Sunday, October 20, 2013

Obamacare to Putin: Please Help!

It is ironic the GOP decided to have a fight over Obamacare the same day the Obamacare exchanges opened. After all, how could they possibly know there would be significant issues? Gosh, I don't know:

Major insurers, state health-care officials and Democratic allies repeatedly warned the Obama administration in recent months that the new federal health-insurance exchange had significant problems, according to people familiar with the conversations.
then there was this from Henry Chao, at the Centers for Medicaid and Medicare Services
The time for debating about the size of text on the screen or the color or is it a world-class user experience, that’s what we used to talk about two years ago,” Henry Chao, an official at the Centers for Medicaid and Medicare Services who is overseeing the technology of the exchanges said at a recent conference. “Let’s just make sure it’s not a third-world experience.

Well when the administration was in a tight spot with Syria a few weeks ago, the Secretary of State made some offhand comment, and before you know it Putin takes it seriously, and rides to the rescue. That's what the Obamacare needs now, a Hail Mary pass to Vladimir Putin.

The notion the exchanges problem was the overwhelming traffic was suspicious from the start. When a person can't save his security questions, that's not a traffic issue, that's a coding issue. There are many examples of web site behavior that suggest some deeper flaw other than overwhelming demand. And coding issues can be, don't have to be, but can be, tough. Time will tell if  "putting on a brave face" or "whistling past the graveyard" is the more appropriate metaphor to describe the supporters defense of the law these opening weeks.

Software and web sites can be fixed but there are much deeper issues starting to become evident. The system needs young people to sign up for insurance. The young subsidize the old in Obamacare. Without young people the insurance market could enter a death spiral. That is, insurers raise rates to make up for the losses incurred by having too many old, sick people in the pool. That results in even more of the young, healthy dropping out, losses increase and so it goes. All systems that rely on community rating face this risk, so this is a risk that will remain for as long as the program relies on this feature. The big problem for Obamacare is this: Many young people don't get insurance because it's not typically a good deal. Even the supporters of Obamacare admit this. The challenge will be to convince young people they should buy insurance they have demonstrated they don't really want. Plus, since children can stay on their parent's health care plans until they are 26, it reduces the number of young healthy there are to subsidize the old.

Parenthetically, the wife and I have been trying to watch Aaron Sorkin's "Newsroom." We both find it, most of all, boring. It masquerades as impartial and moderate in its political leanings. The amount of misinformation is distressing and it's really a liberal's fantasy of what a conservative should look like. But mostly, it's boring. Anyway the show loves to bash the Tea Party and in a throw-away line criticizes Tea Partiers as voting against their interest. It's a remark I've heard often, and is said without any apparent self-awareness that a key aspect of Obamacare assumes young people will buy something against their interest. Oh well.

The rates on the exchange are also causing some distress for those who bought insurance on the individual market. The problem is, Obamacare mandates certain levels of insurance that in some cases exceeds what consumers want to buy. Rate shock is the result. The administration admits this obliquely by crowing that rates on the exchange are lower than what was estimated or that rates in NY are lower. Well, the rates overall are still higher, and sometimes much higher than what consumers were paying. Supporters will point out the higher prices reflect better insurance. That may be the case. But it's probably small consolation to consumers no longer able to buy a policy they wanted because someone decided consumers really shouldn't be given the opportunity to buy what they want. 

There are also perverse work incentives. Casey Mulligan has articulated these in great detail and I recommend his articles in the New York Times, his blog and his book, The Redistribution Recession. He can be challenging to follow but it's worth the effort.Mr. Mulligan points out the Obamacare subsidies can be analyzed as marginal tax rates. Huh? Consumers may receive a subsidy to purchase insurance. The subsidy depends on income. The lower the income, the higher the subsidy. The more you earn the lower the subsidy. So your after-tax income increases at a slower pace than your gross income. One of the more interesting examples looks at a family of five in California. At at income of $110,280, there is no taxpayer subsidy. However, at an income of $110,279, a family could receive a subsidy of $8,100. So a family that earns an extra (marginal) dollar of income, sees its after tax income decline by $8,099. I suppose supporters of the law will say normal people don't think that way, or it doesn't affect that many people. I disagree. This is from SFGate.

People whose 2014 income will be a little too high to get subsidized health insurance from Covered California next year should start thinking now about ways to lower it to increase their odds of getting the valuable tax subsidy.
"If they can adjust (their income), they should," says Karen Pollitz, a senior fellow with the Kaiser Family Foundation. "It's not cheating, it's allowed."
Mulligan estimates Obamacare adds almost 5% to marginal tax rates overall.

There are also incentives on the employer side to reduce employment. Part time workers do not need to be covered, so companies are moving to lower hours. Small companies avoid the mandate, and I suspect we will see companies near the cliff separating companies required to offer insurance, try to figure out how to grow carefully around that limit. 

It's almost as if the supporters of a single payer system came up with an evil plan: "Let's create a really awful idea. Then when it fails, as it must, we can push for a single payer system." Of course what they'll have to explain is why they are going to be better at devising a single payer system any more competently than Obamacare has been designed. I'm sure they'll come up with something.


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