By John C. Goodman
Originally posted at Forbes, November 2016
If you are wondering why the Obamacare exchanges are in so much trouble, a whole slew of “experts” think they have the answer. From President Obama to health insurance industry CEOs to the editors of The New York Times to health policy gurus everywhere – the verdict is almost unanimous. Not enough young and healthy people are buying health insurance.
So, what’s the solution to that problem? Carrots and sticks, according to the conventional wisdom. We need to make health insurance more attractive to the young. But we also need to make the penalties for not buying insurance harsher. By hook or crook, we are told, we must get the young folks to buy, buy, buy or …….. or what? The exchanges will go into a death spiral? All the insurers will leave the market? The whole Obamacare experiment will implode?
If all this doesn’t strike you as strange, think about every other market you know about. Have you ever heard General Motors say it can’t survive unless lots of young and healthy people buy their cars? How about Wal-Mart? No?
So, what makes health insurance different? This is a no-brainer. In the Obamacare exchanges, young, healthy people are being charged premiums that are two, three and even four times higher than the real cost of their insurance. So much so, that it gives a whole new meaning to the term “price gouging.” The young and the healthy must over pay, we are told, so that older, sicker people can under pay — with premiums well below the cost of their insurance.
Why is that a good thing? I have searched article after article, speech after speech, policy report after policy report and here is the shocking result: I have found no answer to that question.
The entire health policy community is unanimous about what we need to do. But it is equally unanimous in its inability to explain why we need to do it.
Let’s be clear about what needs to be explained.
Imagine an employee who has been dutifully paying premiums to an employer plan for 20 or 30 years. During that time, she incurs diabetes, a heart condition or even cancer. Now the employee leaves the firm and is forced to buy health insurance in the individual market. Traditionally, the individual market has been free to medically underwrite enrollees and charge them actuarially fair premiums. But under Obamacare she is now able to buy health insurance for the same price charged to a healthy enrollee.
Who should pay for the difference between the premium she is now paying and the real cost of her care? You might suppose that the old plan – the one that collected premiums from her for all those many years – should pay. Isn’t that what insurance is all about? You pay premiums while you are healthy and they pay the bills once you get sick. If not the prior employer plan, what about taxpayers generally? That’s what was happening not so long along. Before there were Obamacare exchanges there was an Obamacare risk pool, funded by federal taxpayers. And before that, most states had their own risk pools, funded by general taxes or by a tax on the premiums of everyone in the state who bought insurance.
These approaches implicitly recognized that we have a social problem – one created by government and one that needs to be solved by government. For more than a half century, federal tax law encouraged the vast majority of us to obtain group insurance that was not portable. So, if we quit work, got laid off, retired or for any reason left the group, we had to go to the individual market to obtain health insurance. Yet if we had a serious medical problem, we could be denied coverage, saddled with exclusions or charged higher premiums.
Obamacare has brought all these risk pools to a close, however. The federal risk pool was always to be temporary, until its enrollees had access to the exchanges. Obamacare allowed the states to end their risk pools and dump their high cost enrollees into the exchanges. In addition, the law has allowed cities and counties with large, unfunded post-retirement health care liabilities to end their programs and send their enrollees to the exchanges (10,000 in Detroit, for example). Private companies have been allowed to do the same.
One way to view all this is to realize that the exchanges are potential dumping grounds for the entire private health care system, consisting of roughly 200 million people, even though less than 10 percent of those with health insurance are in this market. At the same time, the ability to price and manage risk in the individual market has been completely destroyed by Obamacare regulations. Hence the chaos we are witnessing.
The idea that the young and the healthy – strike that; it’s less that 10 percent of the young and healthy (the ones unfortunate enough to be in the individual market) – can be expected to pay the cost of all this is morally suspect, if not financially impossible.
If there were an argument for imposing the cost of care for the old and sick on the young and healthy, surely it would apply to all the young and healthy – not just the ones in the individual market. And if the argument were sound, why does it have to be tied to the purchase of health insurance? Shouldn’t those who elect to be uninsured have to contribute as well?
To do this efficiently we need to separate the subsidy we hope to extract from the young from their purchase of health insurances. Create a health draft (similar to the military draft) for all young people. Those who are One A (fit to serve) would be assessed a tax to pay for the care of their elders. But then let the young buy their own insurance in a real market that charges actuarially fair premiums.
Then see if you can get enough votes from older people to make this idea stick politically.