Tag Debt Ceiling

Delaying the Individual Mandate Isn’t A Real Possibility

Danny Vinik 1 Comment

One thing that Republicans have been clamoring about recently is for a one-year delay in the individual mandate in response to the Administration’s (unlawful) decision to delay the employer mandate a year. This morning, National Journal and Public Notice hosted an event at the Newseum titled “Fiscal Fallout: What is ‘Responsible’ in Today’s Fiscal Reality” with keynote addresses from Sen. Orrin Hatch (R-UT) and Center on Budget and Policy Priorities’s Robert Greenstein as well as a panel discussion on our fiscal situation. Near the end of the panel,  Bill Hoagland, the Senior Vice President at the Bipartisan Policy Center, discussed the possibility of delaying the individual mandate for a year:

You can’t defund Obamacare on a continuing resolution because 90% of Obamacare is entitlements so it doesn’t make any sense, but I do think Bob [CBPP’s Robert Greenstein] passed over one small thing. He mentioned that a delay would increase the number of uninsured by 11 million. Yet he did not mention that the CBO’s cost estimate on that was that it would save $35 billion too. I’m not here to propose a delay, but for the average person listening to this debate outside, [they may say,] ‘Wait a minute. You delayed the employer mandate. Why can’t we delay the individual mandate?” And I worked with some insurance companies also so I know that the argument will be that this will drive up premiums immediately. Quite frankly, premiums have been set here for the exchanges starting in a few weeks and the companies don’t know what the experience is going to be anyway. So I don’t find a delay necessarily to be bad. In fact, I would almost think the Administration would want a delay to get the exchanges ready [while] other provisions of the law remain in effect – no [rejecting people with] pre-existing conditions, [allowing young people to stay on their parents’ insurance] up until age 26. So I think one of the outcomes here will be that you hear more about a delay. And I’m not proposing it. I’m just suggesting you’ll hear more about a delay.

First of all, under no circumstance is the Obama Administration going to delay the individual mandate for a year. They’ve fought off challenge after challenge for the law to get to this point and they believe (as I do) that once it officially begins, it will be here to stay. Based on their desperate, stubborn refusal of House Republicans to fund the government unless the Administration agrees to defund the law, they seem to agree as well.

Second, just delaying the individual mandate would be a disaster. Hoagland says he understands the counter argument to such a delay, but he doesn’t seem to. The problem is that if you delay the individual mandate, but still require insurance companies to cover everyone with pre-existing conditions then the death spiral ensues. Only unhealthy people sign up for the law while healthy people forego insurance. Without the offset of those healthy people paying into the system, these insurers must raise premiums to cover the unhealthy ones. Hoagland notes this, but uses a bit of hand-waving to say that insurance prices are locked in and thus insurers won’t be able to raise premiums. Well if that’s the case, then insurance companies will go bankrupt. The companies came up with insurance premiums assuming that young, healthy individuals would purchase insurance. Their business model falls apart if those individuals aren’t required to sign up, but the firms are not allowed to revises their premiums.

Thus, if Hoagland wants to delay the individual mandate (which he never says he wants to do – he’s just suggesting it’s going to come up), then we must delay the pre-existing condition requirement as well. This would effectively delay the entire law and give Republicans another year to figure out how to repeal and undermine it. They can even try to delay it until the midterm elections where they will hope to win back the Senate and repeal it altogether (of course, the President would veto such a bill).

So, contrary to Hoagland’s suggestion, this isn’t something you’re going to hear more about. It would be an epic disaster policy-wise and the Administration isn’t going to consider it. Obamacare is the law of the land and that’s not changing.

Fiscal Cliff v2.0

Danny Vinik 1 Comment

Just a quick post with my thoughts on Treasury Secretary Jack Lew’s announcement today that by mid-October the U.S. will only be able to make payments with the cash it as each day. In other words, we’re hitting the debt ceiling a couple of months early. Kevin Drum posits that this means negotiations over the budget are going to be lumped in with the debt ceiling:

If mid-October really is the drop-dead date, it means that budget negotiations in late September and debt ceiling negotiations in early October pretty much run right into each other. It’s Fiscal Cliff v2.0.

I don’t quite know what this does to John Boehner’s fragile attempts to keep the lunatic wing of his party under control. Nothing good, probably. I’m also not sure what it does to President Obama’s promise not to negotiate over the debt ceiling. If all of this stuff get munged together, then everyone’s going to get mighty hazy mighty fast about what exactly is being negotiated.

