Unaffordable Care Act: Obamacare Deadbeats Make a Bad Program Worse

The Affordable Care Act (ACA) was intended to solve a problem — affordable coverage for people with preexisting conditions — using an age-old strategy referred to as OPM (other peoples’ money). For instance, ACA regulations require insurers to accept all applicants — including unprofitable ones — at rates not adjusted for their health risk. Premiums can vary somewhat based on age, but not health status. By design, Obamacare is a bad deal for most people, who are charged much more than their expected costs. In theory his allows people with health problems to pay less than they otherwise would. The problem is these schemes never work. Moreover, there are perverse incentives for individuals to cheat — and wait to enroll until they are in need expensive services.

When this scheme was tried in the 1990s (without a mandate) it was a disaster. Overcharging healthy people caused them to avoid health insurance like the plague — resulting in a condition known as adverse selection. Over time health coverage became incredibly expensive. Premiums shot up 500 percent to reflect the higher costs of the health plan. Coverage became a bad value for everyone except sick people for whom any coverage was better than nothing. Sound familiar? It should because that’s what’s happening to Obamacare plans today. The ACA attempts to lessen adverse selection by forcing young and healthy people to buy expensive health coverage that’s a poor value.

Likely in response to this unjust system, a recent New York Times article explained that many people are cheating the exchange plans.  They remain uninsured despite the mandate — only signing up for coverage if they become sick or need expensive medical services. In theory the next opportunity to enroll is not until the next open enrollment period at the end of the year. But eager to grow exchange plans as much as possible, the Obama Administration foolishly created multiple special enrollment categories. This allows just about anyone to sign up during the year long after the open enrollment deadline has passed.

Insurers complain there is no concise list of the allowed special enrollment categories. Special enrollment includes legitimate reasons, such as a job loss, marriage and birth of a baby. But special enrollment is also allowed for about two dozen other reasons. Worse, there are no provisions to ensure the appropriate category is used. The rules are ambiguous about whether insurers are even allowed to bar late applicants from special enrollments for which they don’t qualify. Individuals often arbitrary select a bogus category and sign up anyway.

This is a problem because claims data shows that individuals signing up using special enrollments aren’t just slackers who lost track of time during open enrollment. Late enrollees use more medical care than those enrolling during open enrollment. They are also more likely to drop coverage soon after receiving expensive medical care. Health insurer Aetna reports one-quarter of its 2015 enrollees signed up through a special enrollment category. Aetna enrollees who sign up during open enrollment tend to maintain coverage for eight to nine months on average, whereas those signing up during a special enrollment drop out in only half that time. Anthem also reports members who took advantage of special enrollment are twice as likely to drop coverage only months after signing up.

Another large insurer, United Healthcare, reports more than 20 percent of its enrollees signed up through special enrollment. Those late enrollees used more care on average than those enrolling on time. One-quarter to one-third of BlueCross enrollees in Illinois, Montana, New Mexico, Oklahoma and Texas were late enrollees who signed up through special enrollment. They too were much more likely to generate large claims soon after enrolling.

Anyone can legally drop coverage for two consecutive months, say November and December, and not owe a penalty. Individuals can also merely stop paying premiums and insurers cannot kick them off the rolls for 90 days (although insurers can stop paying medical claims after 60 days of missed payments).

Although this loophole has been closed, in 2014 and 2015 special enrollment was allowed near the tax filing deadline in April. Maybe a woman was expecting a baby due in August or September. She could sign up in April, stop paying premiums in August and her insurer could not kick her off until November. Imagine that! $10,000 worth of medical care purchased for the price of only four months’ worth of premiums.

The Affordable Care Act is little more than a poorly-designed wealth redistribution scheme that is prone to fraud. Premiums have skyrocketed as Obamacare Deadbeats game the system, driving off honest people who can no longer afford Obamacare’s outrageous premiums. Insurers need the authority to block these scam artists. Better yet, all consumers need the freedom to select health coverage of their own choosing — not some poorly conceived mandatory welfare scheme.

An earlier version of this Heath Alert appeared in Town Hall.

