Why the White House Is Panicking about ObamaCare

Actors. Actresses. NFL football players. Baseball players. Librarians. Mayors. City councilmen. Members of AARP.

The Obama administration is looking far and wide, leaving no stone unturned in a relentless search for…well…for help.

Help with what? Help with getting people to enroll in health insurance plans this fall.

And why is that? Because the administration is facing the very real possibility that its signature piece of legislation may fall flat on its face. By way of background, consider this:

  • About one in every four individuals who are eligible for Medicaid in this country has not bothered to enroll.
  • About one in five employees who are offered employer-provided health insurance turns it down; among workers under 30 years of age, the refusal rate is almost one in three.

Think about that for a moment. Millions of people are turning down (Medicaid) health insurance, even though it’s free! Millions of others are turning down their employers’ offers. Since employees pay about 27% of the cost of their health insurance, on the average, millions of workers are passing up the opportunity to buy health insurance for 27 cents on the dollar.

You almost never read statistics like these in the mainstream media. Why? Because they completely undermine health policy orthodoxy: the belief that health insurance (even Medicaid) is economically very valuable, that it improves health and saves lives, and that the main reason why people don’t have it is that they can’t afford it.

Welcome to the huge disconnect in health reform. On the one hand there are the people who are supposed to benefit from health reform. On the other hand there are the people who talk about it and write about it. I think it’s fair to say these two groups almost never meet.

Study after study has purported to have found that health insurance improves health, saves lives, makes people happier, etc., etc. But these studies almost always ignore two cardinal facts:

  • We have made it increasingly easy in this country for the uninsured to obtain health care after they get sick.
  • We have also made it increasingly easy for people to get health insurance after they get sick.

Both developments reduce the incentive to spend time and money enrolling in a health plan.

I have described before the experience of emergency room care in Dallas:

At Parkland Memorial Hospital both uninsured and Medicaid patients enter the same emergency room door and see the same doctors. The hospital rooms are the same, the beds are the same and the care is the same. As a result, patients have no reason to fill out the lengthy forms and answer the intrusive questions that Medicaid enrollment so often requires. At Children’s Medical Center, next door to Parkland, a similar exercise takes place. Medicaid, CHIP and uninsured children all enter the same emergency room door; they all see the same doctors and receive the same care.

Interestingly, at both institutions, paid staffers make a heroic effort to enroll people in public programs ― working patient by patient, family by family right there in the emergency room. Yet they apparently fail more than half the time! After patients are admitted, staffers go from room to room, continuing with this bureaucratic exercise. But even among those in hospital beds, the failure-to-enroll rate is significant.

Clearly, Medicaid enrollment is important to hospital administrators. It determines how they get paid. Enrollment may also be important to different sets of taxpayers. It means federal taxpayers pay more and Dallas County taxpayers pay less. But aside from the administrative, accounting and financial issues, is there any social reason we should care?

Economics teaches that people reveal these preferences through their actions. If people act as though they are indifferent between being uninsured and being on Medicaid, we may infer ― based on this behavior ― they are equally well off in both states of the world from their own point of view.

Against this conclusion, advocates of “behavioral economics” might argue that people don’t know what’s best for them. They have to be “nudged.” Seeing a football star on TV encouraging young men to enroll in a health plan might do the trick. But for the Obama administration that doesn’t solve the problem. People need more than an initial nudge. They have to be nudged every month.

Take Massachusetts. That state cut its uninsurance rate in half. But the main vehicle was Section 125 plans set up by employers. These accounts allow employees to pay their share of the premiums with pre-tax dollars and they are mandatory. Further, for lower-income employees the insurance is highly subsidized by the state. More to the point, under this arrangement, the employee’s contribution is automatically deducted every pay period.

Under ObamaCare, similarly situated individuals are going to be expected to pay a monthly premium the way they pay their utility bills. But with this difference. When people don’t pay their electricity bills, the utility cuts off their electricity. When they don’t play their rent, the landlord throws them out in the street. But when they don’t pay their health insurance premium, what happens then? Not much.

Why is it so important to the administration to have people enroll? If they don’t enroll in Medicaid, I don’t think it matters very much. But if they don’t enroll in private plans sold in health insurance exchanges, it will matter a great deal. Remember, these will be artificial markets in which insurance will be underpriced to the sick and overpriced to the healthy. A lengthy, complicated enrollment process will further discourage those with no health problems.