The budget negotiations and debt ceiling running into each other will hurt President Obama and Democrats on both those issues. Raising the debt ceiling should be a technicality that no American would consider holding hostage. We know that House Republicans don’t believe that though. We also know that most Americans don’t follow politics closely and asking them to differentiate between Obama’s willingness to negotiate over the budget, but refusal to do so over the debt ceiling is difficult. Most aren’t going to understand the difference. and will expect Democrats and Republicans to compromise since there are two issues.

If the two were separate, Democrats could bargain with Republicans over the budget and come to a deal (or a continuing resolution). Then, a few months later, they could refuse to negotiate over the debt ceiling and explain to the public that this isn’t debatable. We don’t debate paying our bills. The two issues running into each other just muddies the water. That will allow Republicans to escape some blame on both topics and give the GOP more leverage in negotiations. It may even force the President to bargain over the debt ceiling (or do so subtly). Either way, Republican elites should be pleased with this outcome. It may make their party a bit harder to control during the process, as Drum points out, but the increased leverage they have over the President is a worthwhile tradeoff. As for Democrats, there’s nothing good about this at all. Get excited for Fiscal Cliff v2.0.

Why I’m Skeptical About #MintTheCoin

Danny Vinik Leave a comment

The big conversation topic over the past week has been about whether or not President Obama should instruct the Treasury to mint a trillion dollar platinum coin, deposit it in the Treasury’s bank account at the Fed and thus avoid a nasty debt ceiling fight with Republicans. Steve Randy Waldman has more technical details on it. It’s an incredibly interesting idea and at first, I was on board, but over the past few days, my mind has changed.

I still believe its legal and would not have any economic impact outside of avoiding a default. It wouldn’t cause massive inflation. And of course the coin doesn’t need to be actually made out of a trillion dollars worth of platinum.

But, I’m skeptical about it for two reasons:

1. Right now, we have two parties in this country: one crazy (Republicans) and one sane (Democrats). Think about what would happen if we actually minted the coin:

Republicans would probably file a lawsuit against the President, claiming its illegal. And then they would spend the next four years making the President’s life as hard as possible. Forget about new gun regulation. Forget about immigration reform. Congress is inept right now, but it can get a lot worse. Mitch McConnell can bring the Senate to a stop. John Boehner can spend the next two years only passing bills to repeal Obamacare. It wouldn’t surprise me at all if House Republicans tried to impeach the President for such a move. The government would grind to a halt. And, we also need to pass a new Continuing Resolution for the federal budget in March so that our government is actually funded. How do you think that would go if Obama mints the coin?

2. It also sends out an image to the rest of the world that America’s government is fundamentally broken. I know – our image is already in the garbage since we’re debating whether we should pay our own debts. Bear with me for a second.

Congress may be incompetent, but the President actually did accomplish a lot in his first term: the ACA, Dodd-Frank Act, ending the war in Iraq, etc. House Republicans can spend all the time they want opposing everything Obama proposes but it doesn’t mean nothing happens. Bills still do pass (even if it’s at the slowest rate ever) and laws are signed. Believe it or not, Congress can actually do a lot less. Other countries, international companies and foreign investors know this. They may also hit the panic button if we mint the coin. Who wants to invest in a country where they need to mint a trillion dollar coin to not default? Who would have any faith that that country could accomplish anything? I’m not sure if the international world would finally lose faith in America, but it’s a risk that I’m unwilling to take.

However, there is a big caveat here. If the option is between going over the debt ceiling and defaulting or minting the coin, I’m on #MintTheCoin’s side. Defaulting is still worse than McConnell and Boehner shutting Congress down. It’s still worse than the international world losing all faith in America’s political institutions.

But right now, there’s a third option: negotiations.

I know the President has said he won’t negotiate over the debt ceiling, but he doesn’t have a choice here. The negotiations aren’t going to be fun. Republicans have the leverage and are going to use it. Some are crazy enough that they actually want us to default. However, Republican leadership understands how horrible that would be. They know they can’t let it happen. They also know that their image is a disaster and the public will largely blame them if we default. They have a number of incentives to negotiate and work towards a deal.

It’s a terrible, horrible standard to set, but we don’t have a choice. Get ready for an ugly couple of months.