We Should Hope This Works

As the insurance exchange debacle drags on into its fourth week, the Democrats and the Obama Administration continue to dodge questions, obfuscate and try to find ways to blame Republicans. Yesterday’s hearing featured Democrat Frank Pallone calling the hearing a “monkey court” because Republicans have the temerity to wonder what the hell is going on with an overhaul of one-fifth of our economy. The Democrats’ media dog-washers are trying to silence liberal critics of the system using the “under no circumstances ever agree with conservatives, especially when they’re right” doctrine.

But they can’t keep up the facade. Conservatives, libertarians and honest liberals are detailing the many flaws this system has and the significant hurdles it faces getting online. Those critics are not passe about this; they are livid. And they should be.

One of the memes that is emerging among the Obamacare defenders is that Republicans and other opponents of Obamacare have no right to criticize the utter complete failure of the federal exchanges because we opposed it reform the first place. Since we opposed Obamacare, how can we complain about it? You’ll remember, of course, how that logic was applied to the Iraq War. Those who opposed the war never complained about how the war was executed or what happened in the aftermath of it.

Ahem.

But as an opponent of Obamacare myself, I am highly critical of the rollout because … I actually want the insurance exchanges to work. Everyone — conservative, liberal, libertarian or monarchist — should want the exchanges to work for three very important reasons.

First, the exchanges are one of the few good ideas that got into Obamacare. One of the things that drives up insurance costs is the lack of competition. The exchanges force open competition between the insurance companies, which is a good thing. They’re not perfect, of course or even particularly good. A better exchange system would have cheaper entry-level insurance, allow insurance to be sold across state lines and have fewer coverage mandates (it would also, you know, work). But compared to subsidies, coverage mandates, purchase mandates, Medicaid expansion and the IPAB, the exchanges are almost smart.

Second and more far more important is that if the insurance exchanges don’t work for a long time or if the purchase mandate is delayed, the result could be the complete destruction of the individual insurance market.

A lot of people don’t appreciate how much Obamacare is like a house of cards. Insurance companies can no longer deny coverage and have priced insurance on the exchanges based on the idea that people will be “taxed” for not buying insurance. This only works, however, if people are actually forced to buy insurance. Otherwise, they will wait until they are sick to insure themselves. If people can’t buy insurance or aren’t made to, the result is a death spiral where insurance gets more and more expensive and more and more people wait until they are sick to buy it.

This isn’t some theoretical possibility. It happened in New York:

New York state’s guaranteed issue and community rating rules—the two regulations that limit how insurers can charge based on health history and require them to sell policies to all comers—took effect in 1994. At the time, there were about 752,000 policyholders in the state’s individual market, or about 4.7 percent of the non-Medicare population. But by 2009, according to a Manhattan Institute report by Stephen Parente and Tarren Bragdon, the state’s individual market had practically disappeared, leaving just 34,000 participants, or about 0.2 percent of the non-elderly population. Individual insurance premiums, meanwhile, were among the highest in the nation—about $388 on average in 2007, compared with just $151 in California, another big Democratic-leaning state. In New York City, the annualized premium cost for individuals was more than $9,300 and more than $26,400 for a family.

The result, in other words, was a combination of sky-high premiums and far fewer insured individuals.

The individual markets only survived at all because insurance companies could make up the losses from less stupid states. But Obamacare is national; there is no other state to make money off of.

If people can’t buy insurance, the result will be the complete meltdown of the individual insurance market and millions of Americans becoming uninsured. In fact, many have already lost their insurance as companies cancel individual policies in anticipation of the Obamacare exchanges.

Now maybe you think that’s acceptable. Obamcare will implode, the Democrats will be blamed and Republicans will sweep back into power (assuming they don’t screw it up). But look beyond the politics. Millions of Americans will be cast into an insurance purgatory that they may never get out of. The individual insurance market works because of people being good citizens — buying insurance when they don’t need it so that the market can support those that do. If that culture is destroyed, if Americans get into the habit of waiting until they are sick to buy insurance, they may never get out of it. A good example of this is the Israeli Daycare Study where daycare centers imposed a fine on people for picking up their kids late. The result? More parents showed up late because they could now buy off their guilt. And when the fine was rescinded, the parents kept showing up late because the social norm of being on time had been effectively destroyed.

Once the individual market collapses, we may never be able to rebuild it. We may be in a situation where your insurance choices are either through your employer or through Medicaid. That is an extremely high price to pay for making Obama look bad and maybe winning an election.

(It has been suggested, here and on other blogs, that this sabotage is deliberate; that Obama is deliberately crippling the individual market to lead us toward single payer. I’m open to the possibility of a subconscious desire to wreck the private market. But I have a hard time believing in any conspiracy with this administration. It’s not that they wouldn’t try. It’s that these guys are so incompetent that if they actually tried to sabotage the exchanges, the result would be a perfectly functioning exchange system.)

Now my second point may cause many liberals — who see Obamacare as a stepping stone to single payer — to quietly rejoice. Already, many are blaming this on the private sector. Who will be the first to say this “proves” we should trash private insurance and go with single payer? Who will be the first to say we should just expand Medicaid to everyone who isn’t insured by an employer?

But this idea is mind-bogglingly stupid. If the Democrats destroy the individual insurance market and increase the number of uninsured, Americans will not thank them for it. We are not going to rise up in a mass and say, “Oh, you great ones who took away our insurance. Tell us what to do next!”