But if the only people who enroll are those who are sick, the average premium will go through the roof. A death spiral will ensue as ever increasing premiums price more and more buyers out of the market, leaving only those whose expected medical expenses exceed those high premiums.

The bright side of all this is a possible teaching moment. The whole nation may be treated to one vast demonstration of why prices matter.

Comments (29)

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  1. JD says:

    “The bright side of all this is a possible teaching moment. The whole nation may be treated to one vast demonstration of why prices matter.”

    I wouldn’t expect us to learn from our mistakes.

  2. JD says:

    The “death spiral” is a very likely outcome. They tried to force everybody using the “tax” if you are uninsured, but paying the penalty may quickly become viable for “too” many people. If we pass that point, there won’t be any salvaging this program.

    • Dewaine says:

      It’ll be interesting to see if they recognize the failure and bail out or if they try to raise the penalty to match the rising premium. I think they’ll go with the latter, although, it won’t work very well. Government has never been successful at keeping up with fluctuating market prices.

      • JD says:

        … and if they try to raise the “tax” too high in an effort to cover themselves regardless of the fluctuation, they’ll pay a big political price. Imagine all the poor people that would be hurt by a $100,000 fee for not buying insurance? I think that this whole thing is in serious trouble, hence they are scrambling to get people enrolled.

      • Keith says:

        Actually, I don’t think that the federal government can raise the penalty as a way to induce more people to purchase insurance. The Supreme Court’s decision holding that the individual mandate is a tax and therefore constitutional hinged on Roberts’ opinion that there isn’t actually an individual mandate. Instead, there is a fee for those who don’t purchase insurance and because the fee is sufficiently small so as to not be coercive, it can be called a tax. Problem is, if you raise the amount of the tax so that it actually induces folks to buy insurance, then it is coercive and no longer a tax but instead an unconstitutional penalty.

        So raising the tax/penalty would invite litigation which could destroy the mandate altogether. (Of course the Chief Justice could simply invent another saving construction….)

        • Protonius says:

          Keith -

          You wrote: “Problem is, if you raise the amount of the tax so that it actually induces folks to buy insurance, then it is coercive and no longer a tax but instead an unconstitutional penalty”.

          But, Keith, is ALREADY IS “coercive”; that’s why this penalty posing as a “tax” was established!

          • Keith says:

            Yes, I agree. Even a 1-cent tax/penalty/fee at the margin is potentially enough to induce someone to purchase health insurance. My point is that the Supreme Court has suggested that the current tax is not coercive but that there is a level above which a constitutional tax becomes an unconstitutional, coercive penalty. However, if Congress raises the tax/penalty/fee for not purchasing insurance above that level (whatever that level may be), the majority opinion that saved the ACA falls apart. Ergo Congress cannot raise the penalty for non-compliance with the individual mandate without risking the Supreme Court deciding that the individual mandate is unconstitutional after all.

    • Greg Scandlen says:

      Almost no one will actually have to pay a penalty. The uninsured are lower income, lower income means no taxes, no taxes means no tax refund to seize.

  3. JD says:

    “Economics teaches that people reveal these preferences through their actions. If people act as though they are indifferent between being uninsured and being on Medicaid, we may infer ― based on this behavior ― they are equally well off in both states of the world from their own point of view.”

    It’s important to realize the difference between what is good for someone from a outside point of view vs. a personal view. This really boils down to how value is determined. Is it subjective or objective?
    If we are going to talk about it in these terms (the correct terms, IMO), then it quickly becomes apparent that optimal decision-making comes from the individual, not the collective.

    • Dewaine says:

      Exactly. There isn’t much use discussing the impact of ObamaCare without first establishing how value is determined. On this issue (and many others), opposing sides are often simply operating on different fundamental understanding of the foundation of the issue. Some people think that personal value can be maximized by a third party, others think that those decisions must be made by the individual. Smart people can come to very different conclusions based on starting point. We need to resolve these issues to reconcile our policy differences.

  4. Buster says:

    The White House (and Democrats in general) bit off more than they could chew when they forced through the Senate bill. At that point, they had to either negotiate with Republicans (and water down the bill), or push very hard since it was their best chance in decades to achieve universal coverage and expand Medicaid. If anything, the White House is scared that their efforts will be ridiculed for generations to come as the Administration that fumbled a major entitlement. By contrast, if they push hard and people become dependent on it, Obama believes his presidency will be credited for generations to come as the one who championed ObamaCare.

