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Home Publications Blogs Beat the Press Will the South Walk Away from Obamacare?

Will the South Walk Away from Obamacare?

Sunday, 08 December 2013 21:56

Ross Douthat raises an interesting issue in his column on Obamacare. Douthat suggests that Obamacare may not succeed elsewhere in the same way as it did in Massachusetts because people don't feel as warmly inclined toward the government in other states.

There are several pieces of Douthat's story that aren't quite right. First, this is private insurance, not government insurance. It's not clear how people think they would be making a strike against the government by not buying private insurance, but we can skip that one.

Douthat also follows the pack in buying the young invincible story. The key to the success of Obamacare is getting healthy people to sign up. It doesn't matter what age they are. In fact, the program gets three times as much money out of every healthy senior as it does from a healthy twenty five-year-old. In fact, the gap is likely to be even larger since young people are more likely to get a subsidy since their income is on average lower. 

But it is at least possible that we will see the adverse selection story that Douthat raises, although the outcome will not be quite what he envisions. Under Obamacare each state is effectively its own pool.

Clearly there are other states where people are likely to act like the people in Massachusetts and sign up for health insurance. But there could also be states, let's call them Texas, where many healthy people may decide that as a matter of principle they will not sign up for Obamacare.

This would give us the classic death spiral. If fewer healthy people sign up for insurance then the cost of the insurance will rise. This will lead more relatively healthy people to opt not to sign up. That would further raise the cost of insurance, leading more people to drop insurance. The end game is that Obamacare in these states could end up as a shell. The costs could be so high that almost no one takes advantage of the exchanges and instead just pays the penalty.

This would create a striking gap between the states where Obamacare worked and the exchanges were running well and Texas, where a large share of the population would not have insurance. We have already seen a split along these lines with the refusal of Texas and other states controlled by Republicans to expand Medicaid with federal funds, as provided for under the ACA. However the collapse of the exchanges would affect a much larger and more politically influential segment of the population. This would directly affect the security of middle class workers.

It's not clear that the people of Texas would be happy with the outcome of their individual decisions if the collapse of the exchanges really was the outcome. Tens of millions of workers in the non-Texas states would enjoy security in their health insurance. If they lost their jobs or had some other adverse set of events they would still be able to buy a reasonably priced insurance plan. That would not be the case in Texas.

That outcome would be unfortunate for the people of Texas, but it might lead to an interesting political dynamic.

Comments (6)Add Comment
written by urban legend, December 09, 2013 12:19
Doesn't that situation mean we will have to have a nationally available public option? You want to play hardball, OK, here's some hardball.

Anyway, will the healthcare and insurance industries in those states stand for this? And wouldn't it be a great way for Democrats to drive a wedge between the people in those states and the Republicans?
The South Will Rise Again - Without Obamacare
written by Last Mover, December 09, 2013 5:06

The individual mandate was supposed to avoid a death spiral. If it doesn't, it's priced too low. It could have been designed to be repriced higher if enough healthy don't sign up as a counterbalance, the same way Medicare works if it's refused at first then taken later.

Of course the mandate and forcing uniform standards onto insurers drives the hatred for Obamacare. The exchanges act as humiliation that insurers must actually compete on price and make available terms and conditions to a public empowered with choices among them.

From the South that hatred includes the same variety from the past that bred more violence of the honor killing variety, and more births out of wedlock from the same Bible Belt that prevented birth control options.

Private insurers and health care providers are regarded as the "good guys with guns" as far as the South is concerned, the only thing that can stop the bad guys with guns - Obamacare.

As urban legend says above, it's actually the good guys with guns behind Obamacare anyway, the private insurers and providers who backed Obamacare all along to keep themselves in the loop by spreading cost over a larger base rather than reducing total cost.

Private insurers and providers will do whatever is necessary to stop a death spiral, and the South will end up supporting them, regardless of doing the goose step march against the slavery of enforced free market competition to save their honor.

For example, just change the name to Honorcare and watch how fast the South signs up for it.
written by watermelonpunch, December 09, 2013 6:37
It's not clear how people think they would be making a strike against the government by not buying private insurance

To be fair, I think Douthat has the idea that people will be so against the government, they won't sign up through the exchange, or for Marketplace plans, even if they're eligible for subsidies, & even if they're the cheapest options for them, because it's part of the govt "obamacare" thing.

This is of course involves an hilariously delusional assumption that people are more than superficially worked up about "Obamacare" and "The Government".

It assumes a very high level of citizen involvement, awareness, activism, and willingness to sacrifice their own well-being for the cause.

