority to force Americans to engage in commercial activity through the individual mandate. This was right after the administration’s top lawyer argued before a federal appellate court in Cincinnati, Ohio, that one way for Americans to get out the mandate was to earn less.

Bit by bit, Obamacare’s legal foundations are crumbling. With each revision, its estimated expense rises. No private-sector project could get away with being managed in such an irresponsible manner. A business can only be successful if the benefits of its endeavors exceed their costs. The same should be true for lawmaking, where legislation can be viewed as a kind of irreversible investment. The difference is that the costs of legislation, once sunk, can’t be recovered. That’s why there is a value to waiting in lawmaking. In the investment world, this would be the value of an option. Both the benefits and costs of legislation, just like an investment project, are uncertain. The legislation should be implemented only when the expected benefits exceed the expected costs, including the value of waiting.

It can turn out that lawmakers chose an inefficient path. The rules can be much more expensive than initially expected. The hoped-for benefits may turn out to be disappointingly small. All this is true of Obamacare. It does not seem like it will cover as many of the uninsured, costs are on the rise and the proposed system’s inefficiencies are growing more apparent the closer we get to 2014. For a law implemented in stages like Obamacare, the decision can and must be revisited - just like an investment that is undertaken in stages.

As of now, the sunk costs for Obamacare are relatively small. States like Alabama should not go forward with implementing exchanges and other aspects of the legislation until the Supreme Court has ruled on its constitutionality. As one of the 26 states in the 11th Circuit case, Alabama ought not to proceed with expensive institutional changes that cannot be recouped as its governor wants to do. It’s the equivalent of calling an option on an investment you say is bad. The states shouldn’t call that option.

Nita Ghei is a contributing Opinion writer for The Washington Times and co-author of “Legislate Today or Wait Until Tomorrow? An Investment Approach to Lawmaking.”