How Not to Help the Uninsured

373Mar 7, 2014 5:31 PM ET

By Megan McArdle

With Obamacare in train, who is buying insurance?
Half of uninsured adults have looked for insurance online, according to an Urban Institute survey cited in the Washington Post. But only 10 percent of them have actually bought it, according to a different survey from McKinsey & Co. Overall, McKinsey says, just one quarter of the people who bought insurance on the exchange were previously uninsured.
The positive way to look at this is to note that the number of uninsured people who had purchased insurance increased dramatically by February:

The negative way to look at this is to note that, even so, the majority of activity in the market comes from the previously insured, who are mostly replacing prior coverage.
With one month to go, most of the uninsured still hadn't done anything. Worse, the number of previously insured people who had not enrolled in a qualified health plan by the end of February was almost twice the number of previously uninsured people who had. That's the opposite of the effect this law was supposed to have.
Of course, this does not include Medicaid, which has signed up some number of people who were previously uninsured. Although we do not yet know how many, it's almost certainly somewhere north of 2 million, and possibly well north of that number. And the McKinsey numbers are just one survey.
Two reasons have been offered for why McKinsey might be wrong. For starters, Charles Gaba asks why, if McKinsey is correct, these numbers are so different from the numbers in New York, which collects data on prior insurance status and has found that a majority of purchasers are the previously uninsured.
Actually, I can answer that: New York had almost completely destroyed its insurance market by implementing guaranteed issue and community rating (insurers have to sell you a policy at the same price as they'd sell one to anyone else), but not a mandate. Prior to Obamacare's implementation, policies in New York's individual market were astronomically unaffordable for all but the very rich and very sick. It's actually pretty unlikely that what is happening in New York will be a good guide to the rest of the country.
A better reason to question McKinsey is the monthly Gallup poll, which showed sharp declines in the number of the uninsured after the exchanges opened.

That seems to suggest a much higher pace of signups than the McKinsey survey. Actually, it's too high -- 2 percent of the population is 7 million people.
But Megan, you will say, I read that more than 7 million people have signed up for Medicaid, and 4 million for exchange policies. Indeed, you have read that. But the former number includes people who already had Medicaid, because states don't necessarily break out people who are just renewing their coverage. And the latter number includes two groups of people who don't count toward reducing the uninsured: folks who put a policy in their cart but never paid a premium, and folks who already had insurance before.
It seems more likely that the big plummet in December and January is noise in the data, and the real number is substantially smaller than that. Although "smaller" most assuredly does not mean "zero."
So what to think? This is how industry expert Bob Laszewski reads all this messy data:

The uninsured just aren't buying Obamacare.

I believe they are not buying it because the premium -- even net of the subsidies -- is too much for plans that have deductibles that are too high. Consulting firm Avalere has put the average Silver Plan deductible at $2,567 and the average Bronze Plan deductible at $4,545. People are often being asked to pay hundreds of dollars per month in premium, net of subsidies, and they don't see the value.

So it seems worth asking: What if he's right? What if all this doesn't reduce the uninsured by much? What would that mean?
Of course, it's impossible to say for sure, because we can't know a lot of variables yet. Does enrollment of the uninsured start low, but gain steam in years 2 or 3? If not, how long do insurers tough it out before concluding that all the new customers they were counting on are not going to show up? How long before they start raising prices or pulling out of these markets?
We can say a few things, however. If McKinsey's numbers are approximately right, then at the very least, we should reassess what we thought about the individual insurance market. Before Obamacare, experts believed that a lot of people wanted to buy insurance, and they were willing to buy insurance that cost, say, 10 percent of their income, but couldn't find insurance in that price range -- or couldn't buy it at all because of their pre-existing conditions. The numbers in the McKinsey study would suggest that this group was actually very small.
It should also make us question the whole decision to include the exchanges in Obamacare, because in this telling, they're mostly giving subsidies to folks who were already buying insurance. Of course, they may be very happy about their subsidies, but I doubt that "subsidize people who are already buying insurance" would have been in the Top 10 on anyone's policy agenda. A clean Medicaid expansion probably would have delivered more coverage at less risk of destroying the individual insurance market.
One more result: If the McKinsey numbers turn out to be correct, I think we should expect that the individual mandate will simply not be enforced. Otherwise, we would be "helping" the uninsured by raising the cost of the insurance available to them, and then fining them hundreds or thousands of dollars for not buying it. I believe the technical term for this is "political suicide."
To contact the writer of this article: Megan McArdle at mmcardle3@bloomberg.net.

http://www.bloombergview.com/articles/2014-03-07/how-not-to-help-the-uninsured