The Obamacare House of Cards is Collapsing

Two weeks into the Obamacare rollout and it’s clear that Sen. Chuck Schumer’s prediction was right—it is a train wreck. The Obama Administration let their political aspirations and worries get in the way of a truly functioning product, and as a result we’re left with an unusable mess that has software engineers amazed at how terrible the website is.

With enough time and money the Obamacare exchanges can be made to be functional. But those are two things that the Obama Administration lacks. Sure, they can move money around the Department of Health and Human Services budget to try and scare up some cash, but coming before Congress to ask for further appropriations would be akin to admitting the law is broken—something the Administration has refused to do.

The more important variable is time. The Obama Administration just doesn’t have much of it since consumers’ patience will only be tried so long before they just give up. As economist Megan McArdle writes for Bloomberg, patience could run especially thin for young adults.

If the exchanges don’t get fixed soon, they could destroy Obamacare — and possibly, the rest of the private insurance market. The reason that the exchanges were so important was that they were needed to attract young, healthy people into the insurance system. The worry was that if insurance is hard to buy — if you have to do your own comparison shopping and then call the insurance company, and fax in some paperwork and two years of tax returns — that the young and the healthy simply won’t do it. Sick people and old people who were getting huge subsidies — and maybe the ability to buy insurance on the private market for the first time in a long while — would overcome any obstacles, because if you’re spending $15,000 a year on health care, it’s worth a lot of your time to make sure that you have insurance. But if your biggest annual health-care expense is contact lens solution, you may just decide to skip it and pay the fine.

That may sound like more of a hope than a necessity, but in reality healthy young adults are the glue that holds the entire law together. If enough of them don’t buy into the system to push insurance costs down for everyone else then premiums will soar more than they already are. And when premiums soar you risk an “adverse selection spiral” – as the price of insurance increases, healthier people choose to forego buying plans, which pushes prices ever higher for those who remain in the market.

So what counts as “enough” young adults? The Obama Administration estimates that they need 2.7 million young people to purchase individual health care plans through Obamacare. That’s out of a total of 7 million that are expected to buy insurance on the exchange.

The more frustrating the purchasing process is and the longer the problems with the website drag out, the less likely it becomes that young adults will participate.

Interestingly, the Obama Administration could have made hitting the 2.7 million-person target a lot easier if politics hadn’t gotten in the way.

President Obama knew that Obamacare was going to be a tough sell for young adults. The collapsing of insurance “age bands,” which were put in place by insurance companies so that a plan’s costs aligned with the health of the purchaser, inevitably meant that costs were going to skyrocket for young adults. To avoid the ire of youths (and protect a key voting constituency) Obama allowed young adults to stay on their parents’ insurance plan up to age 26.

While that decision may have mollified a good chunk of potential critics, it also took millions of healthy people out of the pool. The result, as McCardle writes, reveals the inner, heartless core of Obamacare:

The Affordable Care Act made the task of signing up young healthy people on the exchanges even harder with its much-loved requirement that companies allow kids to stay on their parents’ policies until they’re 26, which took millions of potential buyers out of the pool. The ones who are left are going to be disproportionately poorer and less well educated than the middle-class offspring who can get cheap insurance through mom and dad. There’s a reason that virtually every person you’ve seen written up in an article as they tried to get insurance at a community center or clinic is some combination of over 55, retired or afflicted with a serious chronic condition.

What a cynical political gamble. But perhaps all would be forgiven, or at least forgotten, if the gamble paid off and the exchanges worked as intended. Sadly, that bet appears to be going bust.