The Right Prescription

Let the Death Spiral Begin

The president should have delayed opening Obamacare exchanges at least a year.

By 10.1.13

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If President Obama were really clever, he’d jump at the Republicans’ proposal in the continuing resolution to delay Obamacare for one year. A one-year delay is the perhaps the only chance to prevent the Obamacare exchanges from becoming a disaster.

Don’t take my word for it. Here’s Kevin Counihan, chief executive of Connecticut’s exchange, Access Health CT: “It is highly complex , it’s unprecedented and it’s not going to be smooth….This is a two- to three-year implementation we’re doing in 10 months. I wish we had one more year.”

The problem is that test runs have revealed the exchange websites aren’t ready for prime time. For example, the software used on the federal exchanges cannot accurately calculate health insurance prices. Nor cannot it reliably transfer people who are eligible for Medicaid to the proper state agencies. The Spanish-language version of the exchange websites and parts of the small business program won’t be ready by opening day, October 1. And those are the problems we know about. Odds are good other difficulties will surface soon after the exchanges open.

Many of the fifteen exchanges run by state governments and the government of Washington, D.C. also face technology problems—a list is provided at the end of this article. What should most concern the administration is that the technology glitches will only feed the biggest problem the exchanges face, that of a “death spiral.”

A death spiral occurs when not enough young and healthy people buy insurance, resulting in an “insurance pool” whose members tend to be older and sicker. The pool is thus more expensive to cover, causing insurers to raise prices resulting in even more young and healthy people dropping out. This process continues until the insurance pool is so expensive to cover that insurance prices are appealing only to people who are older and sicker.

As I’ve explained at length elsewhere, two laws that govern the exchanges, “community rating” and “guaranteed issue,” will be the driving forces of the death spiral. However, technology glitches will exacerbate it.

Among those eligible for the exchange, those ages 18-34 are probably the most web savvy. Thus, they are the most likely to be accustomed the convenience of websites like Amazon.com. Their patience for the exchanges will quickly run thin should they log on to the exchange websites and find it difficult to learn the price of their insurance, to find out how much in subsidies they qualify for (if any), and to enroll. Such frustration will make it less likely they will sign up.

On the flip side, who is most likely to endure the difficulties of exchange websites? If the exchange website initially prove unworkable, who is most likely to return weeks or months later when the websites may be functional? They will be the people who see the most benefit in having insurance—namely, those with health problems. The technology glitches add to the exchanges’ system of incentives that discourage young and healthy people and make buying insurance appealing largely to those with high health care costs.

A one-year delay provides a way to avoid this. It would give the exchanges more time to get their websites ready and would give proponents time to reconsider the community rating and guaranteed issue laws that will lead the exchanges into a death spiral. The only type of person who wouldn’t want to delay the Obamacare fiasco is someone utterly convinced of the righteousness of his cause despite all the evidence to the contrary. Unfortunately, that’s a pretty good description of President Obama.

Problems On State-Based and D.C. Exchanges:

Colorado: The website for “Connect for Health Colorado” won’t be able to calculate premium subsidies for nearly a month after the exchange opens. Rather, to get accurate information of premium subsidies, customers will have to call customer service representatives. It may also have problems sharing Medicaid data with the state government.

Connecticut: There doesn’t appear to be specifics on the problems the Connecticut exchange may face. Rather, Access Care CT chief executive Kevin Counihan said he was “confident there will be glitches.”

Minnesota: Documents uncovered from the Minnesota exchange, MNSure, show problems with verifying eligibility and allowing small businesses access to the exchange.

Nevada: Programmers are working overtime to fix possible glitches with the “Silver State Health Insurance Exchange” website. While the programmers hope to have core functions ready on time, a “Spanish-language portal won’t be ready by Oct. 1. Other functions to sort plans by cost, prescriptions or providers also will be delayed.”

Oregon: A test site for “Cover Oregon” found that information on insurance policy prices and other features were displayed incorrectly. Officials “had sufficient qualms about its online insurance marketplace that no one can enroll unless they use a trained, certified agent or other ‘community partner.’”

Vermont: The Vermont exchange won’t be able to accept electronic payments until a month after it is open. Governor Peter Shumlin dismissed this as a “nothing burger.”

Washington: Officials of the Washington Health Benefit Exchange say that the roll out of some online tools will be delayed, but few specifics are available.

Washington, D.C.: The website for the “D.C.’s Health Link” exchange will be unable to calculate subsidies or determine Medicaid eligibility.

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About the Author

David Hogberg is a senior fellow at the National Center for Public Policy Research.  Follow David Hogberg on Twitter.