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Can Obamacare fail?

Andrew Pudzer is the chief executive officer of CKE Restaurants, the company that owns Carl’s Jr. and Hardee’s restaurants. In yesterday’s Wall Street Journal, Pudzer recounted the company’s current experience offering affordable health insurance plans to its 21,000 employees. The company’s current experience reflects low participation rates: only about 6 percent of crew-level employees and 60 percent of general managers sign up for health-insurance coverage.

Pudzer also crunches the numbers on the anticipated impact of Obamacare on the company’s employees. Pudzer relates that the company plans at present to offer all full-time employees (i.e., employees who work more than 30 hours a week) the required Obamacare coverage. Pudzer says the company is “choosing to do that rather than send our employees to the [Obamacare] health-insurance exchanges and, if the workers qualify, the federal subsidies to help them pay for it.” (He doesn’t say that CKE is “choosing” to do so in the face of the penalties levied by Obamacare on employers failing to do so when full-time employees seek out health insurance on the exchanges, as some surely would.)

Pudzer’s crunching of the numbers is illuminating and almost funny. Having crunched the numbers, Pudzer concludes: “This is why I am concerned that [Obamacare] could actually cause the number of our covered employees to decrease, particularly in the first year. The penalty for declining coverage will be low compared with the cost of coverage; and employees will know that if they happen to get sick, they can get insurance after that.” He comments that “the economically rational decision for young people, like our crew employees, is to pay the penalty and forego the insurance. Despite what the government may believe, our employees are smart enough to figure this out.”

So what? If too few young and healthy employees sign up for coverage, premiums will escalate in future years: “For insurers, it’s simple math: Premiums collected must exceed claims paid. If too few young healthy people enroll, insurers will raise premiums on those who do. This could result in a spiral of rising premiums—causing more healthy people to drop coverage, driving premiums even higher.” Pudzer adds that if insurance costs go up, taxpayers also may end up paying more to foot the bill for the higher cost of subsidized insurance. (“This is particularly concerning since the administration has announced that it will be unable to verify whether applicants for subsidies actually qualify for them. The subsidies are likely to be very popular.”)

From the perspective of a businessman, Pudzer sees looming failure. But what is the perspective of an Obamacrat? Obama sold Obamacare on the proposition that it would lower health insurance costs. It won’t lower insurance costs any more than it will keep the other promises made to peddle the goods, but so what? Rising premiums might be the cause of some slight embarrassment, but it’s a small price to pay for getting the program up and running.

“Failure” from the perspective of a businessman means that Obamacare will cost even more than anticipated. From the perspective of an Obamacrat, this outcome provides ground for additional regulation and possibly other action, such as the elimination of the middleman from the equation. From the perspective of an Obamacrat, “failure” works so long as the exchanges have created a customer base for premium subsidies. Unlike CKE Restaurants, the program can’t go out of business.

The thing needs to be killed now, before the exchanges are scheduled to open for business on October 1. Utah Senator Mike Lee is thinking along the same lines, as is Nebraska’s Ben Sasse.

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