Saturday, November 16, 2013

Why the Sky Isn't Falling

According to a good many pundits, it's all over. Here's from Real Clear Politics this am: Is it Game Over for Obama by Dana Milbank at the Washington Post; The Sinking Ship of Obamacare by Kathleen Parker, also at WaPo; A New and Unprecedented Level of Panic and Chaos by Yuval Levin at the National Review; and When the Obama Magic Died by Fouad Ajami at the Hoover Institute.

The Magic Man has been revealed as an inexperienced naif, way over his head. The bedazzled American crowd has lost both interest and faith in its putative hero. Trust once lost cannot be regained. And most of all, underlying all of this, his signature project, Obamacare, is headed for the rocks.

Is this true, or even probable? Is the sky really falling? My short answer is: No! For this to be true, Obamacare would have to be fundamentally broken. Although conservatives think it is, I am satisfied that it is not. Let's review the arguments:

Conservatives claim there is a flaw in the program's design. To balance the new insurance pools, the young "invincibles" have to sign up. If they don't, the pool will skew towards the unhealthy; premiums will go up; more healthy people will decide to opt out; premiums will go up even further; and we begin the well-discussed "death spiral" that will shipwreck a badly designed insurance program. And, argue Conservatives,  the under 35s' will not sign up, because the penalties are so modest, relative to the insurance premium costs. Conservative conclusion: fundamental, unfixable program design flaw. Obamacare is doomed.

On the other side, program defenders argue that most of the young uninsureds would like to have insurance, but they have not, until now, been able to afford it. With the subsidies in the ACA, they will be able to; 60% of the uninsured will be able to buy solid insurance for less than $100 a month. What has kept this argument open has been the website problems, plus the natural tendency of those who need something the most (the not so healthy) to sign up first.

So what about the millions of people who are getting cancellation notices? How does this affect the ACA's economic model? Or is this essentially a political problem (breach of Presidential promise), not an economic one?

And here's where I believe (based on my own studies) that pundits on both side have missed the boat. The cancellations are quite obviously a big political problem, but this is also a major contributor to the underlying economics of the ACA: People converting from older, non-grandfathered individual insurance to new ACA-compliant policies will be in the same risk pool as the formerly uninsured who buy insurance on the Exchanges.

This is a big deal. Check out the 2011 Report from the National Association of Insurance Commissioners: The ACA law requires insurance companies to consider individual buyers (both on and off the Exchanges) to be part of a single risk pool on a state by state basis. What does this mean:
  • The current individual market has 12-15 million participants, most of whom no longer have grandfathered plans - so let's say 10 million people (prior to Obama's administrative fix) need to buy new, ACA-compliant plans, either directly with their insurance companies or through the Exchanges.
  • So how many of these people will be able to take advantage of the President's offer and keep their old plans? Each state Insurance Commission must agree to accept this change, and some have already said no. Insurance companies hate the change, because their systems have been programmed for ACA, and it will be very hard to go backwards. So what's my guess: 20-30% of folks facing a plan shift will now get to keep their old plan for a year. So that will mean 7 million people will have to buy new, ACA-compliant plans if they want insurance in 2014.
  • The 2014 total Exchange estimate has been and still is 7 million, of which (per the CBO) 2 million will migrate in from the individual, non-group market - so the total US pool is 5 million formerly uninsured, plus 7 million from the old, non-group market, for a total of 12 million 2014 buyers of ACA-compliant policies, on or off the Exchanges.
  • Everyone has been riveted on the 2.7 million target for under 35s', out of the overall 7.0 million projected Exchange enrollment, as what we must achieve to have a stable, sustainable insurance pool. THAT IS SIMPLY NOT CORRECT.
  • The estimated 12 million person insurance pool contains 7 million from the old non-group market where insurers screen each individual and carefully exclude unhealthy people. This is the first time these people will form part of a larger pool, and in doing so, they will lend enormous balance and stability to the overall pool.
The ACA is not headed for the economic rocks. People will sign up as the website is fixed. Premiums will not skyrocket next year - and we will know the 2015 premiums this summer. The forced conversion folks will continue to moan and groan, until early 2014, when most of them will have resolved their issues by either buying new insurance, keeping their old plans, or dropping out. We might even hit the enrollment target of 7.0 million, especially if the President's new initiative causes insurance companies to tell many of their customers about the better deals that might be out there on the Exchanges.

By next summer, the ACA will be emerging as a durable program that helps a lot of people. The GOP will still be proclaiming doom, but they will not have all the air space, as they seem to have right now.

I still think the ACA will be a plus for Democrats next Fall.

1 comment:

  1. Thank you for this. I agree, this will work out as a benefit to all. The current hysteria is a lot of nonsense.