The Wall Street Journal editors had an interesting unsigned editorial ("In Search of an Obamacare Breakout," May 22) recently (they call such editorials "Review and Outlook") on what Republicans in Congress should do if the Supreme Court finds, later this month in King v. Burwell, that the Obama administration did indeed violate the law by giving health-insurance subsidies in states that lack state-created "exchanges."
The political problem? Here's how the WSJ editors put it:
If the High Court upholds the plain text of the Affordable Care Act and vacates the insurance subsidies in the 37 states that did not establish their own exchanges, the White House will try to turn the disruption to its advantage. Some 7.7 million people are now part of the entitlement in those states, and their largely Republican Governors will come under intense industry and constituent pressure to restore the subsidies by joining ObamaCare.
In private, the Governors are petrified that dysfunction in Congress will force them into a lose-lose trench. If they set up a state exchange, they'll be pilloried by their GOP base. If they don't, they'll be blamed for cutting people off medical care.
The Journal editors' solution:
The best response we've heard comes from Mr. Johnson [Ron Johnson, Republican Senator from Wisconsin] and has broad support among Senate Republicans. In the event the Court overturns the subsidies, Mr. Johnson proposes a straight extension of the subsidies through August 2017 for anyone enrolled as of this summer. That insulates people who through no fault of their own would suddenly be victimized by ObamaCare.
In return, he'd restore to states the freedom to deregulate ObamaCare's central planning diktats and offer more policy choices to consumers. Over time, the subsidies would be less necessary as markets healed.
My favorite economist at the University of Missouri, St. Louis, David Rose, sent me a link to his letter published in the WSJ that goes further than the Journal but is in the same spirit. He writes:
Republicans should pass a bill that commits to continuing the same level of funding in those states that didn't establish their own exchanges with the provision that they must now offer a voucher option. The voucher option will allow citizens to choose a voucher equal to the subsidy they would have received before the Supreme Court decision. But here's the key: Insurance companies will be allowed to offer plans for the voucher option that are subject only to the state regulations that existed before ObamaCare regulations went into place. Going forward such plans will continue to be regulated by their respective states only.
A voucher option would be simple to administer and would make it impossible to blame Republicans for torpedoing ObamaCare because they will have maintained full funding. It would also enjoy support among Democrats desperate to do something to distance themselves from the original bill.
The states that didn't set up exchanges are precisely the ones filled with voters who are most likely to respond positively to a voucher option. It will not take long for political pressure to mount to pass another bill requiring that all exchanges offer a voucher option.
This is very clever. It's often easy for advocates of economic freedom to come up with policy proposals that solve real problems. It's much harder for us to come with policy proposals that contain the seeds of their political success. I think David Rose has one.
When I wrote him to congratulate him on his thinking, he replied:
It's not enough to recognize a bad equilibrium. It's not enough to spell out a good equilibrium. The challenge is building policies that can get us from the former to the latter.