The Pres­i­den­t’s health care law has had a trou­bled first month, but it is far too soon to know whether its prob­lems will prove last­ing and severe.  Even some of its most fer­vent sup­port­ers, like the Wash­ing­ton Post’s Ezra Klein, acknowl­edge that its defi­cien­cies run deep­er than a clunky web­site.  Oba­macare, the Pres­i­dent reminds us, is more than a web­site, but its prob­lems extend far beyond its 5 mil­lion lines of errant code.

Its tech­no­log­i­cal prob­lems will even­tu­al­ly be cor­rect­ed, but that alone will not ensure the law’s suc­cess. The make or break issue is this: can insur­ance com­pa­nies prof­itably sell cov­er­age through the exchanges? If they can, the law will sur­vive its present tur­moil; if they can­not, it prob­a­bly won’t.

That is why it con­tains so many pro­vi­sions to induce insur­ers to sell through the exchanges and to help them make mon­ey if they do. These pro­vi­sions are a form of cor­po­rate wel­fare that should be repealed or, at the very least, delayed.

The pro­vi­sions run counter to the express pur­pose of the exchanges, which the Admin­is­tra­tion has late­ly tak­en to call­ing mar­ket­places to give them a less bureau­crat­ic feel. The notion is that con­sumers will ben­e­fit from free and fair com­pe­ti­tion among insur­ance com­pa­nies, which will vie for their busi­ness on gov­ern­men­tal or qua­si-gov­ern­men­tal play­ing fields and play by gov­ern­ment-set rules. The vol­ume, com­plex­i­ty and rigid­i­ty of those rules makes this a very unusu­al mar­ket­place, one that is hard­ly com­pa­ra­ble to the sort of com­pe­ti­tion that con­sumers encounter on Ama­zon, Expe­dia and ehealth­in­sur­ance, which may help explain why those web­sites work and the government’s doesn’t.

That said, the real dis­tor­tions in this sys­tem are the var­i­ous incen­tives and sub­si­dies that the gov­ern­ment offers insur­ers to entice them into sell­ing through the exchanges and ensure them a prof­itable expe­ri­ence. These pro­vi­sions are not so much intend­ed to help con­sumers – indeed, some of them penal­ize con­sumers – as they are to ben­e­fit insur­ers who agree to help make Oba­macare work.

It is a game of “help me help you,” in which insur­ance com­pa­nies that agree to sell through the exchanges receive cer­tain ben­e­fits that their com­peti­tors do not. Mar­ket­places that require such spe­cial treat­ment are not mar­ket­places at all, but cozy arrange­ments in which the gov­ern­ment rewards com­pa­nies that agree to advance its social and polit­i­cal aims.

Chief among these is the indi­vid­ual man­date. Obamacare’s entire edi­fice rests on the premise that every­one wants and needs health insur­ance, even if they think they don’t. Gov­ern­ment is doing peo­ple a ser­vice by pun­ish­ing them for not buy­ing it. The notion is con­sti­tu­tion­al­ly dubi­ous. A major­i­ty of the Supreme Court ruled last year that Con­gress has no author­i­ty under the Com­merce Clause to impose such a require­ment. Gov­ern­ment can­not con­sti­tu­tion­al­ly com­pel you to buy some­thing you don’t want. It can, how­ev­er, tax you for not buy­ing it, accord­ing to that same Supreme Court rul­ing. Such is the state of con­sti­tu­tion­al jurisprudence.

The indi­vid­ual mandate’s stat­ed ratio­nale is fic­tion­al. The rea­son that the health care law levies a new tax on the unin­sured is not because gov­ern­ment wants to restore its way­ward chil­dren to the path of health secu­ri­ty and “indi­vid­ual respon­si­bil­i­ty.” It is that insur­ance com­pa­nies would nev­er have gone along with Obamacare’s stric­tures if the gov­ern­ment had not agreed to coerce peo­ple into buy­ing their product.

The insur­ance industry’s posi­tion is under­stand­able. The peo­ple who want health insur­ance most are those who expect to use it most. They want it because they believe that they will run up some very sub­stan­tial med­ical bills, bills they would pre­fer that oth­ers pay. If gov­ern­ment forces insur­ers to pro­vide cov­er­age to every­one who wants it and to charge peo­ple of the same age the same pre­mi­um regard­less of their expect­ed med­ical claims, they will have to charge them very high pre­mi­ums indeed. That would be bad for insur­ance com­pa­nies and the gov­ern­ment alike.