Comments (21)

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  1. The big ham says:

    Is if fraud or playing by the rules? Let’s say an uninsured comes down with cancer out of open enrolment. then rents a trailer house for $250 a month to obtain a change of address. This creates a SEP even if they just “move” for a month. It’s not fraud or a scam. It’s playing by the rules.

    • Devon Herrick says:

      I suppose an uninsured person renting a room from someone living in a neighboring state in order to enroll through a special enrollment period is technically playing by the rules. But we can all agree that insurance markets cannot survive when 20% to 25% of enrollees sign up just in time to use medical care and then drop out when they’re through with treatment. I used the anecdote of a pregnancy since it’s relatively common, expensive and has a discrete beginning and end. It is rather dishonest to stop paying premiums knowing that the insurers will continue to pay claims for 60 days. For that matter, I think it’s unethical to drop out during a year when someone has experienced significant medical problems the insurance company had to pay for.

      On the other hand, it doesn’t surprise me when healthy people drop out and take November/December off because they realize Obamacare is such a bad deal. There is a two month grace period and people who have coverage for 10 continuous months are exempt from the penalty.

      • The big ham says:

        I agree Devon, I was just showing how easy it is to legally game the system.
        Another way that very few are aware of. Two BCBC companies in 2015 had open enrolment into plans at the end of their BCBC short term medical plans.They did not have open enrolment into the exchanges and get tax credits but they could get guarantee issue off exchange plans and then apply for exchange plans during the next enrolment.

  2. Barry Carol says:

    Now that Bernie Sanders finally disclosed how he proposes to pay for his Medicare for all single payer health insurance system, it will make the cost of establishing robust heavily subsidized high risk pools for those who can’t pass medical underwriting look like a bargain by comparison. With high risk pools in place, medical underwriting can return to cover the healthy folks at comparatively low cost. I guess every cloud has a silver lining.

    The Sanders approach ignores a little thing called unintended consequences. Medicare and Medicaid function as well as they do, at least for hospital based care, because there is still a large private sector to shift costs to. Under a Medicare for all system, that would no longer be the case. Hospitals claim that Medicare only pays them about 91% of their costs on average and for Medicaid, it’s closer to 65% of costs. So, even if there were no uncompensated care, it implies that Medicare rates would have to increase by at least 15%-20% to allow hospitals to cover their costs if commercial coverage disappeared which means that his single payer system would cost a minimum of $200 billion per year more than he claims it will.

    At the same time, his proposed tax increases are likely to raise less money than he thinks as more of the economy moves underground and other jobs are lost altogether. His proposal to raise the minimum wage to $15 per hour would actually be $15.93 per hour when his 6.2% payroll tax to be nominally paid by employers is added in. That means more jobs lost to automation and less demand for the products and services provided by companies that employ low paid workers which means fewer workers will be needed even without more automation.

    Finally, a Medicare for all system would be hugely disruptive for the 150 million people who currently get their health insurance through an employer. A large percentage of those have very generous coverage, especially unionized folks, and they are not likely to be willing to trade coverage that they’re happy with for an unknown quantity with respect to how it will actually affect them and their families. The unionized people in particular will argue that they sacrificed some of their wage increases over the years and in tougher times accepted wage freezes to sustain their generous health insurance coverage.

    I’ll at least give Sanders credit for honesty but there is a reason that the single payer approach didn’t fly in Vermont that goes beyond the 94% actuarial rating of that particular proposal. I don’t think it will sell nationally either. If we were starting with a clean sheet of paper, it might be a different story but we’re not starting with a clean sheet of paper. One of my favorite quotes attributable, I think, to James Joyce is “The force of idealism is lost when it fails to recognize the reality of things.”

    • Devon Herrick says:

      That’s why I refer to Sander’s plan (and all Single-Payer proposals) as Medicaid-for-All. Either taxes have to rise; or benefits have to fall.

      Proponents talk about all the administrative costs we would save and how much care that would buy for the uninsured/poor households. But the primary way single-payer systems save money is through monopsony power. When there is only one entity legally allowed to pay for health care, that entity has absolute control over price. At least in theory, a single-payer should only pay prices sufficient to entice the lowest number of providers necessary to (almost) meet the needs of patients. Waiting lists are necessary because: 1) hospital/clinic/facility capacity is fully utilized; 2) the intersection of the supply/demand curves means provider fees are at their lowest possible; 3) some people will get better on their own or go away.

