Asymmetrical Information - Megan McArdle

09.19.12

The Non-Problem that ObamaCare Didn't Fix

ObamaCare didn't make it possible for the first time to buy insurance with a pre-existing condition. That's because it was already possible.

Shortly before the Supreme Court's ruling on ObamaCare, I wrote about my own fraught relationship with the program: I opposed it, even though it would probably benefit me, personally.

I will obviously be disappointed if the law is upheld. This is slightly ironic because I’m probably uninsurable in the private market—insurers don’t like hearing the words “autoimmune disease”—and so the odds are that I, personally would be better off if the Supreme Court votes to uphold. I spent years being uninsured with an autoimmune disease (a relatively benign one, thank God), and I’d rather not do it again.  

After it passed, I noted this as one of the silver linings: some people were going to be helped, and we should be glad about that, even if overall I still think the program is a net negative:

Some people, maybe including me, will be helped by the bill.  Even if you think that this bill will, on net, make more people worse off, you should still be glad for the people who are being helped.

This triggered three responses from readers:

1.  Crazy people who gloated about my being uninsured, and afflicted by an autoimmune disease.

2.  Nice people who worried about same and asked what they could do to help.

3.  Smart people who pointed out that I was, in fact, incorrect about not being able to buy insurance.

It was very nice of people to worry, and as I meant to write back to the very nice people who inquired, the "help" of which I was thinking was in some hypothetical future. I am currently covered by Newsweek/Daily Beast's excellent benefits (and anyway, the sort of autoimmune disease I have is the boring kind that is cheap to treat, has few side effects, and doesn't kill you; the real problem is that people who get one autoimmune disease are more likely to develop another than the general population).

I bring this up because Jim Henley, who has just been diagnosed with early-stage oral cancer, writes something similar today about having a personal stake in ObamaCare.  This is obviously a common view.  But it isn't true, as Virginia Postrel wrote me to point out.  Virginia is a former colleague at The Atlantic, and also a cancer survivor.  So you can see how she might have trouble getting insurance.  

Which she did, but not exactly the problem you'd expect.  Virginia reminded me that HIPAA--which most people think of as a law about medical records--in fact had rules about exclusions for pre-existing conditions.  I should have known this--in fact, I did know it, but I'd somehow forgotten to apply it to myself.  

But a lot of people apparently don't even know that this option is available.  There was a flurry of coverage about this a few weeks back, but it can't have gotten much attention, because both Jim and Kevin Drum just recently wrote posts about their fear of being uninsurable.  So I thought it was worth pointing out that it is, in fact, possible to buy insurance if you lose a job.

Basically, if you maintain continuing coverage, you can't be excluded. This is a bit simplistic, because like many of these things, it's handled at the state level, and each state handles it slightly differently--and some of them, I'm sure, handle it very badly indeed.  And there are certainly complaints about the cost, and difficulty of finding the plans.  But the problem is that it's complicated to find, and expensive to buy, not that you are uninsurable.  This is Virginia's story:

When my COBRA was expiring, I went to an agent referred through MediaBistro with the incorrect assumption, encouraged by the site, that they had some kind of group deal. He was just an agent for individual policies and told me flatly that no one would write insurance for me. Since my oncologist said I had no greater chance of a recurrence of breast cancer than a randomly selected woman with similar demographics, I figured that couldn't be right, because there was money to be made from me. (This would be different for someone with a chronic disease.) Most important, Mike Lynch, whom you may remember from his days as Reason's DC editor, is now a financial planner affiliated with Met. So I asked Mike, who also used to write about health insurance policy, and he said he was pretty sure that the portability provisions of HIPAA covered situations like mine. He looped in his health-insurance colleague Fred McKay and, sure enough, I could buy insurance without underwriting. I got an Aetna PPO plan with a $3500 deductible, which means I pay out-of-pocket for most things. 

The problem is that you have to have a former employee-turned-financial planner to figure out what to do. And, of course, it is ridiculous that health insurance is tied in any way to employment. On that the socialists and libertarians agree, but everyone else wants to keep the link. Hence the confusing mess that is Obamacare.  

I don't want to minimize the problem of expense: that's a real problem.  As Virginia also noted, most people don't even buy COBRA coverage in the first place, much less run out their benefits, and I can understand why.  I was on book leave when Newsweek came knocking to woo me away from The Atlantic, and needed a few extra months to finish, so we had to pay for COBRA coverage this summer--in part, to ensure that we kept within the HIPAA requirements for pre-existing conditions.  It was over $1,000 for two people.  To be sure, The Atlantic has pretty generous insurance.  But that's still a pretty hefty sticker shock, and obviously, a lot more than I had been paying as an employee.

