The brouhaha over California's premium rates (see
Will Wilkinson's terrific coverage for a good summary) is largely dying
down, especially as the NSA
is now commanding the attention of many journalists. Largely, the debate over
California's proposed premiums for 2014 centered around three issues:
1) Are premiums they increasing?
Thanks to Avik Roy's fantastic coverage
and analysis, we know the answers to all three questions. Rates will
increase for most young people (the large plurality of the uninsured), even
when taking into account subsidies, and even
for benefits comparable to Obamacare's minimum requirements.
So, at least in California, there will certainly be rate
shock for young people, which may hamper the ability of Obamacare to offer
affordable rates to the rest of the incoming uninsured.
But amidst the debate over how much who will pay, one piece
of the question was ignored - what is the fundamental goal of expanding
coverage? Austin
Frakt highlights four options - for my purposes, I would argue that
maximizing coverage while minimizing premium increases is the primary goal. And
certainly, few would argue that maximizing coverage of young, healthy people in particular, isn't important in minimizing
premiums. Therefore, it seems safe to say that in order to maximize coverage
while minimizing premium increases, you need to ensure that a large number of
young and healthy people sign up for coverage, to balance the risk pool.
Indeed, even more specifically, one could argue that the
goal of Obamacare is to expand coverage to those who are unable to get it - that is, those with pre-existing conditions
who may be denied coverage or may be charged exorbitant rates. This is why the
law includes a pre-existing condition exclusion (rating on health status is no
longer allowed) and limits age-rating. The goal is to redistribute from the
healthy to the unhealthy - which is why the individual mandate and the premium
subsidies are necessary as sticks and carrots, respectively.
It seems odd, then, that we rarely question whether
pre-existing conditions are a massive problem in this country. According to HHS,
somewhere between 50 and 129 million
people under 65 have pre-existing conditions that could preclude them from
purchasing individual insurance policies. This number is almost certainly
inflated, but even taking it at face value reveals that most of these people
likely have employer-sponsored coverage or Medicaid - 160 million Americans
receive coverage through their employers; around 56 million receive coverage
through Medicaid.
What about the uninsured population? HHS claims that some 25
million uninsured Americans suffer from a pre-existing condition. This is more
than likely far from being within the
same universe as the real number -
data from the Society
of Actuaries puts the number of uninsured in poor health at around 500,000;
less than one percent of the total
number of uninsured. Even taking into account those considered to be in "fair"
health, the number rises to about 2.7 million - only about 5 percent of the
uninsured.
So if this is the case, that those in poor health make up,
at most, 5 percent of the uninsured, an important question comes to mind - is
there a better way of covering these people? The fact that California's largely
unregulated individual market has become the largest in the country indicates
that the majority of the uninsured (the young and healthy) could probably get
relatively affordable coverage with minimal intervention. It makes little
sense, then, to force an expensive and comprehensive insurance product on them,
to cross-subsidize those in poor health. A more straightforward, and less
distortionary approach would use high-risk pools to enroll those that truly
have pre-existing conditions and are uninsured. To be fair, states have tried
high-risk pools in the past, but
they have suffered from a lack of funding and significant obstacles
(Minnesota being one of the few
success stories) - but these issues are easier to address than the adverse
selection created by pricing young people out of insurance exchanges to help
cover the 1 percent..