      Medicare and Medicaid are as generous as they are because private insurance pays the bulk of provider’s bills and Medicare covers marginal costs. Also (in my opinion) seniors would not tolerate there being huge disparities between quality and access to care between Medicare and private insurance. But if there really was only one single payer, I can imagine there being nothing to compare the lousy service to.

  3. Don Levit says:

    Enrollees thru regular enrollment keep plans more than twice as long as special enrollees – 9 months as opposed to 4 months
    So maintaining customer loyalty for 5 more months make these plans profitable?

    • Devon Herrick says:

      Don you have a good point. It’s debatable whether insurers would have been better off if these people stayed away entirely, or stayed put in the risk pool the whole time.

      I find it interesting that the average duration of coverage is only 8 to 9 months. What’s that mean? It sounds like for every person who stayed all year there was another that stayed only five or six months. I wonder if it was the healthy ones most likely to drop out early; or if it was the sick ones most likely to stay all year?

  4. Devon Herrick says:

    The New York Times said the company that owes the Texas Blues experienced quite a bit of this type of gaming.

    BlueCross in Texas lost a significant amount of money on exchange enrollees the first year. We know from enrollment data that about 80% of enrollees in the exchange are receiving subsidies. I need to check the statistics on how many there are, but those earning 250 FPL or less get cost-sharing subsidies. Even with a Silver Plan that has, say, $2,000 deductible, those with cost-sharing subsidies are more likely to meet their deductible and file a claim than those who must pay the (same) deductible entirely out of pocket. Undoubtedly some of the (formerly) uninsured signed up and had generous cost-sharing subsidies. I wonder if when they went to the doctor for the first time in years, how many of those became an easy mark for the clinic/hospital to do all manner of unnecessary services and needless diagnostic tests to make up for years of neglect?

    • The big ham says:


      The people below 250% on the silver plans deductibles also qualified for community assistance and most of the ones I signed up had deductibles ranging from $0 to $400 and max out of pockets from $200 to a $1000. The majority had max out of pockets of $400 a year. Once the max out of pocket was met saying hello to the doc the rest of the year was FREE.

  5. Jimbino says:

    “Obamacare Deadbeats game the system, driving off honest people who can no longer afford Obamacare’s outrageous premiums.”

    This implies that it is dishonest to “game the system.” Not so. Gaming a tax system by getting married, getting divorced, having children, moving to a low-tax state, claiming a mortgage interest deduction, and so on, is neither illegal nor dishonest. It might be hypocritical if you claimed not to do it.

    Indeed, gaming a fascist or socialist tax system is morally compulsory for the libertarian. Some would argue that gaming of Obamacare threatens to bring it down. That’s the idea, stupid!

    • Ron Greiner says:

      Good point Jimbino! After all, the law is the law and we must not break the law.

      Devon was also saying that young people who work for small employers who don’t offer insurance were “Slackers” if they were on their parent’s plan as dependents.

      The NCPA blames the citizens for what they have to put up with under the law, it’s crazy.

      Get ready for rate increases on health insurance. Insurance companies wait till February for their rate increases because then the consumer has to pay it because it is illegal to buy another insurance company product, IM, out of Open Enrollment. Blue Cross has bought the politicians of both political parties, the non-profits and the Nation’s media. The citizens are just sheep.

    • Devon Herrick says:

      Some would argue that gaming of Obamacare threatens to bring it down. That’s the idea, stupid!

      I fear — as do many others — that what will ultimately replace Obamacare when it inevitably fails is a Medicaid for All program. It may take a decade or two. But it could happen when naïve Americans throw up their hands in desperation and clamor for the government to ‘fix it’ once and for all. Most Americans don’t want socialized medicine, but many will acquiesce when they can no longer afford the ‘Unaffordable Care Act’.

      • Ron Greiner says:

        Devon, does the NCPA get money from those who wish to keep the self funded health plans that are killing the rest of America? Before Obamacare the NCPA was very timid on saying anything negative about employer-based health insurance.