But insurance being expensive--it is, even at group rates--is a very different problem from people being uninsurable.  They imply very different solutions.  

I thought that this was worth writing about for two reasons. The first is that this seems to be a very little-known provision of our previous health care laws, and people may be going without insurance right now when they don't have to.  If you have the money, you can leave your job and buy health insurance coverage. If you have been laid off from a job, and you are worried about keeping coverage, then you should take care not to allow a "significant break" in coverage (defined as more than 60 days).  Buy COBRA.  Find a broker who can get you HIPAA coverage in the individual market.  

The other reason that I wanted to write about this is that it suggests that we don't have the insurance problem that we thought we had.  There was a lot of worry about the uninsurable in the run-up to ObamaCare's passage, and this is not the only evidence that we were worrying about the uninsurable out of proportion to their actual numbers.  Precisely because of these worries, ObamaCare included high risk pools, which were meant to be a stopgap to cover all the uninsurable people until the law kicked in in 2014.  The CBO predicted that about 400,000 people would enroll, rapidly depleting the $5 billion that had been allocated.  Actual number: 67,000. And that's after HHS, embarassed by the really absurdly low enrollment numbers that prevailed through most of 2011, embarked on a fairly aggressive recruitment drive that included price assistance and substantially relaxing eligibility requirements. 

No one knows exactly what happened to all the uninsurable people CBO thought would buy insurance.  The GAO attributed much of the shortfall to the fact that the pools required people to have been uninsured for six months.  But that itself seems to undermine the rationale for the pools: at least as I understand it, the big worry was about people getting stuck without insurance for years on end, not people who might let their insurance lapse for a few months, presumably between jobs.  If it's the latter, it becomes a story about the generosity of unemployment benefits, not about being "uninsurable".

Some of them may simply never have existed--there is no exact count of the number of people who cannot buy insurance in the open market, or find an employer who will do it for them.  Some of them were certainly deterred by the price; interviews in the press suggested that most people had thought the high risk pools would enable them to acquire health insurance for no more than the cost of a top-of-the-line cell phone contract, which wasn't very realistic given the fact that they were, well, high risk.  The $400 average cost of insurance in the pools was simply higher than they either could or would pay.

Some were undoubtedly deterred by the paperwork.  But that still doesn't explain why so few people ended up in the pools if there was a very large number of people out there being permanently shut out of the insurance market by a pre-existing condition.

Okay, so we were wrong.  Why does this matter now? The law is what it is.  

Well, it still has relevance to the predictions about what will happen.  For example, one argument that you see over and over again is that ObamaCare is going to be a fantastic boost to entrepreneurship and labor mobility: finally, people can take their dream jobs or found companies free of worry about health care.  

As I've written before, I've long been skeptical about these claims.  Europe has not exactly experienced an explosion of entrepreneurship as their safety net got more generous--if anything, rather the reverse.  Social programs have costs, as well as benefits, some of which inhibit firm formation; and while of course a more generous safety net may encourage entrepreneurship, it may also encourage early retirement.  It's always been far from clear that the net effects would be positive.  

After all, people at the age when buying insurance becomes a problem--roughly, sometime between your late thirties and your late forties in most states--have a host of fixed obligations like mortgages, college savings, and the need to save for retirement.  Why would insurance be the particular expense that breaks the bank?  

If the problem is that they simply can't buy insurance, this makes sense; they can't start a company without exposing their family to pretty sizeable financial risk (though to be fair, that is generally true of starting a business, not just of going without insurance.)  But if they can, in fact, buy insurance, then the argument suddenly becomes much less compelling.  Health insurance just becomes one more expense of the business--a large one, to be sure, but probably not the largest.  It's true that subsidizing insurance costs might improve the ROI of the business. But that is true of subsidizing any business expense, from rent to inventory.  

So this is one more reason to believe that we are not in for an explosion of entrepreneurship, and also, that we have spent too much time worrying about a problem that wasn't nearly as big as we thought.   The main benefit that most people will see is not the ability to buy insurance; it's the (hopefully) simplified paperwork, and the ability to get a fairly hefty subsidy for the purchase.