Is there ever a time when droves of people are willing to give up tax breaks, or generally turn down discounts for stuff they need?

That outcome would be unfortunate for the people of Texas, but it might lead to an interesting political dynamic.

Yep, Texas is one of the few states where I could see a potential for total calamity happening in this type of scenario.
But I think if things start getting bad like that... If it's effecting businesses negatively, then the conservatives railing against Obamacare aren't going to have a leg left to stand on.
Sounds like a recipe for back-peddling.

Pennsylvania is not, at this time, expanding Medicaid. And that could be a problem for sure.
But a big difference between Pennsylvania & Texas is that PA has a lot more robust consumer protections generally.

Also, it seems most of the people in PA I come across, who are vehemently opposed to Obamacare, are actually people who have insurance already anyway, either through their employer, or ironically, through Medicare or the VA system. So those people aren't in a position to boycott anything anyhow.

And I haven't met anyone, even conservative leaning, who is in the individual market, who actually stated they have no intention of taking subsidies or buying exchange insurance if they're eligible, & it's the best deal for them.

I do know one person who buys insurance on the individual market who, as of last month, told me they had no intention of looking into exchange plans. I think this person probably doesn't expect to get subsidies. And this person made a point of telling me in this conversation, that they voted for Obama, and think Obamacare is a good idea, to make it clear to me that their disinclination to use the exchange wasn't about that.

Frankly I think this person's disinclination is just technology phobia!

That could be Obamacare's biggest enemy in states without their own exchanges. So much has been made about the darn internet web site.

But my guess is that will soon be counteracted by a concerted effort by the insurance companies to peddle their various plans, including Marketplace plans, to those internet-averse people.

I think to imagine that Obamacare would buckle under, would be to assume that a great many private for-profit insurance companies are going to drop the ball big time on seeking market share & pushing their products.

That's pretty hard to believe.
written by skeptonomist, December 09, 2013 9:22
The objections that racists in the South and elsewhere have against Obamacare is not so much that it is "government" getting involved - before the great switch of the South from the Democratic to Republican parties poor whites in the South generally favored government intervention. They supported the New Deal and populist politicians like Huey Long. Their objection to Obamacare and other social programs is that they transfer money in the form of subsidies to black people, Hispanics and others unlike themselves. It is impossible to understand the current "ideology" of the various factions of Republicans without considering racism and sectionalism. Racism often transcends economic self-interest.
written by watermelonpunch, December 09, 2013 10:58
written by skeptonomist, December 09, 2013 10:22
Their objection to Obamacare and other social programs is that they transfer money in the form of subsidies to black people, Hispanics and others unlike themselves. It is impossible to understand the current "ideology" of the various factions of Republicans without considering racism and sectionalism. Racism often transcends economic self-interest.

Fair enough. That could be why people, to get support against Marketplace insurance, started calling it Medicaid 2 or something like that.
And they've succeeded in making some people believe that Marketplace insurance IS the government.

But while racism might trump economic self-interest to a point among racist individuals...
One thing's for sure...

Racism does NOT trump corporate profit-seeking & hunger for any market share to be had.

Insurance companies want non-white people's money just as well as anyone else's, and I'm sure they'll do whatever they can to make that happen.

Insurance companies in heavily white racist markets, will likely be motivated to do whatever they can to market whatever plans they can sell to white people needing affordable individual insurance, to the point of branding it white & private, in advertising if necessary.

To think white racists are somehow immune to advertising tactics, that would assume not only a great willingness to sacrifice their own well-being and their own economic interests... but also assume a great deal of awareness of advertising tactics, and a high level of thoughtful organized activism.

I find it hard to believe it would be significant enough for insurance companies to be powerless through advertising.

And let's face it, if the average anti-obamacare white modest income racist in the market for individual health insurance, were that aware of emotional manipulation via advertising tactics, lots of them likely wouldn't be so fumed up about race issues in the first place!
follow the money....
written by pete, December 09, 2013 11:12
Insurance companies and the SEIU were big proponents of this system. Most SEIU workers had decent health insurance prior to 2010. They lobbied for the plan because they wanted more SEIU workers, i.e, more jobs for health care workers. AFLCIO workers and retirees got screwed. Similarly, insurance companies keep 25% above health care costs (or, put another way, 20% of total premiums, either way). So regular checkups, drugs, contraception, cost 25% more than they would if the insurance companies weren't "insuring" these recurring events.

So, North/South is an interesting debate, but it belies the origins of the plan, and for that we should follow the lobbying money. Base predictions on the rent seekers who generated this thing.

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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.