Requir­ing peo­ple who don’t want health insur­ance to buy it is thus about ben­e­fit­ing gov­ern­ment and insur­ers, not con­sumers, by help­ing make the pro­gram a polit­i­cal and finan­cial success.

Sup­port for the indi­vid­ual man­date is erod­ing in the Con­gres­sion­al wing of the President’s par­ty. The move­ment to delay it has gained con­sid­er­able trac­tion over the past sev­er­al weeks, with a grow­ing num­ber of Democ­rats adopt­ing this posi­tion  Those seek­ing delay offer two very dif­fer­ent alter­na­tives. One group wants to exempt indi­vid­u­als from the tax on the unin­sured through­out 2014, just as the Admin­is­tra­tion has exempt­ed large employ­ers who don’t spon­sor cov­er­age for their work­ers from the tax penal­ty for one year.  The oth­er would delay the man­date until the healthcare.gov web­site is deemed to be func­tion­al. Sen­a­tor Mar­co Rubio (R‑FL) has announced his inten­tion to intro­duce such a bill this week.

The prob­lem with this approach is that it con­di­tions a spe­cial arrange­ment for the insur­ance indus­try on the abil­i­ty of a bungling fed­er­al agency and its pricey con­trac­tors to suc­cess­ful­ly com­plete a project begun 3–1/2 years ago. One can assume that, giv­en enough mon­ey and time, HHS and its belt­way ban­dits will build a web­site that works. How does the suc­cess­ful com­ple­tion of that project legit­imize the impo­si­tion of a tax on peo­ple who decline to buy health insur­ance? Con­gress should repeal or delay the tax on the unin­sured with­out preconditions.

They should also repeal or delay the $10 bil­lion in cor­po­rate wel­fare pay­ments to plans that par­tic­i­pate in the exchanges. In order to raise this $10 bil­lion, sec­tion 1341 of the health care law requires an assess­ment of $63 on each of the rough­ly 159 mil­lion peo­ple who are cov­ered under group health plans. This is a trans­fer of $10 bil­lion from peo­ple who will not get cov­er­age through the new exchanges next year to the esti­mat­ed 7 mil­lion peo­ple who will. The mon­ey is intend­ed to fund rein­sur­ance arrange­ments, help­ing to help pay the claims of peo­ple who run up unusu­al­ly high med­ical bills. These bills should be paid with the pre­mi­ums that insur­ers col­lect from the peo­ple they cov­er, not by an assess­ment on peo­ple they do not. Labor unions have object­ed to the assess­ment, as have many busi­ness­es. Con­gress should repeal or delay both the assess­ment and the $10 bil­lion pay­ment to insur­ers that the assess­ment finances.

The same goes for the “risk cor­ri­dors” pro­vid­ed for in sec­tion 1342.  These com­pli­cat­ed arrange­ments lim­it the loss­es that insur­ance com­pa­nies will incur next year. Think of it as a safe­ty net for insur­ers who agree to sell through the exchanges. The law pro­vides that the gov­ern­ment will lim­it insur­ers’ prof­its and loss­es. But prof­it and loss are the nat­ur­al out­comes of com­pe­ti­tion. The mar­ket­place pro­duces win­ners and losers. It pro­tects com­pe­ti­tion, not com­peti­tors. Insur­ance com­pa­nies that play by the government’s rules in the government’s “mar­ket­place” and turn a prof­it should be able to use that prof­it to expand their com­pa­nies, reward their share­hold­ers and for oth­er legit­i­mate ends. Those that incur loss­es should be left to deal with the con­se­quences. It is not the government’s busi­ness to reward unsuc­cess­ful com­peti­tors with mon­ey it con­fis­cates from suc­cess­ful ones.

