Well, it’s been a pretty busy couple of days for Obamacare.
First we got the enrollment numbers, except for the one we’d like to know, which is how many people have actually gone through the process of enrolling in a plan. There has been a sort of Talmudic debate over the meaning of the word “enroll” -- should we count folks who had chosen a plan and asked to be invoiced, or should we count only those who paid? Some of the people who enroll will not actually end up paying their premium. However, because premiums for January plans aren’t due until December, counting only those who have already mailed in their check or money order will substantially undercount those who will end up enrolling. Myself, I leaned toward counting those who have enrolled in a plan and requested an invoice for payment. But there were decent arguments on both sides.
The Barack Obama administration resolved this debate by choosing a third metric: They counted everyone who had put a policy in their online shopping cart, even if they hadn’t actually gone ahead and signed up. By this logic, I am the proud owner of 28 items in my Amazon.com cart, including a hot pink laptop case and a fridge mount for an iPad model I don’t even own. And everyone with a Match.com profile is married.
By this expansive definition, they counted 106,185 people who had enrolled in the Patient Protection and Affordable Care Act's exchange plans by Nov. 2. Interestingly, around a third of those people were in one state, California (not entirely surprising, though: It's a big state, with a lot of uninsured people, and their exchange is working OK). A quarter came from the federal exchanges.
How accurate is that number likely to be? It’s hard to tell. The percentage of people putting items in their shopping cart and then not buying them is known in e-commerce as the “abandonment rate,” and on most sites, it’s very high:
Source: SaleCycle via MarketingProfs
But HealthCare.gov isn’t a normal website. People are now legally required to buy insurance, and if you want to get a subsidy, the exchange is the only game in town. I would expect abandonment rates to be much lower than the numbers above. How much lower, exactly? That I couldn’t say. I will say this: I think my household probably accounts for at least two of those 106,185 because I went shopping on the D.C. exchange the day it opened to see how things were working. We are unlikely, however, to actually purchase a policy in the next month.
As if this was not enough of a feast for policy journalists, this morning we got news that the president would be making a big announcement on Obamacare. Around noon, he took the podium in the White House press room, looking drawn and exhausted. He was, he said, “offering an idea” to keep people from losing their plans: The administration would delay enforcement against noncompliant plans for a year. Insurers could continue to offer them, though they would not be forced to.
This may be a near-perfect specimen of that Washington perennial: the nonsolution solution. Insurers are already warning that they can’t simply allow people to stay on their old plans, firstly because all plans have to be approved by state insurers who haven’t signed onto this, and secondly because getting their computer systems to reissue the canceled policies is a hefty programming task that may not be possible to complete by the end of the year. But that’s not the administration’s problem, is it? They can say, “Hey, we changed the rule -- if your insurer went ahead and canceled your policy anyway, that’s not our fault!”
The insurers are predictably furious. And it’s hard to blame them. One thing I haven’t seen anyone point out is that if insurers do go along with this, we’re talking about a massive cash transfer from the insurers to the customers in those grandfathered plans. Some of the left-wing commentators I’ve seen seem to be under the impression that health insurers make fabulous profits, and canceling plans was a venal move to further line their overflowing pockets with your hard-earned dollars. In fact, health insurance profits are quite modest (though relatively steady). Their business and rates are very heavily regulated, and never more so than post-Obamacare, when insurers with excess profits in the individual market have to contribute half their overage to a reinsurance fund. Those people suggested that insurers would decline to renew the policies so that they could keep all that extra cash.
In reality, the rates are pretty closely calibrated to their anticipated average expenditure, aka the “actuarial value” of the policy. That’s how insurers set their prices for this year, on and off the exchanges. In other words, the exchange policies were priced with the expectation that the people who had been buying coverage in the individual market -- who are somewhat healthier than average -- would be paying more for their coverage. That’s part of what was expected to subsidize the cost of sicker people paying less.
Health Insurance Exchanges
Now Obama is saying that those healthier folks who already had insurance can keep buying their old policies, presumably at cheaper rates. But if insurers go along, that means that the average person on the exchange will be somewhat sicker than previously expected. Because the insurers already priced those policies for 2014 and cannot change their rates, they could very well lose money.
At least for one year. Come next year, what do they do? Rates for the next open-enrollment period will be set sometime between February and June. Should they assume that there will not be a repeat of this year’s drama during next year’s midterms? Or should they assume that their exchange policies will be purchased mostly by the sick and previously uninsured, then price them accordingly? It’s a pretty bold move for Obama to hang the insurers out to dry like this, considering that he reportedly needs their technical help to get the exchanges working and some cooperation to keep rates low prior to next year’s midterm elections.
And that doesn’t even touch on the legal problems. The administration is not changing the rules, just declining to enforce them against the insurers. This is becoming a pattern: Obama’s position on the law seems to be that it’s his law, and therefore the law is whatever he and his appointees say it is. That’s dangerous for all sorts of reasons, not least because it makes them vulnerable to court action.
