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Home Publications Blogs Beat the Press Obamacare Is Not in Nearly as Much Trouble As Ezra Klein Thinks

Obamacare Is Not in Nearly as Much Trouble As Ezra Klein Thinks

Thursday, 14 November 2013 05:35

Ezra Klein warned readers that "Obamacare is in much more trouble than it was a week ago." The main reason is a bill being push by Senator Mary Landrieu that would require insurers to continue to offer plans that are in effect at the end of 2013.This bill is drawing support from a number of centrists and even liberal Democrats. Klein argues that this bill would risk seriously skewing the individual insurance market that would create a major problem of adverse selection, with healthy people staying on private plans outside of the exchanges.

There is actually much less risk here than appears. First, Republicans would be highly unlikely to support Landrieu's bill since it would require insurers to continue to offer plans even if it is not profitable to do so. It is unlikely that the Republican House would approve a bill that could lead to major losses for many insurers.

The other factor to consider is that even if the bill were to be passed into law, the number of policies protected would be limited. As Klein's colleague Glenn Kessler showed, almost two thirds of the plans that people hold in the individual market are typically in effect for less than a year. This means that whatever skewing might result from its passage into law would be relatively limited and gradually go to zero as these people's circumstances changed (e.g. they get hired by companies with employer provided insurance).


Note: Robert Salzberg pointed out to me that the Landrieu bill would make the date where a plan must be in effect to be grandfathered December 31 of 2013, not January 1 as I had previously written.

Comments (10)Add Comment
It's Not Adverse Selection Anyway
written by Last Mover, November 14, 2013 5:52

True adverse selection in terms of true insurance is dead anyway. It means the insured know more about their own risks than the insurer who then overinsures and underprices those with high risks hidden from the insurer. In today's high-tech hi-info data mining world, rest assured any insurer knows far more about its customers than they do themselves.

Obamacare is about averaging very high health care costs across known risks that vary widely by demographic and health history.

It's obviously not a simple average, complicated significantly with formulas that control exactly what is borne by insurers, customers and patients in an individual situation, which indirectly determines what health care providers get.

The "adverse selection" Klein is concerned about really goes to whether the system will end up depending on the individual mandate for support instead of more healthy sign-ups, something Obamacare haters love to froth about as the greatest violation to the Constitution since the Imancipation Proclamation said people were not economic property.

Those same healthy people are the ones most likely to have had a cheaper insurance policy under "reverse adverse selection", chosen by insurers who knew well they were a good bet to insure.

Now that they lost out under Obamacare, the outcry from the army of sock puppets and shills paid by the health care industry - including the very insurers who specifically supported Obamacare via the mandate - has drowned out what Obamacare is all about.

The healthy as an even smaller percentage of the 3% of the individual insurance market affected by Obamacare, found a golden needle of cheap insurance in the haystack of massive fraud and abuse by the extortionist private health care insurers (useless bill collectors).

Now they want it back. As their Constitutional right, the same one violated by the individual mandate. And everyone is piling on to give it back to them ... except the insurers who are the ones actually pulling the policies ... because they can't get a free ride anymore under Obamacare.

The horror of adverse selection indeed ... so much greater than the horror of reverse adverse selection that preceeded it isn't it.
written by JDM, November 14, 2013 6:37
Judging from the supposed horror stories various media outlets have managed to scrape up, it seems unlikely many folks would choose to stay on what turn out to be crappy policies, at least once the policy holder actually looked at what's available to them through the exchanges.
written by Sunkist, November 14, 2013 8:50
As predicted, when you try and force something on the insurance companies expected adverse consequences. They ultimately control this entire process. They are not in business to lose money. ON AVERAGE WE WILL ALL BE PAYING SIGNIFICANTLY MORE FOR HEALTH INSURANCE SO THAT THE OBAMACARE DIRECTIVES CAN BE MET. Get use to it, it's time to finally read the bill!!
written by skeptonomist, November 14, 2013 9:11
It's not likely that the policies that were being offered before Obamacare were unprofitable at the time, although they may become marginally so as those formerly rejected are added to the pool. What Landrieu's bill would do is deprive insurance companies of any subsidies that those involved would get through the exchanges. But those subsidies are tax-supported and would be paid for mostly by the upper 53% who actually pay income taxes (and any special Obamacare taxes). This presents Republicans with a dilemma; go with their party's all-important principle of minimizing taxes on the rich, or maximize the profits of their clients the insurance companies and health-care industries that would also benefit from the increased spending of the subsidies. The companies are not without influence with Democrats as well.
written by skeptonomist, November 14, 2013 2:25
If the Grandfather date is the end of this year, won't that just cause insurance companies to cancel all individual policies (that aren't already highly profitable) by that date?
written by urban legend, November 14, 2013 3:36
"It is unlikely that the Republican House would approve a bill that could lead to major losses for many insurers."

Not to speak of the fact that the President has a veto, which Klein seems to have forgotten.

What seems to have been lost in the zeal to one-up other outlets on horror stories about Obamacare is the fact that (1) approximately one million people have successfully opened accounts but have not yet decided on the plan they want, and (2) about half a million have signed up for Medicaid. Considering that open enrollment does not expire for a few more months, this doesn't sound so far behind to me.
written by bmz, November 14, 2013 4:09
The problem is that under Obamacare, men, especially young men, subsidize women (actuarially women use more health care than men). If men can stay on their pre-Obamacare plans, this subsidy would be lost--that is a big problem.
written by TAH, November 14, 2013 5:00
Everyone seems to be assuming that the insurance companies will offer these same policies if the law or regulations are changed. I think that's a pretty big assumption. Just because their cancellation letters might say due to the ACA doesn't necessarily make it the real reason for the cancellations.
written by JDM, November 15, 2013 1:43
Nonsense, TAH, when have insurance companies ever lied to us?
written by PeonInChief, November 15, 2013 9:49
I had hoped that the experience with the exchanges would point up how expensive insurance is, relative to incomes. Many people would receive subsidies, but the total cost of the insurance--not the medical care--would bankrupt many people. But that seems to have been missed.

It appears that many of the people who are complaining are those who are outside the subsidy zone, and who do have cheaper insurance, although it often doesn't cover preventive care etc. All you have to do is look at the calculators for people who are outside the subsidy zone to see that many people would be paying a quarter of their income for their insurance premium. It's not that they like their insurance, but that they can afford their insurance, such as it is.

The real solution is to get rid of the subsidy cap. I know, this means that a very few rich people who don't have insurance--all 14 of them--will get a subsidy. But it will get rid of this issue altogether and put pressure on the tax-haters to deal with the fact that we're spending oodles for very little.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.