Problems with Obamacare exchanges are a feature, not a bug

Avik Roy advances a very interesting theory about the disastrous Obamacare exchange.

First of all, you need to think about  how it works compared to other online shopping sites.  At all other sites, you find your product, and then you submit your information.  At Obamacare, you must submit your information before you’re allowed to go shopping for your product.  It’s this information demand that has made a poorly constructed design collapse under the weight of even a relatively small number of visitors.  So why was it built bass ackwards?  Because it’s not really a free market exchange.

Here’s the deal:  prices across the board have increased for insurance as insurers struggle to deal with the fact that they cannot scale prices depending on risk (which is, after all, what real insurance does) and because they are now required to offer a ton of services, whether consumers want to pay for them or not.  Congress knew that this would happen, but it didn’t care.  The real purpose behind Obamacare was to get the haves to pay for the have nots.  The haves will take the high prices and like them . . . or else.  But the have nots cannot be allowed to see the high prices lest they run away screaming.  The reality for them is that, as have nots, their increased prices will be subsidized — and then some — by the haves.  Everyone has to be fed into the system for this wealth transfer to work:

So, by analyzing your income first, if you qualify for heavy subsidies, the website can advertise those subsidies to you instead of just hitting you with Obamacare’s steep premiums. For example, the site could advertise plans that “$0″ or “$30″ instead of explaining that the plan really costs $200, and you’re getting a subsidy of $200 or $170. But you’ll have to be at or near the poverty line to gain subsidies of that size; most people will either not qualify for a subsidy, or qualify for a small one that, net-net, doesn’t make up for the law’s cost hikes.

This political objective—masking the true underlying cost of Obamacare’s insurance plans—far outweighed the operational objective of making the federal website work properly. Think about it the other way around. If the “Affordable Care Act” truly did make health insurance more affordable, there would be no need to hide these prices from the public.

Read the rest here.  And then, if you haven’t already, read Zombie’s post catching the SF Chronicle offering a remarkable piece of job advice.

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  • raymondjelli

    It is good to see the press catch up with what anyone remotely educated in insurance at the lowest levels already knew.  A risk pool and an entitlement are two very, very different things. Sometimes an entitlement is necessary.  If it wasn’t there would be no need for charities. A risk pool is the very antithesis of a charity.  It is trying to proactively mitigate the effects of the risks inherent in life.  You do so by combining those of like situation and risk factor, scaling the inputs to what is needed to offset the rare individual catastrophe and also provide a cushion for further incidents as well as payment to those who maintain the pool. Risk pools are a little too involved for well meaning volunteers.  An entitlement is a payment to those who fall in the cracks or were unable to provide for themselves to begin with. It is meant to be rarer than payments from a risk pool because it is a hundred percent loss.  It will not be regained. If someone thinks a risk pool and an entitlement is one and the same they will preside over the loss of the risk pool.
    In any political debate the technical terms will become amorphous and will come to symbolize what the electorate absorbs.  That is a given. In this debate the Obamacare people lied from the beginning.  They purposely confused entitlements with risk management. Preconditions exist in insurance for two reasons.  Higher risk of a claim and adverse selection. Higher risk of claims mean more frequent and probably higher payouts therefore more money must be in the pool.  Simply charging everyone more though will not work. You are then removing the advantage of being in the risk pool. You will pay more and your money will be gone. Rather than paying a small amount that can insure against great risk you are paying more upfront and the margin between what you need to make up for catastrophic losses and the difference you pay between the insurance and the needed amount becomes less. You also have lost the use of your money.  If you can then invest why not make money and use that for the difference.  You have lost the advantages of insurance.
    Adverse selection is the fact that for insurance the people who are most likely to immediately need it are the ones who will buy it but they will be a heavy loss to the risk pool.  If I only buy health insurance when I am sick it becomes an unsustainable entitlement.  Doing that kind of buying is rational but if premiums are low enough people will make the rational decision to buy insurance rather than risk not having coverage at all.  Obamacare makes sure everyone will not want to buy but will get coverage when they are sick.  It is unsustainable and always was. It will be through heavy enforcement that it is kept breathing.
    The worst part of the rollout fiasco is this.  The Obamanites are laughing, giggling and chortling because they know this is a fixable problem and there is a far worse problem that won’t come to light.  If the rollout is this bad imagine how bad the claims process will be.  It will be horrible but since it will only affect a small part of the population and at chronologically different times there will not be the outcry there is for this. Unfortunately the costs to society in misery will be substantially higher.  You will also not know your rights or if better coverage is available. The government is your salesman, claims rep, arbitrator and collections agency.  Good luck America!!! Obama voters should be identified and they should be the ones to pay the higher premiums. After all they think entitlements are risk pools. We don’t.

  • Ymarsakar

    Why is Obama’s family not required to be in ObamaCare?

  • lee

    Me, I live in daily terror: Terror of losing my job, terror of losing my hours, terror of my insurance and deductables going up so much that I can no longer afford ANYTHING else. I am in my early fifties–I live in terror of what the IPAB is going to do to me as I age.
    I am angry, and scared. I hate what has happened. And I beleive there is no place HOT enough in HELL for the people responsible for this.

  • Ymarsakar

    It is a good thing for slaves to be afraid of their rightful masters. Makes for a more perfect harmony.
    Those that don’t like it, know what to do about it.
    Instead of hating what has happened, hate evil and destroy it. Or hate yourself and your lack of power, to motivate you to gain power over yourself and ultimately over evil.
    What did people say again, that the US civil war wasn’t necessary, that slavery was going to end eventually and wasn’t worth the cost in lives?
    Just how long do you think you want to live in slavery before it “ends naturally”? What would freedom cost to you?

  • heather

    Today I finally got the letter I’ve been expecting:  our current insurance plan will no longer be “offered” thanks to the new law.  This is a plan that my husband and I, both adults, chose of our own free will.  

  • Bookworm

    I’m so sorry, Heather. I wish you the best of luck on your upcoming journey through Obamacare.

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