President Obama's nominee to be the next Director of the National Economic Council, Jeffrey Zients, has promised that, "By the end of November, HealthCare.gov will work smoothly for the vast majority of users."
But with even Obama's own campaign tech team doubting that the job can be done in that time, Democrats are beginning to consider what happened if HealthCare.gov fails again. The New Republic's Jonathan Cohn writes:
Nobody questions that a poorly functioning website would cause serious problems, particularly for people who need to find new insurance by January. But, according to experts and industry sources I consulted over the last week, the law would probably be more resilient than commonly assumed. The damage would be real, these experts say, but there's a good chance it would fade with time.
One reason is a series of Obamacare provisions few people know exist and even fewer understand. They’re known among health wonks as the “three Rs”—reinsurance, risk adjustment, and risk corridors. (Catchy, right?) In effect, these programs will reimburse insurance plans that end up with more sick people (or fewer healthy people) than they originally expected to enroll.
We discussed the risk corridor provision of Obamacare last week. Basically it is a huge bailout for insurance companies. Obamacare functionally guarantees a certain level of revenue no matter how expensive the population that signs up for Obamacare really is.
CBO assumed at the time that the risk corridor program would be revenue neutral, since insurance companies that overestimated how much it cost to provide health care would be forced to pay into the system. But if all the insurers underestimate costs, thanks to a non-functioning website, then there will be no offsetting costs. Obamacare will send federal deficits soaring.
Cohn also notes that insurance subsidies will help many Americans pay for expensive new insurance policies, thus preventing health insurance prices spiraling upwards. But what Cohn fails to mention is that, according to Kaiser, more than half of people in the individual market do not qualify for subsidies because they earn too much money. And since wealthier people tend to be healthier, on average, then low-income people, this population will be more likely to skip insurance this leaving a sicker, poorer population in the insurance pool. This will also jack up insurance prices and send the cost of insurance subsidies through the roof.
Worse, Cohn also overlooks sequestration's impact on Obamacare. While the Budget Control Act does exempt insurance subsidy payments from the sequester, Obamacare's out-of-pocket cost limitation payments are not exempt. Therefore, as The Heritage Foundation's Chris Jacobs explains, millions of Americans will either be forced to pay more for health care than the Obama administration is telling them now, or insurance companies will be forced to make up the difference.
And while the Obama administration will probably force insurance companies to pay the extra $286 million, there is only so much abuse insurance companies can take. They can choose to exit Obamacare entirely, as many insurers have already done by choosing not to sell policies on the exchanges in the first place.
Scott Gottlieb reports:
But the law doesn’t prevent insurers from offering plans exclusively outside the exchange. If they are entirely outside the exchange, they get to create their own risk pool, and aren’t subject to the same pricing that burdens plans inside the exchange. (See this Commonwealth Fund Brief for a fuller explanation)
As the pool inside the exchange becomes older, sicker, and costlier, more plans will have an economic incentive to get out of the Obamacare market altogether.
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The death spiral won’t result from a big premium spike in 2015 as a consequence of the failed launch in 2014. The reinsurance programs and risk adjustment will help guard against such an outcome. But as the pool inside the exchanges becomes more akin to a high-risk pool, which seems possible (if not likely) then there will be a stronger incentive for insurers to stay out of these markets, and select against them.
The bigger story of the Obamacare launch isn’t its failed website, but how many big insurers sat out of this program, even after brow beating from the White House.
After what’s likely to unfold this year, and the unfavorable pool that’s taking shape, these insurers will have even more economic incentive to stay out of Obamacare.
Senate Democrats are already calling for Obama to delay key parts of Obamacare. If Zients fails to fix the website as promised, many more Democrats will join them.
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