Obamacare Sign Ups Have Been Mostly for Medicaid

Over at Wonkblog, Sarah Kliff has a post summarizing what we know about who has signed up for insurance under Obamacare. What we know is that, so far, the overwhelming majority of sign ups have been for Medicaid, not for private insurance policies.

The expectation for 2014 was that about 9 million people would sign up for Medicaid while 7 million would buy private insurance. That’s not quite a 50-50 split but close.

In fact, what we’ve seen so far is much closer to 80-20 and in some places 90-10. For example, in Kentucky which has been considered the model state for the roll out by most observers 25,654 people have signed up for Medicaid while just under 6,000 have bought private plans. That’s close to 80-20.

That split could signal bad news in two ways. First it means nearly everyone who is signing up so far is adding themselves to the rolls at state and federal expense. And because of how the fight has played out nationally there is a partisan aspect to this problem.

The states which chose
to expand Medicaid are run by Democrats (22 out of 26 of them) while the states that chose not
to do so are run by Republicans. There’s a map at this site showing the divide. This could amplify a division that already exists between states like California and Texas. The blue state model exemplified by California is higher taxes and higher welfare benefits. The red state model exemplified by Texas is lower taxes and fewer benefits.

The second way in which the enrollment numbers may signal trouble is that it may indicate only the very sickest are signing up for private insurance under Obamacare. Obviously if lots of young and health people decide to opt out for 2014 they will pay a modest fine, but the risk pool of people who did sign up will be composed primarily of older and sicker individuals. As a result the real cost of insuring them will be higher and those costs could show up in next year’s premiums. I say they could because state insurance commissioners will be under pressure to keep rate increases down.

In theory this risk pool problem could snowball. The rise in premiums could lead to further rate shock among those who are asked to join the system with little or no subsidy, i.e. the people intended to offset the cost of all those getting low cost insurance. At a certain point this problem could even become catastrophic, an insurance “death spiral.”

However, there is a big caveat here which puts a damper on the likelihood of a death spiral. Because Obamacare subsidies are set on a percentage basis depending on your distance from the federal poverty line, premiums could go up substantially in 2015 but many buyers would not notice. In other words, the price signal being sent by the insurance companies would simply never reach consumers because the additional costs would be covered by the government. Of course someone will still be paying that extra cost: the taxpayers. That could be an issue Democrats need to explain in 2016.

The best face one can put on this at the moment is that we’re only one month in to it. There’s no doubt that enrollment numbers are substantially lower than what the government expected. However with five months to go that could change. If QSSI manages to get the federal site up and running by Thanksgiving and if the number of people buying insurance picks up the final tally could look better than it does now. Proponents of the law argue that pickup was also slow in Massachusetts when Romneycare launched.

That’s clearly what the administration is hoping will happen. But for the moment, exactly one month into the big unveiling, the exchange does not work and the predictions that Obamacare would be greeted as a liberator by the uninsured seem to be off target. Unless both things change fairly soon, meaning this month, new problems will follow. And that’s the worst face one can put on it. Right now–between glitches, cancellation notices, rate shock, etc.–Obamacare seems to be creating more problems than it is solving.