Sunday, November 17, 2013

Obamacare and the Future

Current conventional wisdom has it that Obama is toast, that the unpopularity of Obamacare proves that the Democrats can never be trusted with power again, and that the Republicans will sweep the 2014 and 2016 elections, and that the program is already in a terminal death spiral.  Of course, conventional wisdom a month ago was that the Republicans were toast, that the Democrats would sweep the 2014 and 2016 elections, and that the shutdown proved the Republicans could never be trusted with power again. Welcome to the fickle world of news cycles.

So far as I can tell, the websites problems did not dent Obama's popularity and actually enhanced the popularity of the program, probably because most people thought a website for the uninsured to buy insurance was a good idea, and that malfunctions could be fixed.  Cancelled policies have seriously hurt both the program and Obama.  Even if only a relative few have lost coverage, they make compelling stories, and besides, once policies start cancelling, no one feels safe.  Besides, Obama promised that no policies would be cancelled, so his credibility has taken a hit.

But notice another thing.  Republicans are no longer pushing for outright repeal.  After all, now outright repeal would mean shutting down the exchanges where non-trivial numbers of people have shopped or want to shop for insurance, stripping at least some people of insurance, and killing a system which is working in at least some states.  Instead, they are trying in various ways to discourage young and healthy people from shopping on the exchanges -- by permanently legalizing bare bones policies, and by seeking a delay of the individual mandate. They are hoping that these things will induce a death spiral and cause the system to crash and all the older and sicker people who bought insurance on the exchanges to lose their coverage.  (Hurray!  Wait a minute, why did we want that?)

Looking at the future of the act, I see one main danger that could truly kill it.

It is not the malfunctioning website.  That will be fixed.  It will probably not be fixed by November 30, and Obama should start admitting as much, lest his credibility take yet another hit.  But I expect it to be reasonably functional well before the end of March.

It is not the cancelled policies.  They are more problematic, but they can be replaced once the connections to insurance companies start functioning.  Besides, cancelled polices (replaced, though sometimes at higher rates) are a start up cost that will not be repeated.  They may be a big issue in the 2014 election (or they may not), but they are unlikely to be anyone's top worry by 2016.

It is not even that some cancelled policies will not be replaced by December 15 and will lead to a few weeks' lapse.  For healthy people (and buying individual policies  is difficult if you are not healthy), it will be just another start-up cost -- something people may still be angry about by the 2014 elections, but not by 2016.  Something does need to be done for people with serious medical problems for whom even a few weeks' lapse could be disastrous.  We need more publicity for this matter in order to force Congress and the President to do something.  But even that is a starting up cost that will be a one-time event.

It is not, as some people have suggested, the second rate shock that will hit when people learn about the deductibles and copays on the policies.  I could be wrong here, but I do not expect that to be such a big issue for the simple reason that the American people are used to deductibles and copays.  Besides, the Platinum, Gold, Silver and Bronze plans make clear that they are ranked by deductible.

It is not the prospect of a death spiral, at least not yet.  This is a real danger over the long run, but there are built-in safeguards to keep it from happening as a result of anything in the first year, or even two or three. Government is backstopping the insurance companies for the first three years so that if they do not get enough healthy enrollees at first, they will not have to raise their rates right away.  A death spiral is a long-term danger if the system ends up not working, but it is not at hand any time soon.

It is not even the prospect of a second government shutdown and threatened debt ceiling breach, although I do see some danger there.  Republicans backed down last time because public opinion was clearly against them.  Depending on how well the system is working by next January 15 (and whether news coverage has moved on to something else), public opinion will probably be less clear-cut next time around.  Granted, public opinion is unlikely to support a shutdown for the sake of shutting down the exchanges and stripping people of insurance they bought through them.  But it might support the Republicans on various modifications that will undermine the system over the long run, such as indefinitely allowing bare bones plans, or delaying the individual mandate.

And that is where I see the real danger -- rate shock when the individual mandate hits.  The individual mandate has always been the least popular part of the law.  (Really, the only unpopular part when surveyed by itself).  Indeed, Obamacare is less popular with the uninsured than the public at large* precisely because they fear being penalized for being uninsured.  The whole idea of forcing people to buy a product they don't want strikes many people as outrageously un-American.  So far, the concept has been mostly an abstraction, but starting next year it will become real.  And, what is worse, contrary to what many people believe, the fine is not $95.  It is $95 or 1% of adjusted gross income, whichever is more.  That means that a lot of people will be dismissively expecting to pay a $95 fine, not too concerned and will get quite a shock when it turns out to be hundreds of dollars.**  A President already facing credibility problems over promising people they can keep their insurance, and that the site will be fixed by the end of November, will take another hit, a big one.  And unlike the website malfunctions and the cancelled policies, this one is not going away.  Indeed, the fine for not buying health insurance will go up the next two years, and people will be angry.  And if the Republicans propose legislation, and perhaps threaten to shut down the government and default on the debt in order to force a delay or repeal of the fines, public opinion is apt to back them and be very hard to resist. If they run on a repeal of the individual mandate in 2014, or 2016, they will have a popular issue, one that will not go away.  And one that could very well induce the death spiral Republicans so desperately crave to kill the program.
*Can't find link
**I assume the number of people with six figure incomes and no health insurance is very small.

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