Presumably they will also not enforce the mandate against people who have grandfathered plans. But that raises an interesting legal issue. Remember that in 2012, the Supreme Court ruled that the mandate was a tax. And as a lawyer of my acquaintance points out, taxes have to be enforced uniformly; the Internal Revenue Service can pick and choose who it audits, but it cannot pick and choose who has to obey the law. If it declines to enforce the mandate against grandfathered consumers, it's conceivably opening itself up to a bunch of legal challenges.
This is not, in other words, a good solution if your desire is to make Obamacare work as planned. It is not even a very good solution if you are genuinely moved by the plight of people losing insurance policies they liked. At best, it solves only one real problem: the administration’s plummeting poll ratings. And that's only for the short term; it’s hard to see how we avoid going through this drama again next year.
As Yuval Levin, who served in the George W. Bush White House and is a leading voice among conservatives on health care, wrote in an e-mail: “This is on the one hand a stunning capitulation, which will badly harm the implementation of Obamacare, but it is on the other hand a politically savvy move as it allows the administration to now blame all cancellations on the insurers (and state insurance commissioners) and it takes the steam out of the Republican effort of the week.
"I think it means the White House is giving up on November 30 as a date when things will change and settling in for a war of attrition that they will try to win news cycle by news cycle while hoping people get used to what's going on and change the subject so something can take effect next year and then they can see what to do next," Levin wrote. "Obamacare as they have known and envisioned it is just not going to happen.”
The president certainly seemed defeated, rambling his way through a one-hour news conference. When asked whether the website would be ready by Nov. 30, he delivered a roundabout answer that culminated in the assurance that by that date, at least a bare majority would find a website that looked like it was working. He reiterated that the prior status quo was bad, and many people wanted the quality, affordable health insurance that the Affordable Care Act had to offer. But his gaunt face and tired voice made it seem as if he was trying to convince himself as much as anyone else. Where were the ringing assurances of yesteryear that everyone was going to love Obamacare just as soon as they found out what was in it?
It’s hard to avoid the conclusion that Obamacare is going very badly indeed, and that the president knows it is going very badly. Until sometime in late October, he was clearly still confident that, despite some setbacks and embarrassments, the system would soon be up and working, and the public would rally behind it. Now he sees his polls rapidly declining, and with them the political capital that he may need to fix any further problems that crop up. Turning the insurers into scapegoats, when he still needs their help to make this law work, was an act of desperation. How many acts does this play have left?
[h=4]About Megan McArdle»[/h]Megan McArdle is a Bloomberg View columnist who writes on economics, business and public policy. Her book, "The ... MORE
First we got the enrollment numbers, except for the one we’d like to know, which is how many people have actually gone through the process of enrolling in a plan. There has been a sort of Talmudic debate over the meaning of the word “enroll” -- should we count folks who had chosen a plan and asked to be invoiced, or should we count only those who paid? Some of the people who enroll will not actually end up paying their premium. However, because premiums for January plans aren’t due until December, counting only those who have already mailed in their check or money order will substantially undercount those who will end up enrolling. Myself, I leaned toward counting those who have enrolled in a plan and requested an invoice for payment. But there were decent arguments on both sides.
The Barack Obama administration resolved this debate by choosing a third metric: They counted everyone who had put a policy in their online shopping cart, even if they hadn’t actually gone ahead and signed up. By this logic, I am the proud owner of 28 items in my Amazon.com cart, including a hot pink laptop case and a fridge mount for an iPad model I don’t even own. And everyone with a Match.com profile is married.
By this expansive definition, they counted 106,185 people who had enrolled in the Patient Protection and Affordable Care Act's exchange plans by Nov. 2. Interestingly, around a third of those people were in one state, California (not entirely surprising, though: It's a big state, with a lot of uninsured people, and their exchange is working OK). A quarter came from the federal exchanges.
How accurate is that number likely to be? It’s hard to tell. The percentage of people putting items in their shopping cart and then not buying them is known in e-commerce as the “abandonment rate,” and on most sites, it’s very high:
But HealthCare.gov isn’t a normal website. People are now legally required to buy insurance, and if you want to get a subsidy, the exchange is the only game in town. I would expect abandonment rates to be much lower than the numbers above. How much lower, exactly? That I couldn’t say. I will say this: I think my household probably accounts for at least two of those 106,185 because I went shopping on the D.C. exchange the day it opened to see how things were working. We are unlikely, however, to actually purchase a policy in the next month.
As if this was not enough of a feast for policy journalists, this morning we got news that the president would be making a big announcement on Obamacare. Around noon, he took the podium in the White House press room, looking drawn and exhausted. He was, he said, “offering an idea” to keep people from losing their plans: The administration would delay enforcement against noncompliant plans for a year. Insurers could continue to offer them, though they would not be forced to.
