I made a soft promise to myself a few days ago not to write anymore about ObamaCare. After all October 1, or O-Day, is right around the corner and just about everything that could be speculated about has been, ad infinitum. Time to wait and see how it all unfolds. I am now going to break that promise, just this once, and subject you to another post. It isn’t really speculation, though, mostly passing along a fact or two I wasn’t aware of but you probably know.
I had assumed (wrongly!) that one of the real threats to ObamaCare was the possibility that young, healthy people wouldn’t sign up for the program which would push up premiums as those in need of medical care made up too large a portion of the insured. Adverse selection causes insurance policy premiums in the exchanges to soar and the program collapses as insurance quickly becomes unaffordable. Avik Roy explains just how off base I am.
First, let’s recall the economics of Obamacare. As we have learned over the years, there is no way to guarantee that everyone can get health insurance without increasing the costs to health insurers, because healthy people start waiting until they get sick to get health insurance. Insurers then have to charge higher premiums, which drives still more healthy people off the insurance rolls, further increasing costs, and premiums. The result is what health-care analysts call the “adverse selection death spiral.”
When you require health insurers to enroll all comers, regardless of preexisting conditions – which is what Obamacare does – there are only two ways to prevent this death spiral from happening: Either force everyone to get health insurance, orpay for everyone to get health insurance. Obamacare is supposed to do both. But the individual-mandate penalty is so weak that millions of young people are likely to ignore it.
That’s just fine from the administration’s point of view. The part of the law they’re really interested in is the subsidy — the new middle-class entitlement. And here’s the crucial thing to understand about that subsidy. If you qualify for it, along a sliding scale, your insurance premiums are “capped.” The government picks up the rest of the premium increases, subject to certain “soft caps” down the road. The federal deficit is doubly exposed to these insurance premium increases: both through the exchange subsidy and through a separate cost-sharing (deductibles) subsidy. What that means — and this is perhaps the single most crucial fact about the entire law — is that the federal deficit is going to absorb most of the increase in insurance costs resulting from adverse selection as healthy people drop insurance in response to the law’s incentives.
That pretty much seals the deal, doesn’t it? Despite all the talk about advertising blitzes to get people to get the young to sign up and snafus with the employer mandate, it really doesn’t make any difference. This thing is pretty much bullet proof. It might end up costing a fortune but it kind of looks like the drafters have opponents backed into a corner.
Roy goes on to fantasize about capping the subsidy for increased subsidies as a far better way to fight than the defunding proposal floating about right now. Realistically, there aren’t the votes to do that anymore than there are votes to defund the program, and if there were the current occupant of the White House is there until 2016 and you’re not going to slip anything by him that hamstrings his namesake program.
Foes should probably admit at this juncture that ObamaCare is going to be woven more or less into the fabric of entitlements and by the time they have the means to eliminate it will be political suicide to do so. Better to start thinking how you remold it if the opportunity presents itself.