President Obama’s Tuesday press conference prompted a collective groan from congressional Republicans, conservative pundits, and anyone else who losing their favorite whipping boy in the form of Healthcare.gov. While far from perfect, the website is now capable of handling 800,000 people a day and 50,000 people at any one time, which should be good to handle enough traffic for the website, in combination with the 14 state-run exchanges, to reach the enrollment goal of 7 million.
That is, of course, assuming that those 7 million people were ever planning on showing up in the first place. What’s making Obama and other people staking their entire career on the success of this law incredibly nervous is that a functioning website portal was really one of the easiest hurdles they had to clear to make this whole experiment work. Ultimately, the law is intent on fundamentally changing the health insurance marketplace in a variety of ways, and no one can be completely certain it will work.
Which leads to the obvious question: what if it doesn’t? What happens to Obama’s signature law if the marketplace fails to get traction and collapses under its own weight? Aside from Tea Party activists celebrating in the streets for three straight weeks, that is.
Obamacare Risk Pools
The primary issue at question is one of whether the new exchanges can attract enough people to keep working. Basically, the major change to the insurance marketplace the law counts on is organizing the entire individual insurance market into one giant risk pool. In doing so, the unhealthy, risky people out there who were previously uninsurable due to sky-high expected costs would be balanced out by younger, healthier people who are more profitable for insurers, and everyone can get insured at a reasonable price.
The issue is that this plan depends entirely on the young, healthy people signing up. If they don’t, and historically they haven’t, it would result in an individual market consisting mostly of old, unhealthy people with higher medical costs. Which would lead insurers to increase rates. Which would lead even more people to decline to get insurance because it’s too expensive. Which would lead to an even more expensive insurance pool. Which would lead to even higher rates…
Death Spirals and the Individual Mandate
And that’s the “death spiral” everyone keeps talking about that could potentially bring the whole plan crashing down. The government has imposed tax penalties to people without insurance and offers subsidies to help people afford insurance, but it’s still going to be much cheaper for most young people to take the hit on their taxes and not shell out for premiums, copays, and deductibles.
What’s more, the tax penalty, the primary method for convincing young people to sign up, won’t even kick in until tax year 2014. So that means if you’re ignorant about the law (and polling reveals that a great many young people are), you might not even realize you’re going to get hit with a tax penalty until April of 2015. At which point it will already be too late to sign up for coverage for the 2015 tax year, meaning you’ll get hit once and be unable to avoid getting hit again.
So if we’re still over a year from anyone actually having to pay a mandate, is it possible that the exchanges might collapse before then? Given the hyperbolic levels of skepticism being focused on the law, even the smallest of failures in the first year could easily be blown out of proportion.
Unpacking Obamacare Reveals Considerable Complexity
Unfortunately for the law’s critics, there’s a lot more to it than just the exchanges. The entire law is very complex and interconnected because it was effectively a massive compromise between the law’s authors and the insurance industry. Basically, the insurance industry agreed to accept a raft of new regulations making their industry much less profitable in exchange for the government writing their services into the law for all Americans.
But, as pollsters could tell you, when you unpack the law into its individual components, it’s full of pieces that are immensely popular. Even those people who hate the idea of the exchanges or the mandate tend to like that it’s now illegal for an insurer to refuse coverage or charge way higher rates for someone because of a pre-existing condition. Or that there are now requirements for what portion of premium payments have to be spent on medical benefits. Or that insurers now have to cover certain medically necessary procedures and treatments. Or that insurers must now offer certain types of preventive care without cost sharing. Or that there’s now an institute dedicated to researching the most effective drugs and treatments. Or that young adults can now stay on their parents’ plan until they’re 26.
Conservative critics of the law have made a point of talking about it as a monolith to avoid bringing visibility to these popular parts of the law, but removing these popular new pieces of legislation will be difficult.
Different Parts of Obamacare are Connected
So what’s the problem? If the exchanges go into a death spiral and collapse, can’t we just repeal that section of the law and keep the popular pieces? In short, because the entire health insurance industry could collapse. Okay, that's an exaggeration, but that's what the insurers would have us believe. Basically, insuring people with pre-existing conditions or expanding plans to cover new types is expensive for insurers. The only way private insurers can do it in the first place is because they were counting on millions of new members, many of whom are very profitable young people.
And while the insurers won't actually collapse (the majority of their business comes from businesses anyway), the price of coverage on the individual market would skyrocket. The death spiral won't stop just because the individual mandate and the exchanges go away. If anything, it would amplify. Insurers would be required to offer people insurance, so they would just charge a lot more to ensure that they didn't take a loss on the entire individual market.
Difficult Circumstances Without a Clear Answer
It's not clear how things will pan out with the exchanges, but it's entirely possible that the complete disaster that many conservatives appear to be praying for could only create a new series of issues for everyone. Politicians could be stuck between a rock and a hard place, forced to reconcile the need to roll back the new insurance marketplace with a constituency totally unwilling to give up on the reforms the insurance company can't afford without said new marketplace.
In the end, it might be possible we should all cross our fingers and hope the Obamacare exchanges work out. Because the mess of unraveling the different pieces of the law could end up being a bigger disaster than the current law could ever end up being.