        Is the reason that nobody will tell a Republican Governor that he should tell his citizens that they can purchase STM all year long is that then some will leave more expensive Blue Cross plans?

        Why won’t anybody say that health insurance products are available all year long? Is the NCPA pulling some kind of scam on all of America just to keep their donors happy?

        The Chamber of Commerce is against Obamacare yet they are selling it. Same with the NFIB. America is surrounded by a bunch of traitors who want Socialism because that way they get tax free donations.

        • Devon Herrick says:

          Many economist would actually prefer a tax credit of some type instead of the open-ended tax exclusion for employee health insurance. Back in October 2015 more than 100 academic economists signed a letter in favor of keeping the Cadillac Tax (which basically just caps the employer tax exclusion).

          The primary problem with employer coverage is that it obscures the cost and source of the coverage (i.e. workers don’t know what it costs and that they’re ultimately paying for it); and it insulates workers from the decision-making process. This is slowly changing in most areas, except state and federal workers and heavily unionized workers.

          One thing good about employer coverage is that self-insured plans are mostly exempt from some of the many special interest mandates that states are prone to pass.

          A public policy agenda to take away the preferred form of health insurance that many Americans have come to enjoy is a non-starter. You have to start with the small stuff, like coupling an HSA with a high-deductible plans. Leveling the playing field between individual and employer insurance; and letting workers know the difference in costs. Once workers understand the costs and benefits, they will become better consumers or may demand a change.

          • Ron Greiner says:

            I don’t know they didn’t have any problem taking Individual Medical (IM) away from Americans without employer-based insurance.

            Devon, you are wrong that the bad thing about employer-based insurance is that employers are clueless to the cost. The REALLY BAD THING about employer-based health insurance is that they terminate sick peoples’ insurance and then they DIE! I have been telling you this for years but you refuse to admit the complete obvious TRUTH.

            • Barry Carol says:

              Ron – Do you have any estimate of how many people lose employer provided health insurance in any given year because they became too sick to work any longer? It’s much more common to lose employer coverage because you get laid off or fired. If you lose your job, for most people, you lose the cash flow that paid your bills. That’s why only 2% of people eligible for COBRA coverage pick it up. They can’t afford to pay for it whether they want the insurance or not.

              Even people with IM coverage can lose it if their carrier goes out of business or withdraws from doing business in the state where the policyholder lives. If they can no longer pass underwriting, they’re out of luck too. As for STM coverage, a contact at United tells me that UNH has just over 100,000 STM members. Since they usually have a pretty good market share in most of the businesses that they participate in, STM doesn’t look like the panacea that you make it out to be especially for any length of time even if the carrier will renew it indefinitely for those healthy enough to pass underwriting at each renewal period.

              By the way, I think the ACA exchanges will collapse in 2017 because carriers will either exit the market altogether or the premiums will get so expensive that only the sickest people will buy the policies. It will be interesting to see what comes next.

              • Ron Greiner says:

                Barry, I think you are correct that the Government has killed the Individual Market but that was the plan wasn’t it? We couldn’t have low cost Individual Medical being competition to those employer-based insurance companies that have bought the politicians of both political parties.

                Dr. John Graham is on employer-based health insurance with an itty-bitty deductible but he knows that if he gets sick that those of us in the Individual Market will end up paying his bills with guaranteed issue. What are free loaders like Dr. Graham going to do after the Individual Market is gone?

                Doesn’t really seem fair does it? I know the clients I talk to and explain how the Government is making us pay for all the sick coming off employer-based health insurance are hopping mad that we have been abused by the politicians this way. I don’t even bother telling them how people like you, Barry, say that it’s OK because if our company goes out of business that is similar to a clause in employer-based insurance that automatically terminates all the sick insured. I don’t tell them because they would say, “What does that have to do with anything?”

  6. Doctom says:

    Anyone can legally drop coverage for two consecutive months, say November and December, and not owe a penalty. Individuals can also merely stop paying premiums and insurers cannot kick them off the rolls for 90 days (although insurers can stop paying medical clailms after 60 days of missed payments).
    Problem here is that once the individual is kicked off the company roles, the insurance company gets to come back against the physician and demand repayment of medical claims paid during that 60-90 day period.