Tuesday, November 5, 2013

Adverse Selection in Obamacare

As if adverse selection wasn't already a problem for the ACA, techological issues seem to be making it worse. Christopher Weaver and Timothy W. Martin report in today's WSJ:

"But the numbers demonstrate a real-world fallout from the digital snafus: Less-healthy customers are more likely to persevere through technical obstacles to gain coverage, insurers say. Younger, healthier customers who feel less need for insurance—but whose widespread participation is important to the financial success of the system—could be quicker to give up."
 
The succuss of the healthcare act in controlling costs is highly dependent on the healthy signing up more than the unhealthy. It is not looking good. Yesterday my wife's medicine went from $6 to $30. I know this can be due to lots of things, but certainly it could be due to the increase in the percentage of unhealthy individuals signing up for healthcare. I do believe this to be the case and there will only more increases in prices in the future.
 
How Obama and his advisors can honestly claim that they didn't expect this is plain dishonent or just sheer naivete. Of course young Americans were not going to sign up for health insurance. The penalty is way too small, way smaller than health insurance premiums. And the IRS's ability to enforce the penalty for not buying insurance is actually nonexistent per the law itself. I learned from a well-regarded tax accountant this weekend that the IRS is not able to do anything if individual's refuse to pay the penalty. Therefore, it is not a tax obligation in the pure sense; they are able to reduce the amount of refund for those that will receive refunds. Otherwise, they will not be able to enforce the penalty. Period.