- The Obama administration has released the numbers from the 2016 open enrollment period for Obamacare’s health insurance exchanges. The Congressional Budget Office had already downgraded its enrollment projection for 2016 from 21 million to 13 million. The news is actually just slightly worse: only 12.7 million enrollments, a number that is likely to shrink over the course of the year. Naturally, the administration declared success because enrollments exceeded the 10 million it had predicted back in October (thereby confirming speculation it had deliberately low-balled that prediction so it could later declare victory in spite of what it knew would be terrible enrollment numbers). Yet most observers overlooked what may be the worst news of all: evidence suggesting significant adverse selection in the Exchanges.
The administration reported that 70% of those who re-enrolled for 2016 shopped for a better plan, while 43% switched plans. The administration spun this as a positive, as evidence that Obamacare is expanding choice.
In reality, those numbers mean the vast majority of enrollees were dissatisfied enough with their Obamacare coverage to look for a better option , and a near-majority were so dissatisfied with their premiums or their coverage that they switched to what they hope will be a better plan. Most importantly, such widespread plan-switching is strong evidence of the type of adverse selection that is already eroding Obamacare’s promise to the sick , and could cause the exchanges to collapse.
As architect Jonathan Gruber helpfully explained, Obamacare imposes hidden taxes on the healthy in the form of higher premiums in order to provide hidden subsidies to the sick in the form of lower premiums. Widespread plan-switching is an indication that sick enrollees are trying to maximize their subsidies, while healthy enrollees are trying to minimize their implicit tax. In pursuit of lower premiums, healthy people will gravitate toward plans that save money by using narrow networks and high-cost sharing for drugs. Sick enrollees will gravitate toward the plans that provide the most comprehensive coverage for the drugs, doctors, and hospitals they use. That’s adverse selection.
By encouraging adverse selection, Obamacare literally punishes insurers who offer the most comprehensive coverage. Those plans end up with lots of sick people, and not enough healthy enrollees to offset their claims costs. Obamacare’s architects – who knew they were creating this problem – included additional subsidies for insurers who attracted a disproportionate number of sick enrollees. They figured that if the government threw enough money at those insurers, they would not respond to the incentives Obamacare creates for them to avoid the sick by skimping on coverage. Yet those subsidy programs don’t seem to be working very well, and either way two of them expire after this year.
We can already see evidence of how such adverse selection is driving carriers out of the market and driving a race to the bottom. UnitedHealthcare has already signaled it will be leaving the Exchanges, and other carriers are also looking to the exits. A study published in the New England Journal of Medicine found evidence that Obamacare plans are offering increasingly lousy coverage to people with high-cost illnesses.
It remains to be seen whether more insurers will abandon the exchanges, or whether the exchanges will collapse entirely. But even if it limps along, yesterday’s enrollment figures show why Obamacare coverage will get worse over time.