the trouble with Obamacare

An article in the New York Times today suggests looming problems for Obamacare. Reed Abelson reports that many people are finding health insurance premiums too high. Forced to purchase insurance by the provisions of the Affordable Care Act (ACA), they are choosing the cheapest plans, prompting "hundreds of millions of dollars in losses among the country's top insurers." The result: the largest such companies are exiting the state marketplaces, leaving customers to smaller insurers "who offer the most limited choice of doctors and hospitals and may pay them the least."

Source: hhs.gov

Source: hhs.gov

The culprit, as one might expect, is that older, sicker customers are far more likely to buy the more expensive plans, while younger and healthier people are getting the cheapest plan that they can. But the law limits the premiums that the insurers can charge. In the face of decreasing revenue and increasing costs, then, some companies are finding it impossible to make money in the state marketplaces. The NYT article reports that , Humana and UnitedHealth Group have announced their intention to cease participating in the ACA marketplaces.

Of course, it is in the interest of the insurance companies to present themselves as suffering from the burdens of the program. One cannot take corporate whining about government programs too seriously. And this is just one article, so it is too early to hit the panic button. But if this trend holds up, it strikes me as a serious threat to the viability of Obamacare itself. The dynamic in which healthy people buy cheap coverage while sicker ones purchase more expensive policies is not as bad as the scenario, envisioned by the opponents of the Affordable Care Act before the law was enacted, that younger people would forego insurance entirely. But the financial mechanics seem to point in a similar direction. We still have a situation in which the purchases of the healthier people are actuarially insufficient to offset the cost of insuring their older or sicker fellow citizens.

The thing that bothers me most about this, though, is that this surprised anyone in charge of the program. Put simply, Obamacare really is quite expensive. As someone of low-to-middling means and unfortunately high expenses (primarily student loans and the steep Austin rent) who has been on the program, I can say that even with the premiums, it is more than I can afford. If going without insurance were a legal option, I would be taking it.

Of course, an Obamacare plan is significantly less expensive than the coverage that a person might get through his/her employer. But that employer typically covers the vast majority of this cost. (In 2015, employers paid, on average, 79.8% of the annual cost of employee health insurance.) While Obamacare marketplace plans are certainly far less expensive than the sticker price of employer-sponsored coverage, I don't think that such policies are the appropriate benchmark by which the "affordable" in Affordable Care Act is judged. That metric should be, instead, what people can afford.

It is possible that the kind of medical care that Americans have come to expect is incompatible with the amount that many of them are willing or able to pay. And it is also seems likely that the whole system of medical providers billing insurance companies ridiculous amounts of money is at the root of many problems with medical costs. Those issues certainly need to be addressed. But the immediate troubles of those who have to spend their money on health insurance cannot wait for the entire system to be fixed.

The Affordable Care Act represents a commitment to the idea that health care should be available to everyone. As such, it falls under the same social insurance model that characterizes public schooling, Social Security, Medicare and the like. That model embodies the Rawlsian principle that today I might be the one who needs something, but that tomorrow it may be you. To deal with the vagaries of life, all of us contribute to make sure that each person can have those things that we have decided, collectively and democratically, that he/she deserves. Not all of us have children, but we all pay for public schools. Through Social Security, the young take care of the old. Under this model, and given the problems faced by all the various stakeholders in Obamacare, there is only one solution that makes sense to me. Raise the premiums.