Thursday, October 24, 2013

Is Obamacare in a Death Spiral?

Is Obamacare in a Death Spiral?

As Yuval Levin has pointed out, what we’re experiencing now is the worst-case scenario for the insurance markets: It is not impossible to buy insurance, but merely very difficult. If it were impossible, then we could all just agree to move to Plan B. And if it were as easy as everyone expected, well, we’d see if the whole thing worked. But what we have now is a situation where only the extremely persistent can successfully complete an application. And who is likely to be extremely persistent?

Very sick people.

People between 55 and 65, the age band at which insurance is quite expensive. (I was surprised to find out that turning 40 doesn’t increase your premiums that much; the big boosts are in the 50s and 60s.)

Very poor people, who will be shunted to Medicaid (if their state has expanded it) or will probably go without insurance.

Insurance that is only sold to these groups is going to be very, very expensive. Not the first year — President Barack Obama was in the Rose Garden just this morning, touting the fantastic cost savings available to the old and sick people whom Obamacare was already helping. But if those are the only people who sign up, insurers will lose a bunch of money on these policies. And then next year, they’ll ask for a lot more money.