Sticker Shock May Be Here to Stay
One Fair Price? Democrats who’ve supported Obamacare (and I’m one) may be consoling themselves with the thought that today’s “cancellation” problem represents a temporary crisis. Once those cheap old policies are gone–in 2014, 2015 or whenever– there won’t be any more left to cancel. The problem will be “in the rear view mirror,” as health insurance expert Drew Altman told the L.A. Times.
In this happy model, it won’t matter that much if Obamacare–as conservatives predict–gradually “transitions” millions more Americans out of their employer-paid insurance and onto the same exchanges that are now causing the administration such trouble (not to mention the millions who’ll become eligible for the exchanges because they lose jobs that have insurance attached). Those new exchange customers will be different, we’re told. As employees they now already pay the freight for their co-workers with expensive preexisting conditions. They may not know it, but they do. And they’ll continue to do it on the exchanges too–paying the “one fair price,” in Obamacare “architect” Jonathan Gruber’s words, that will take care of the healthy and the unhealthy:
“We currently have a highly discriminatory system where if you’re sick, if you’ve been sick or [if] you’re going to get sick, you cannot get health insurance. The only way to end that discriminatory system is to bring everyone into the system and pay one fair price. That means that the genetic winners, the lottery winners who’ve been paying an artificially low price because of this discrimination now will have to pay more in return ….” [E.A.]
Since future waves of newcomers leaving employer coverage for the exchanges won’t have been what Gruber tactfully calls “lottery winners,” Obamacare’s “one fair price” won’t come as a shock to them.
That’s the argument, anyway. It’s what I always assumed. But now I’m not so sure. I’m no expert–people who know more should correct me if I’m wrong–but it seems to me those leaving the employer-provided insurance market are still likely to be shocked by higher prices, unless they get one of Obamacare’s subsidies (for people making less than 400% of the poverty line).
Why? Because they won’t be paying the “one fair price” that would cover the sick and unsick. They’ll be paying more.
Let’s crudely calculate Gruber’s ” one fair price” as the nation’s total cost of needed health care divided by the total number of people in the nation’s health care system. Seems fair. The sick drive up costs, the healthy cost less, they average out and everyone pays that average, because “everyone’s in the system,” as Gruber puts it. In insurance terms, everyone’s in the same “risk pool.”
Alas, this is not, as I understand it, the risk pool served by the Obamacare exchanges. Even if the administration reaches its enrollment targets (ha) the exchanges will still serve only part of society. They’ll basically serve all the uninsured who sign up (or at least the uninsured who aren’t in separate Medicaid programs) plus the formerly insured who get thrown into the exchange pool. Between them, of course, these groups will contain lots of people with preexisting conditions, who are likely to be disproportionately drawn to the exchanges.
It’s an empirical issue, a numbers question–but isn’t it clear that this fraction-of-society risk pool will be a lot worse (i.e. unhealthier an more expensive) than not just a) the risk pool insured by one of the “lottery winners'” now-cancelled individual policies but also b) the risk pool of a typical big employer–say IBM, even if there are some very sick people at IBM? More to the point, it’s probably also worse than c) our hypothetical society-wide risk pool. That means individuals who wind up in the exchanges, and pay their portion of that relatively lousy risk pool will be paying more than what would be their Gruberian Fair Share.
Maybe it won’t be a lot more. Maybe it will. But it will be enough more so that these individuals will be justifiably immune to guilt-tripping from Obamans who say they should suck it up and pay the price the exchanges are charging in order to cover the sick. They’ll be covering more than their share of the sick.** They’re being penalized, in effect, because they’ve wound up in the risk-filled sump of the Obamacare exchanges.
It’s especially annoying, of course, that Obama seems to not even recognize their complaint. He (belatedly) sympathizes with people who just got cancellation notices. He (legitimately) boasts about subsidizing the near-poor. But the ordinary people who make more than 400% of poverty who somehow wind up on the exchanges–they get close to zero rhetorical attention. It’s as if they don’t exist. Hey, they’re affluent, aren’t they? Thus a money dispute (the sort usually amenable to negotiation) gets turned into a denial of political respect.
Dissing these people–basically the top half of the American income scale–is not a minor political error. It’s usually fatal. At the least, the exchanges are not shaping up as happy places to be for them.
P.S.: It seems like a smaller political error that Obamacare violates what might be called the Take Away Principle–the rule that it’s always harder to take something away from people (as with Obamacare’s cancellations) than not to let them get it in the first place. But Obama has discovered a way to violate this principle that’s even more politically toxic than normal, which is to take something away from people while promising something better and then not delivering it!
**–I don’t think I’m arguing that the exchange premium structure is too redistributive. I’m arguing that the full premium paid by everyone on the exchanges, before subsidies, is higher than a reasonable calculation of Gruber’s “one fair price.” The subsidies eliminate this unfairness for some, which is fine. But not for all. Nor are those paying more than the “fair” price demanding “something for nothing”–though it’s tempting to say that, given the $500 billion in taxes that help finance Obamacare, people on its exchanges damn well should expect something for nothing.