Final­ly, there is the mat­ter of cost-shar­ing, in which the calami­ties of Oba­macare and seques­tra­tion inter­sect. The law’s back­ers speak often about pre­mi­um sub­si­dies, in which peo­ple with incomes between 100 per­cent and 400 per­cent of the fed­er­al pover­ty lev­el are eli­gi­ble to have tax­pay­ers pay part of their pre­mi­um. What is less well known is that the law also pro­vides rich­er cov­er­age and low­er lim­its on out-of-pock­et spend­ing for cer­tain low-income indi­vid­u­als. The pre­mi­um sub­si­dies help pay for the cost of insur­ance; the cost-shar­ing sub­si­dies help with the out-of-pock­et costs for cov­ered ser­vices. So cer­tain low-income peo­ple, in addi­tion to get­ting a break on their pre­mi­ums, will pay less when they see a net­work doc­tor or pick up a pre­scrip­tion than mid­dle class peo­ple who sign up for the same plan. Deliv­er­ing these cost-shar­ing sub­si­dies is com­pli­cat­ed. To over­sim­pli­fy, if an insur­ance com­pa­ny signs up some­one with a very low income – say 150 per­cent of pover­ty – the gov­ern­ment will give them an addi­tion­al pay­ment that the insur­er must use to juice up their cov­er­age and reduce their cost-sharing.

But as Chris Jacobs of the Her­itage Foun­da­tion  has not­ed in a recent Wall Street Jour­nal piece, the cost-shar­ing sub­si­dies (unlike pre­mi­um sub­si­dies) are sub­ject to seques­tra­tion. Jacobs cites a May 2013 OMB report, which esti­mates that gov­ern­ment pay­ments to insur­ers for cost-shar­ing sub­si­dies will be reduced by 7.2 per­cent if seques­tra­tion occurs again next year.

The prob­lem, Jacobs observes, is that low-income peo­ple are being told when they enroll (assum­ing that they suc­cess­ful­ly nav­i­gate the process) what their reduced cost-shar­ing will be. If Con­gress and the Pres­i­dent can’t come to terms on elim­i­nat­ing seques­tra­tion, then some­one will get hosed: either the low-income per­son who won’t get the promised cost-shar­ing assis­tance or the insur­ance com­pa­ny that will have to pro­vide the promised assis­tance, though with a small­er pay­ment from the government.

Jacobs notes that CMS had vowed to sort this all out and issue guid­ance by Octo­ber 1. But like the promise that healthcare.gov would be up and run­ning smooth­ly by that date, the agency hasn’t deliv­ered. Choos­ing whom to betray – impov­er­ished fam­i­lies or its busi­ness part­ners – is evi­dent­ly prov­ing almost as dif­fi­cult for the embat­tled agency as mak­ing a web­site work. But as moral choic­es go, this one should be easy. Insur­ance com­pa­nies should be required to make low-income peo­ple whole.

I har­bor no ani­mus toward insur­ance com­pa­nies and I have long sup­port­ed reform­ing the way that health care is financed. Reform, in my view, should be based on con­sumer choice and com­pe­ti­tion. Oba­macare erred by sub­ject­ing the mar­ket to a stul­ti­fy­ing reg­u­la­to­ry regime. By impos­ing strin­gent and unbend­ing require­ments on con­sumers, insur­ers and providers, it has ren­dered true mar­ket-based reform impos­si­ble. Thus, the need to woo insur­ers through spe­cial arrange­ments that fur­ther dis­tort mar­kets, bur­den tax­pay­ers and con­sumers, and favor some com­peti­tors over others.

In pro­mot­ing his health care law, the Pres­i­dent over­looks these defects and rhetor­i­cal­ly embraces mar­kets. On Sat­ur­day, he once again described the gov­ern­ment exchanges as “mar­ket­places” and said that the “choice and com­pe­ti­tion” they facil­i­tate will ben­e­fit mil­lions of Amer­i­cans.  If only that were so. The law is rid­dled with spe­cial arrange­ments for insur­ance com­pa­nies that have lit­tle to do with mar­kets and no place in this law. Con­gress should elim­i­nate them, repeal­ing or delay­ing the tax on the unin­sured, along with the rein­sur­ance pay­ments and risk cor­ri­dors for plans that sell through the exchanges. And it should require insur­ers, should seques­tra­tion occur next year, to pro­vide their low-income enrollees with the cost-shar­ing assis­tance they’ve been promised.

Oba­macare has giv­en insur­ers who agree to sell through the exchanges one great com­pet­i­tive advan­tage: peo­ple can only get pre­mi­um sub­si­dies if they buy through exchanges. That is advan­tage enough. The gov­ern­ment has laid out its play­ing field and estab­lished its rules. Let the insur­ers compete.