Obamacare isn’t working. You wouldn’t know it from the scant media coverage, but six years after its passage, federal health-care reform has proven to be exactly what its critics said it would be: a trillion-dollar Rube Goldberg machine that doesn’t really work.
The law, although more unpopular now than it was when it passed, has quietly faded into the background of the presidential primary contests. That’s too bad, because Democratic frontrunner Hillary Clinton has hitched her health-care wagon to this slow-motion disaster, and voters deserve to know why she thinks it’s so great—or at least why she thinks it just needs some tweaks, like larger exchange subsidies and tax credits for out-of-pocket costs.
Clinton: ‘You Just Need to Keep Shopping’
The truth is, Clinton doesn’t have a clue how Obamacare is supposed to work, which is why she thinks it’s working. Last month at a town hall in Ohio, a woman told Clinton her family’s health insurance bill went from $490 to $1,081 a month under Obamacare. “I would like to vote Democratic,” the woman said, “but it’s cost me a lot of money, and I’m just wondering if Democrats really realize how difficult it’s been on working-class Americans to finance Obamacare?”
Clinton’s answer? Keep shopping on the exchange. You might find a better deal! Clinton did admit, “We’re going to have to get the cost down,” but she also revealed she doesn’t understand what’s driving costs in the first place. What the exchanges really need, she said, are “more nonprofits” selling insurance so there’ll be “more competition.”
Apparently, Clinton is unaware of the complete fiasco nonprofit co-ops on the exchanges have turned out to be. Of the nearly two dozen co-ops created with $1.2 billion in federal loans and startup funds, half of them had collapsed by the end of last year. Of the remaining 11, four are in trouble because of low enrollment, according to a Government Accountability Office report last month.
Obamacare Is Collapsing Because Americans Aren’t Buying It
Clinton also seems blissfully unaware of all the other bad news surrounding the health care law. The Congressional Budget Office issued its latest Obamacare forecast last month to little fanfare. The report is a one-two punch: fewer-than-expected enrollees and higher-than-expected costs. CBO cut enrollment goals by 4 million compared to its March 2015 estimate, from 22 million to 18 million. Meanwhile, average subsidy next year will be $4,550, up from $4,250 this year.
Why are subsidies going up? Because premiums are going up, as they have been doing for years. To be fair, they were going up before Obamacare, but the law has accelerated that growth, not slowed or reversed it, like Obama promised. Last November, when enrollment season began for year three of Obamacare, millions nationwide were hit with sticker shock. Premiums increased dramatically in some places, by 31.5 percent in Alaska and 36 percent in Mississippi, with huge increases also recorded in Minnesota and Arizona and elsewhere. So even though CBO expects 4 million fewer people will be enrolled by 2024 than they first projected, Obamacare subsidies will cost the same: $99 billion.
With subsidies going up, those fat-cat insurance companies must be making a killing, right? No. Last week, the Washington Post reported that UnitedHealth, the nation’s largest insurer, is pulling out of the individual insurance markets in Georgia and Arkansas, including its private Medicaid plans tied to Obamacare.
Back in November, United said it would be retreating from the exchanges because it was losing money on them, noting a “continuing deterioration” in the exchange markets. The company also lowered its earnings forecast by $425 million for the fourth quarter and said if things didn’t improve it would shut down its exchange business for good in 2017. (It’s not just United, either. Last August, Blue Cross Blue Shield of New Mexico, for example, announced it had lost $19.2 million on the exchange and was pulling out of the market.)
Why aren’t insurers, even big ones like United, making money? Because not enough healthy people are signing up for Obamacare. The only way to keep the cost of insurance down, after all, is for enough healthy people to sign up and pay their premium, which offsets the cost of caring for older and sicker enrollees whose premiums don’t cover the full cost of their care. But because Obamacare imposed so many mandates and regulations on insurance plans, premiums were high enough to dissuade many younger, healthier people from signing up in the first place.
Here’s How Insurance Works
If an insurance plan doesn’t have enough healthy people enrolled and paying premiums, then premiums for everyone else go up. As premiums rise, more of those healthy people decide they don’t want to pay expensive premiums, so they drop out. Then, the insurer has to charge even more in premiums. You can see how that might play out. Eventually, the only people left on the plan are those with high medical costs, at which point the math stops working and the insurer cancels the plan and exits the market. Health policy wonks call this “adverse selection” or an insurance “death spiral,” and they know a lot about it because it actually happened in a bunch of states that tried Obamcare-like reforms in 1990s.
All it means is this: if you undermine the premise and logic of insurance, it will cease to function as insurance and become something else. Under Obamacare, it has become something like a massive welfare program administered by private health insurance companies, which is another way to describe Medicaid, the health insurance program for the poor. (Medicaid, you might recall, was vastly expanded under Obamacare. That too, is costing more than anyone expected. In its report, CBO increased its 10-year Medicaid cost projection by $146 billion, in part because millions more people are expected to enroll in the program than previously thought.)
What’s happened with Obamacare makes perfect sense. Its failure has been driven by the predictable principles of economics and the routine mechanics of insurance. If Hillary Clinton wants to defend it, she’d better take the time to understand why it’s not working.