    The problem is: if they win, Americans still lose. ObamaCare has too many flaws to be sustainable.

    • JD says:

      So, are you contending that the legislation is a failure because they watered down the bill to appease Republicans? Do you think that if Democrats had their way that health care would be fixed?

      I’m positive that that is what the Democrats will try to say, but if that is your conjecture I would like a preview of the argument.

  5. Doctorsh says:

    Individual responsibility is gone or at best neglible under Obamacare.
    So why should anyone enroll?
    This system has been set up to fail which it will as soon as the private health insurance premiums skyrocket next year.
    That gives the D’s two years to manufacture another crisis, with the help of the obamedia , to attempt to push through single payer.

    • JD says:

      I think that the skyrocketing premiums will be that crisis. Somehow they’ll convince enough people that the ObamaCare failure rests at the feet of Republicans. After that it will be easy to get single payer.

  6. Greg Scandlen says:

    “About one in five employees who are offered employer-provided health insurance turns it down; among workers under 30 years of age, the refusal rate is almost one in three.”

    Thanks for making this point. Ezra Klein for one is ALWAYS asserting that young workers take up employer offerings at the same rate as older ones. He asserts that with no evidence, no support, and it is not true and has never been true. Even your one-in-five number understates it since that is of ALL workers, including the younger ones. In fact, older workers take-up employer coverage at about twice the rate as younger ones.

  7. Beverly Gossage says:

    Excellent post! Thanks, John. As I travel across Kansas campaigning for Insurance Commissioner, people are always shocked when I tell them of the number of group clients that I have whose employees turn down the health insurance. One such case comes to mind in which the premium was $50 and the employer was putting $50 a month in the HSA. Over 70 employees said, “no thanks.”

    An employer must have at least 50% of the employees to opt for the plan to keep it. This has been a struggle for some employers and explains one of the reasons only 41% of small employers offer a policy.

    Obamacare SHOP exchanges eliminate the participation requirement the first year. Which of the employees do you expect will enroll?

  8. Patrick Skinner says:

    The only way for the IRS to collect the ‘non-deductible excise tax penalty’ is from a income tax refund. If people do not overpay the tax withholding, the IRS can’t even collect the tax penalty.
    Secondly, Obama admitted the software can’t verify income and millions will have a strong incentive to under report to get a bigger subsidy – leading to massive cost to the taxpayers, which they will not be able to recoup since they can only recoup the over payment of the subsidy thru withholding tax refunds.
    It’s a financial ‘death spiral’ as well as premium ‘death spiral’.

  9. Frugal Nurse says:

    Nice outline of one of the major problems of Obamacare – Will the benefit outweigh the cost and confusion for the majority of people? I’ve had an individual plan for years, and worry that I will now be priced out. My family is in that no-man’s zone where we won’t qualify for a subsidy, but the proposed premiums will still be as much as our mortgage! Also, I’ve worked with patients and their insurance companies for years, but I couldn’t begin to explain to them how to fill out the necessary forms on the exchanges. The confusion index will be very high. How will the average person cope, even with so-called “navigators”?

  10. Floccina says:

    About one in five employees who are offered employer-provided health insurance turns it down; among workers under 30 years of age, the refusal rate is almost one in three.

    I had a friend who was offered insurance by his employer but he had to pay $50/month and the deductible was $300 and so he turned it down saying I probably would not use it. Funny he is an advocate socialized healthcare.

  11. H D Carroll says:

    John – a death spiral doesn’t have to be the outcome, but it requires a bit of redesign to make things work the way they might. Essentially, the individual exchanges should become a nationally standardized (with some state variations) high risk pool and individual marketplace, and the premium levels would be subsidized to a more acceptable level via continuing the temporary reinsurance assessment against non-exchange individual and employer plans, whether third party or self-insured plans, and individual market underwriting and pre-ex brought back in. The individual penalty should be increased to the level of the exchange level premiums, so that healthy individuals will be motivated to enter the marketplace before they “have to” purchase at the exchange. The penalties would be used to fund the “uninsured” services at the providers, as you often advocate in a different version. Part of the problem with the system that existed pre ACA was that there was no good general high risk pool standardization across the states, and one that would integrate well with a workable individual market.

    • Wanda J. Jones says:

      Please read your comment again and ask yourself what the likelihood is that the whole scheme will work well, given our state legislatures and the Congress as we know it. When it is as complicated as your suggestion, it will fail to fulfill its goals, and cost much more than people want to pay.

