Obamacare: The Path to Success

Matt Yglesias has an article at Slate in which he claims that Obamacare will be a huge success despite likely implementation problems. Here’s his reasoning:

It’s forgotten today, but the launch of Medicare in the mid-1960s was full of hand-wringing about implementation. So was the addition of a prescription drug benefit a decade ago. The Affordable Care Act has key features in common with those undertakings: It gives a lot of money to a lot of people, which means it can fall short of becoming perfect policy by a fair margin and still be popular and successful.

He’s right. A large new entitlement program which distributes a lot of cash is usually pretty well received. Success, as defined in Washington, is something they do which doesn’t ever die, rather it grows til the end of the Republic. By that measure it will also be a success. As for the cost, well let’s just say that is where Yglesias and the Obama administration are whistling past the graveyard.

He notes that the tipping point is how many people sign up for insurance through the exchanges. Acknowledging that lots of uninsured folks with health problems are going to be front and center, he makes the obvious point that absent a goodly number of well people enrolling premiums will soar and the program will implode. So how many healthy people do you need? The administration puts the number at 2.7 million. But not just any 2.7 million, we need 2.7 million 18-30 year olds. How do you get them enrolled? Cute advertising programs, help from state and local political machines and money. Matt thinks the subsidies will be the game changer.

But the biggest piece of the puzzle will likely be money. Neither Democrats nor Republicans liked to emphasize how much the Affordable Care Act debate was about redistribution rather than health care as such, but there’s a lot of money here. People earning less than 400 percent of the federal poverty level (that’s $45,960 for a single person) are going to get tax credits to defray the cost of premiums. These subsidies greatly increase the number of relatively healthy people for whom Obamacare plans will be a good deal. About half the target population of uninsured young people—far more than the administration needs to sign up during the initial period—will be eligible for subsidies, meaning in principle they can get everyone they need just out of the subsidized group. Advocates can make the case to young people that they’ll be leaving money on the table by not signing up.

Here I think he’s wrong, at least the implication that the current subsidy regime is going to induce the requisite number of millenials to sign up is wrong. The link in his article takes you to a chart for how subsidies will work in Rhode Island. It doesn’t really tell you much about how much subsidy you get for such and such an income level and family composition . Fortunately, there are a couple of good interactive calculators available. One is from the Kaiser Foundation and the other from UC Berkley. Play around with them and I think you’ll readily see that the subsidies don’t really go very far unless you happen to be part of that mythical family of four. Most 18-30 year olds don’t fall into that category.

Notice that Matt’s person making $45,000 a year doesn’t get any subsidy if she’s a single adult. If she happens to have a husband at that income level the Kaiser calculator estimates they will get a subsidy of $1,890 and pay $4126 out of their own pockets. Our single person actually starts qualifying at an income of $35,000. At that level she gets a subsidy of $11, provided she’s over 21, and has to pay an estimated $277 per month. Now remember we’re talking about people who currently don’t have insurance, who are currently paying bupkis for health insurance, are probably healthy as an ox and don’t have lots of disposable income. Do you really think that the subsidy argument is going to persuade them to plop down a couple Benjamins a month for something they don’t think they need? Matt says they will “..be leaving money on the table by not signing up.” Technically he’s correct, they are passing up the opportunity to buy a service at a discounted price, but try selling that to them. I wouldn’t want any part of an advertising campaign which had to convince young people that we have this great product to sell you, we’re going to help you pay for it and all you have to do is scrap the Vegas weekends and pass on the next generation iPhone.

Despite all that, Obamacare will win out. It will come to be revered and as untouchable as Medicare and Social Security. It’s just going to cost a lot. Those subsidies are going to have to be a much more generous.

Addendum: Before anyone jumps on me about the penalty for not having insurance, let me offer my thoughts. I don’t think a measly fine of $95 is going to persuade most people who aren’t inclined to enroll. Yes, the fine does increase to $695  or 2.5% of income in 2016 which might move a few more over to the insurance rolls but the math still works against enrolling.I have also not yet seen a good explanation as to how the IRS is going to track insurance status given the dearth of data bases. Besides, given the propensity of the government to cave to interest group pressure, the carve-outs and exceptions to who must pay the penalty are likely to be far reaching.

• Become A Funded Futures Trader