Problems With the Obama Care Health Insurance Exchanges
Austin Frakt has identified three big problems:
Hole number 1: Subsidies might be far lower than expected.
Hole number 2: Subsidies might not be available to children who need them.
Hole number 3: Subsidies might erode over time.
Not on Austin’s list is the biggest hole of all: The subsidies will differ by a factor of as much as ten to one for families at the same income level, depending on whether they get insurance at work or in the exchange. This will cause massive dumping of insurance by firms that employ below average-income workers and a complete (and uneconomical) restructuring of American industry.
What Austin is missing is the defect you, John, have pointed out on more than one occasion: Health plans will have perverse incentives to over-provide to the healthy and under-provide to the sick. That’s not good if you are sick!!!
The CBO estimates only 25 million people will get subsidized health coverage in the Exchange; whereas the Census Bureau reports about 111 million people will theoretically qualify for subsidized coverage based on income. The McKinsey report that estimates 30% of firms will drop coverage is probably far too low. McKinsey even admits that among firms that really understand the Affordable Care Act and how the Exchanges will work, about half will drop coverage. If you assume that unknowledgeable firms will learn from their competition over time. And if you understand the competitive pressures to segment firms into low-wage firms that qualify for the subsidies and high-wage firms that do not, then the 50% figure may be way too low.
I agree iwth Tom. Austin can’t see the forest for the trees.
According to a Kaiser Health report on the subsidies “The cost of the subsidies is a function of the number of people that are eligible for subsidies and how generous the subsidies are”. Subsequently they state; “subsidies to make insurance more affordable and increase insurance coverage are a key element of the Patient Protection and Affordable Care Act”. Therefore as Devon noted, as a function of 111 million people eligible either subsidy expenditures will be significantly cut, or tax payers will be on the hook to increase revenue.
If health exchanges are so great, why doesn’t the government create auto exchanges or beach condo exchanges? The creation of the (faux) health exchanges is the problem.
All of you are missing the big picture. The subsidies for low-income people in the exchanges are so huge and so much greater than they are at work that we are going to experience a complete restructuring of American industry, along the lines John Goodman has suggested.
I agree with what is being said here. The Incidental Economist frequently focuses on the trivial and fails to see the obvious. Hard to understand why.
Actually, I learned about The Incidental Economist from this blog site. There is a lot of good information there. What’s weak is the perspective. They are apologists for Obama Care. Even though they call themselves “ecnomists,” they don’t analze economic incentives the way you guys do at this site.
The McKinsey study is a good example. I think there have been several posts over there about how McKinsey won’t release the methodology behind it’s survey of employers. But not one word about the economic incentives employers will have to drop coverage for low-income employees. (Krugman does the same thing.)
We don’t need surveys. Gruber and Cutler have shown that Medicaid crowds out private coverage. The same principle apples to subsidized insurance in the exchanges.
David Henderson calls economists who ignore economic incentives EINOS (economists in name only).