What a month Obamacare has been having, huh? The insurance exchange website, HealthCare.gov, has been swimming in serious technical shortcomings and wasn’t even properly tested before launch. Who would have guessed, just four weeks ago, how much chaos one little malfunctioning government website could create in the insurance market? Megan McArdle has deemed the current state of affairs, in which an estimated 1% of site visitors are able to set up a HealthCare.gov account, the “worst-case scenario for the insurance markets”: That the difficulty in applying is making it so that only the very persistent will be able to purchase insurance. And who is going to be persistent? The very sick, older people, and poor people.
“Insurance that is only sold to these groups,” McArdle says, “is going to be very, very expensive.” And she’s very, very right.
Having to pay $150 to deal with strep throat once in a while isn’t going to bankrupt many able-bodied millennials, even poor ones (having been one, I would know). Coughing up $200 or more every month is a big ask for a person spending over half of her income on rent alone. If young/healthy people find the exchange website too glitchy or the insurance premiums of exchange plans too high to opt-in to the exchanges, premium prices will rise to cover the elderly and sick, who have the aforementioned incentive to persevere through the exchange’s technical difficulties. Sick people = costly people; hence, premiums go up. Higher prices would cause more people to drop out, causing prices to rise further, and so on.
“Death Spiral” isn’t just a kick-ass name for a metal band, it’s a real hazard insurance markets face.
Meanwhile, insurers are canceling hundreds of thousands of individual insurance plans* and Sen. Rubio wants to delay the individual mandate, since a non-functioning exchange means people can’t purchase the product we’re legally required to buy. A delay would almost ensure that no young-and-healthies get onto the exchanges in the first year, only old-and-sickies.
So much for cost control. (Again I say: “You had ONE JOB, Obamacare”.) In the case of runaway adverse selection, it would be fair to assume that the government will throw more money at the subsidy mechanism – deficit be damned – before it lets the entire ship go down. By that time, it will be clear that creating a federal pool/program for really sick, uninsurable people in the first place would have been easier than, and preferable to, four years’ of partisan squabbling, the “war on women,” and every instance of Sarah Palin uttering the phrase “death panels.”
A month ago, I was perfectly happy to write off the GOP healthcare hawks as being unreasonably cantankerous and excessively theatrical cranks. “America may not want Obamacare, but it wants something,” I wrote. However, after three-plus weeks of fumbling, obfuscating, and blaming; after revelations that a federal agency would manage the entire project (including all 55 contractors) despite having no expertise in IT project management; after the president’s condescending Rose Garden speech this week defending the POS product, it’s become pretty clear that the administration doesn’t know their ass from a hole in the ground. Now they’re pushing people to apply by phone? Madness.
*Companies can choose to grandfather any plans that were available prior to 2010. It’s probably safe to assume that most of the plans being grandfathered are profitable, while the plans being canceled – that is, the policy owners – are not. Recall, also, that employers are increasingly cutting hours and reducing their health care coverage liabilities, as well.