And frankly, if anyone thinks Medicaid is the future of health insurance (oh, wait, here’s Krugtron the Ever-Wrong making the case) they need to spend a few weeks working in a hospital that only takes Medicaid. Medicaid is only marginally preferable to no insurance at all, providing a consistently lousy quality of service. That’s how it keeps costs down. In fact, Krugman’s defense of Medicaid is made entirely in terms of costs. His only acknowledgement of the downside of consigning millions to the Medicaid gulag is this:

But the problems of access, such as they are, would largely go away if most of the health insurance system were run like Medicaid, since doctors wouldn’t have so many patients able and willing to pay more.

Yes. I’m sure those doctors will take massive pay cuts rather than leave the field. Let’s apply Krugman’s logic to academia, another industry afflicted with runaway costs. We could cut those costs by turning the entire shebang to the community college model. And the problem of finding good professors for those colleges would disappear if they no longer had universities like Princeton able and willing to pay more.

(My apologies to community colleges, who are far better at teaching than Medicaid is at insuring.)

Obamacare is a bad law. It ignores everything we’ve learned about healthcare reform over the last decade and applies a model that at least twenty years old. But the situation with Obamacare could get far, far worse and could do permanent damage to the healthcare system if the exchanges don’t start working. Everyone should hope that they do because this isn’t a political game: this is the healthcare of millions of people. We will never be able to truly reform the system if there’s nothing left to reform.

Comments are closed.

  1. Seattle Outcast

    The better solution would be to remove about 99.5% of the existing regulations surrounding medical insurance and let them compete by offering a vast multitude of plans that nearly anybody would be able to find at least a minimum amount of coverage – you know, an actual free market of insurance where all of them are allowed to compete for every person’s dollars based on providing a good price and good service.

    Since Obamacare is actually forcing insurers to issue policies that essentially cover everything up to an including praying to a head of lettuce, the entire concept is so flawed that it’s actually worse than the fucked-up way most people get it from their employer.

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  2. Hal_10000 *

    Exactly. Imagine the exchanges where you could basically taylor the coverage you wanted and insurance companies from all over the country would bid for your business.

    Maybe Obama should hire MItt Romney to clean this mess up.

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  3. Mook

    A lot of people don’t appreciate how much Obamacare is like a house of cards. Insurance companies can no longer deny coverage and have priced insurance on the exchanges based on the idea that people will be “taxed” for not buying insurance. This only works, however, if people are actually forced to buy insurance

    Maybe I’m missing something, but you seem to be glossing over a huge key point, and that is the perverse incentives introduced when the government mandated that insurance companies no longer have the freedom to deny coverage. It’s totally analogous to the govt. forcing car insurance companies not to deny coverage, which would incentivize and enable people to buy insurance only after they have an accident.

    It’s not that “good people” buying health insurance made the system work, it’s that without the govt. interfering to force insurance companies to cover anybody no matter what, people HAD to carry insurance or risk serious consequences. They had powerful incentives to buy and maintain those policies, but now those incentives have now been artificially removed by government at a great cost. As if that wasn’t bad enough, govt. also decided to dictate what must be included in each health insurance policy.. and of course, additional, less visible power grabs and abuses in the form of 100’s of references to “at the discretion of the Secretary of Health and Human Services”. It’s a system flawed to the core.

    We can never realize potential benefits of health insurance exchanges when the exchange has it’s hands tied and restricted in so many ways by the government. It’s as if the govt. is making us eat shit sandwiches, but giving us the “freedom” to buy them through shit sandwich exchanges, and possibly qualify for shit sandwich subsidies.

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  4. hist_ed

    “First, the exchanges are one of the few good ideas that got into Obamacare.”

    Hal, least shitty idea does not equal good idea. If instead of these exchanges, we simply allowed people to buy insurance across state lines (pre OBamacare) you would have had competition and a huge variety of plans. What other commodity requires a government run exchange to foster competition and access?

    People didn’t buy insurance pre-Obamacare out of the goodness of the hearts, the pre-existing conditions policy is what made healthy people buy insurance. Reinstate that and you get a better functioning insurance market.

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  5. AlexInCT

    Hal, least shitty idea does not equal good idea.

    ^^^^^THIS^^^^^

    The rules & regs in ACA amount to everything you would/should not do if you wanted to fix healthcare in any way. I can not find anything in this pile of stinking corpses that I would say is worth keeping. Everything this usurpation of power masquerading as healthcare reform does is a way for government to get its grubby hands on our money, to hamper our decision making capabilities, and to put people’s necks under the boot of government bureaucrats.

    Burn this thing and start from scratch. Do real reform. Provide everyone that enrolls with catastrophic coverage insurance paid by taxes, create an exchange for those with conditions that would keep them from being insured privately and have government (tax payers) cover them, and leave the rest to the private sector without the massive and unwarranted regulation that exists now. Those that opt out are on their own. Choices have consequences. I guarantee you it would cost a fraction of what we have now and it would be magnitudes better. Of course there is really no opportunity for politicians to engage in graft, to increase their power, or to buy votes, so it will never fly.

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  6. hist_ed

    Even the most popular Obamacare changes undermine the system. EG: Keeping children on parents plans until they are 26-this pushes the ratio of healthy young folks to sick old folks in the wrong direction. But since the goal is turning adults into infantile wards of the state, reducing their responsibility in their early 20s gears them up for reduced responsibility for the rest of their lives.

    Really, it’s the healthy people who should be most pissed off about this. Once again (see social security) we are taking money from the young and giving it to the old.

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  7. CM

    Old people are young once. Isn’t the whole point (just like welfare) that people play different roles in the system at different times…..

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