      I have another idea: a blanket relief from mandates and regulations that raise costs to about 1/3 more than it would cost to deliver care without them.

      Wanda J. Jones, President
      New Century Healthcare Institute
      San Francisco

  12. Protonius says:

    Even aside from the numerous and deep INEQUITIES built into this Plan, and even aside from its MASSIVE AND DANGEROUS INTRUSIONS into our PRIVACY — via which we all stand to be all-too-easily VICTIMIZED by the IDENTITY-&-FINANCIAL-THEFT CRIMES that, in my opinion, will most assuredly ensue as this Plan takes hold –, what sense does it make to FORCE upon the nation a Plan that is so ILL-CONCEIVED, DEEPLY-CONVOLUTED, “RUBE GOLDBERG” COMPLEX, WRITHINGLY-TENTACLED INTO A WIDE RANGE OF OFTEN-UNCERTAIN-OR-FLUCTUATING DATA, and, ultimately, CONFUSING, that not only the GOVERNMENT can’t figure out how to implement it (even according to their OWN standards) but also that this Plan even has to create (or cause to be created) a special bureaucratic class called “NAVIGATORS” — who ALSO don’t understand it — to help THE PEOPLE figure out how to deal with it?

    And what sense does it make that NOW — even though the Plan is — according to Obama and the Plan’s proponents — so “wonderful” and has purportedly already gone through the “public-debate wringer” and is fully enshrined into law and is a “done deal” — this Administration has now seemingly found it necessary to do everything it can — including EXPENDING TAXPAYERS’ MONIES and pressing FEDERAL AGENCIES AND OFFICIALS into action — to try to “SELL” us all on how “wonderful” this Plan is?

    And that this Administration is doing this DESPITE the increasingly coming-to-light revelations as to the DAMAGES that this Plan is already wreaking (such as to the nation’s economy and to people’s privacy) and how more widespread and DESTRUCTIVE, according to the evidence, it may extremely soon become, if this Plan is not immediately fixed or, better, shut down NOW in its tracks?

    In short, what sense does this push, to dig this Plan’s claws so deeply and irretrievably into the fabric of our society, make?

    Is it all the product of a sincere and honest desire to improve every American’s access to low-cost, high-quality, always-there-when-you-need-it, health/medical care, in full accord with — or completely regardless of — a President’s “oath of office” and the principles, freedoms, rights, and protections, that were established in the nation’s bedrock document of law?

    Is this Plan, and the push behind it, simply in line with the usual give-and-take of politics, where nothing coming out of Washington is necessarily pure and perfect, but at least the final product — in its proponents’ views — is, “on balance”, more good than bad?

    Or is ANOTHER, and DIFFERENT, set of motivations and thought-processes possibly behind this current Plan, and behind this Administration’s push to implement it, and thereby to so drastically alter the very fabric of our nation?

  13. Protonius says:

    ADDENDUM TO MY JUST-SUBMITTED POST:

    My apologies! In that post, I MEANT to include — and thus herewith state — that my statements in that post are expressions of MY OPINION, and that if I mis-stated or misrepresented any facts, such mis-statement or misrepresentation was unintentional.

  14. Walter Davis says:

    The following appeared in the article. Shouldn’t the last line be ” 73 cents on the dollar”

    Think about that for a moment. Millions of people are turning down (Medicaid) health insurance, even though it’s free! Millions of others are turning down their employers’ offers. Since employees pay about 27% of the cost of their health insurance, on the average, millions of workers are passing up the opportunity to buy health insurance for 27 cents on the dollar.

  15. Centrist says:

    Historically and in light of the well known impacts of not having health insurance, if someone elects not to be covered it is because they 1) cannot afford it, or 2) choose not to participate on principal. Your statistics about participation in Medicaid and Employer’s plans should be restated to … three in every four ‘do’ participate in Medicaid and four in every five ‘do’ participate in employer’s plans.

    With respect to the ACA exchanges, those who find that participation is financially reasonable (especially with credits and sharing) and preferable to non-participation (risk of catastrophic expenses or Federal penalties) will probably participate … something in the line of your four out of five. Those who choose not to participate on principal … well, I don’t think the government really cares. In that event, it will still collect the mandate taxes/penalties from individuals and businesses (increasing Federal revenues) and local hospitals/doctors/an Counties will continue absorbing the defaulted medical bills. (I’m certain that the penalty will be entwined with EIC and other credits/deductions … so there will be little avoidance in paying.)