This may be a near-perfect specimen of that Washington perennial: the nonsolution solution. Insurers are already warning that they can’t simply allow people to stay on their old plans, firstly because all plans have to be approved by state insurers who haven’t signed onto this, and secondly because getting their computer systems to reissue the canceled policies is a hefty programming task that may not be possible to complete by the end of the year. But that’s not the administration’s problem, is it? They can say, “Hey, we changed the rule -- if your insurer went ahead and canceled your policy anyway, that’s not our fault!”
The insurers are predictably furious. And it’s hard to blame them. One thing I haven’t seen anyone point out is that if insurers do go along with this, we’re talking about a massive cash transfer from the insurers to the customers in those grandfathered plans. Some of the left-wing commentators I’ve seen seem to be under the impression that health insurers make fabulous profits, and canceling plans was a venal move to further line their overflowing pockets with your hard-earned dollars. In fact, health insurance profits are quite modest (though relatively steady). Their business and rates are very heavily regulated, and never more so than post-Obamacare, when insurers with excess profits in the individual market have to contribute half their overage to a reinsurance fund. Those people suggested that insurers would decline to renew the policies so that they could keep all that extra cash.
In reality, the rates are pretty closely calibrated to their anticipated average expenditure, aka the “actuarial value” of the policy. That’s how insurers set their prices for this year, on and off the exchanges. In other words, the exchange policies were priced with the expectation that the people who had been buying coverage in the individual market -- who are somewhat healthier than average -- would be paying more for their coverage. That’s part of what was expected to subsidize the cost of sicker people paying less.
Health Insurance Exchanges
Now Obama is saying that those healthier folks who already had insurance can keep buying their old policies, presumably at cheaper rates. But if insurers go along, that means that the average person on the exchange will be somewhat sicker than previously expected. Because the insurers already priced those policies for 2014 and cannot change their rates, they could very well lose money.
At least for one year. Come next year, what do they do? Rates for the next open-enrollment period will be set sometime between February and June. Should they assume that there will not be a repeat of this year’s drama during next year’s midterms? Or should they assume that their exchange policies will be purchased mostly by the sick and previously uninsured, then price them accordingly? It’s a pretty bold move for Obama to hang the insurers out to dry like this, considering that he reportedly needs their technical help to get the exchanges working and some cooperation to keep rates low prior to next year’s midterm elections.
And that doesn’t even touch on the legal problems. The administration is not changing the rules, just declining to enforce them against the insurers. This is becoming a pattern: Obama’s position on the law seems to be that it’s his law, and therefore the law is whatever he and his appointees say it is. That’s dangerous for all sorts of reasons, not least because it makes them vulnerable to court action.
Presumably they will also not enforce the mandate against people who have grandfathered plans. But that raises an interesting legal issue. Remember that in 2012, the Supreme Court ruled that the mandate was a tax. And as a lawyer of my acquaintance points out, taxes have to be enforced uniformly; the Internal Revenue Service can pick and choose who it audits, but it cannot pick and choose who has to obey the law. If it declines to enforce the mandate against grandfathered consumers, it's conceivably opening itself up to a bunch of legal challenges.
This is not, in other words, a good solution if your desire is to make Obamacare work as planned. It is not even a very good solution if you are genuinely moved by the plight of people losing insurance policies they liked. At best, it solves only one real problem: the administration’s plummeting poll ratings. And that's only for the short term; it’s hard to see how we avoid going through this drama again next year.
As Yuval Levin, who served in the George W. Bush White House and is a leading voice among conservatives on health care, wrote in an e-mail: “This is on the one hand a stunning capitulation, which will badly harm the implementation of Obamacare, but it is on the other hand a politically savvy move as it allows the administration to now blame all cancellations on the insurers (and state insurance commissioners) and it takes the steam out of the Republican effort of the week.
"I think it means the White House is giving up on November 30 as a date when things will change and settling in for a war of attrition that they will try to win news cycle by news cycle while hoping people get used to what's going on and change the subject so something can take effect next year and then they can see what to do next," Levin wrote. "Obamacare as they have known and envisioned it is just not going to happen.”
The president certainly seemed defeated, rambling his way through a one-hour news conference. When asked whether the website would be ready by Nov. 30, he delivered a roundabout answer that culminated in the assurance that by that date, at least a bare majority would find a website that looked like it was working. He reiterated that the prior status quo was bad, and many people wanted the quality, affordable health insurance that the Affordable Care Act had to offer. But his gaunt face and tired voice made it seem as if he was trying to convince himself as much as anyone else. Where were the ringing assurances of yesteryear that everyone was going to love Obamacare just as soon as they found out what was in it?
It’s hard to avoid the conclusion that Obamacare is going very badly indeed, and that the president knows it is going very badly. Until sometime in late October, he was clearly still confident that, despite some setbacks and embarrassments, the system would soon be up and working, and the public would rally behind it. Now he sees his polls rapidly declining, and with them the political capital that he may need to fix any further problems that crop up. Turning the insurers into scapegoats, when he still needs their help to make this law work, was an act of desperation. How many acts does this play have left?