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The ACA’s Million Dollar Question: Will Enough People Sign Up?

More and more health care watchers are questioning whether enough young adults will sign up for insurance under the ACA to keep the system afloat. The latest is centrist think tank The Brookings Institute, which has a new report out on Obamacare entitled “The Affordable Care Act: A User’s Guide to Implementation.” The report argues, among other things, that there’s a possible flaw built into the law that could undermine the whole system. The penalty for not buying insurance could be too low to convince young healthy individuals to sign up for insurance, thus creating adverse selection:

Two provisions of the bill could contribute to adverse selection. First of all, the fines are low: $95 per person or 1% of income in 2014; increasing to $325 or 2% of income in 2015 and up to $695 or 2.5% of income in 2016… At first glance, it seems that the fines are way too low to incentivize healthy people with low incomes to buy insurance. After all, a single person living in Baltimore, earning $28,725 a year can expect to pay $146 per month or $1752 a year for health care coverage under the cheapest “bronze” plan. A healthy person might conclude that paying the fine of $287 is a better use of their money…Second, the consequences for not paying this penalty are not as severe as the consequences for getting cross-wise with the IRS on other issues. For instance, Section 1501 of the ACA reads that a taxpayer who fails to pay a penalty “shall not be subject to any criminal prosecution or penalty with respect to such failure.”

It goes on to note that subsidies could reduce the likelihood of adverse selection, but that it’s too early to tell whether they will. The authors are right that we don’t have enough data yet to know if adverse selection will happen, but the mix of low penalties, high premiums, and massive obstacles to signing up certainly makes it more likely.

There’s another self-inflicted wound that could prove fatal. Since the ACA allows young people to stay on their parents’ health plans until they turn 26, the law dramatically shrinks the pool of healthy young customers whose overpayments on insurance are supposed to subsidize the middle aged beneficiaries of the law.

We’ve known that adverse selection and enrollment failure could be a problem with the law for some time now, but the fact that the Brookings Institute is flagging it suggests that centrists are also feeling uncertain these days about the law’s ability to succeed. Indeed, the Brookings Report is part of a flood of appalled center and center left commentary about flaws in the ACA.

Now that the government shutdown is over, the MSM is beginning to increase its coverage of what, so far, looks like a systemic failure of the ACA in its early rollout. Negative coverage — of how hard it is to enroll, how badly the program as a whole is working, how unpopular it remains — will likely make all but the most motivated customers stay away. Those customers will be exactly the ones Obamacare does not need: customers with expensive pre-existing conditions whose need for insurance is so dire that they will fight through any and all obstacles to get enrolled.

All told, we wonder if Nancy Pelosi, Harry Reid and President Obama are as happy today about Obamacare as they were on the day the law was passed. Beyond that, everything that has happened since passage has confirmed our view that far from solving the problems facing American health care, this poorly drafted, poorly executed system makes the problem of health care reform both more urgent and more difficult.

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  • Kevin

    Adverse selection, furthered by the 20-25 y.o. rule getting middle class “children” out of the market and onto their parents’ plan and the massive difficulty of actually signing up via a broken website, will be a huge actuarial problem. However this might be at least partially offset by employers dropping health coverage and driving their employees to the exchanges. Of course millions of people loosing their current insurance and have to purchase a 65% Bronze plan will be a political disaster come 2016 – the “If you like your insurance you can keep it” ads practically write themselves. The vast majority of actual voters had health insurance (or Medicare) – it was just expensive and they were afraid they might lose it. fter employers drop millions of them from these plans and force them to buy more expensive plans with higher deductions and lower reimbursements

    • Kevin

      Last sentence should read – Middle class voters will not be amused after…

    • cubanbob

      Even less amusing is the new effective income tax rate they will find themselves in after paying the premium/tax. A part of the country’s taxpayers will find themselves paying ordinary income tax rates comparable to the vilified top 1%.

  • Rick Caird

    I would bet that there will soon be a time Obama will wish he had taken the Republican offer of a 1 year delay.


    It may take a while, but some low-information, but young and healthy, types will find out a high deductible plan is almost the same as being uninsured.

  • ajwpip

    A fine example of the truism that if you read a headline presented in the form of a question the answer is always “No”.

  • ajwpip

    The idea that the government shutdown distracted from Obamacare’s faults is wrong. First, if the partisan identification had been reversed the stories would have been mutually reinforced. A democratic Cruz would have been painted a a hero being daily justified as Obamacre’s problems come to light. Looked at honestly the problems with Obamacare justify Cruz’s claims that the bill is a disaster. it takes a certain willful bias to disconnect the two stories.

    Second, if Cruz had shut up the MSM and the administration would have presented their spin and as problems continued to mount claimed that they had already covered the issue. You can’t beat something with nothing. Sitting back and expecting the MSM to do their job or do anything other than reject establishment republican press releases is foolish.

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