Two words that strike fear into the hearts of insurers are Adverse Selection. That's insurance-speak for the tendency of the sickest people to gravitate to the most generous insurance policies. The flipside is that young and healthy people, whose premiums are needed to subsidize the care of the sick, tend to avoid insurance that they think they can't afford or won't need. An insurance pool that includes only the sick will be astronomically expensive.
In the case of the Affordable Care Act, private insurers have priced their policies on the premise that a lot of healthy young people will purchase insurance. If the young don't participate in large numbers, and older and sicker people do, then insurers will have to raise premium charges for everyone. That will be blamed, rightly or wrongly, on Obamacare.
We know from the administration that more than two million people have become newly insured. That's good news. But we don't know who they are. Is the Affordable Care Act succumbing to the dread dynamics of adverse selection?
The early signs are far from conclusive, but they are not encouraging. Anecdotal media coverage suggests that older and sicker people, for good reason, are flocking to enroll. Before the ACA, insurance for them was prohibitively expensive when it was available at all.
The young may be dissuaded by three factors. First, their incomes tend to be low. Those who do not have employer-provided insurance tend to have the lowest-paid jobs. Subsidized policies available thanks to the ACA are a good deal, but low-income workers count every penny.
Second, the fine levied under the Affordable Care Act for failure to get insurance is very modest -- just $27 a month for people making under $32,500.
Third, thanks to the ban on denial of coverage for pre-existing conditions, young people with an "invincible" complex know that if they do get seriously ill, they can always buy insurance. Indeed, rightwing groups bent on sabotaging the Affordable Care Act have been urging the young to do just that.
FreedomWorks issued a call for young people between 25 and 36 to pay the fine instead of paying premiums. "Without forced premium payments by millions of young adults under 40," the group gleefully declared, "the unpopular mandated health care law can't work." When it comes to sheer opportunism, the right's cynicism about the A.C.A knows no bounds.
Of course, if you pay the minimum premium, which is only slightly more than the fine for the vast majority of young adults, you get insurance. If you pay the fine, you get nothing.
Still, if one believes in the power of economic incentives, creating a structure of premiums and fines that made it rational for financially strapped young adults to defer buying insurance until they got sick was sloppy policy-making. It was not one of those choices dictated by the politics of what could get through Congress.
The end game and logical consequence of too much Adverse Selection is what insurance policy-wonks call a Death Spiral: Too many sick people and not enough well people buy insurance, and costs go through the roof.
In the case of the Affordable Care Act, the related risk is a political death spiral. As insurers try to cover costs, premiums go up for everyone -- not just for the previously uninsured, but for the roughly 85 percent of Americans who already had insurance. These were the people who President Obama assured that basically nothing would change.
That was the second piece of bad planning on the part of the Administration -- the failure to appreciate that an indirect effect of the Affordable Care Act could be general premium increases.
The administration's political calculation was that with enactment of health reform, more voters would be newly happy than newly unhappy. In the White House thinking, the 85 percent of people who already had insurance would be more or less agnostic about the ACA, and the roughly half of the remaining 15 percent who'd get good insurance for the first time would be delighted and grateful.
These included young adults who could stay on their parents' insurance, people who lost or changed jobs and could still be guaranteed to decent and affordable insurance, and people denied coverage due to pre-existing conditions. The grateful, presumably, would also include nominally insured people with really lousy policies that now had to meet basic minimums.
Things may still work out that way. One has to hope so, for the sake of the Democrats hanging on to the senate and for the sake of general trust in government.
But, unless everything breaks just right, the odds are that more voters will feel grumpy than grateful, due to dislocations, price hikes, and plain frustrations with healthcare.gov. Yes, much of this is the result of Republicans blocking cleaner and simpler legislation and the Supreme Court blocking mandatory expansion of Medicaid. Yet some of the blind spots were plainly the administration's own.
There are many good features in President Obama's health reform. Political prescience wasn't one.
Robert Kuttner's new book is Debtors' Prison: The Politics of Austerity Versus Possibility. He is co-editor of The American Prospect and a senior Fellow at Demos.
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