Asymmetrical Information - Megan McArdle

06.05.13

How Obamacare Looks On the Ground

A pastor on how Obamacare will work with his flock

A pastor who occasionally corresponds with me about financial issues wrote in response to some of what I've been writing about Obamacare over the last few days.  I found his letter very interesting, because he's working with the target demographic:

I was the pastor/CFA/MBA who wrote you a note some time back about EITC wrinkles. Your last couple of Obamacare/ACA posts bring up something that from my experience I think is just being completely missed.

I work with what I’d call median Americans. Incomes right around the median. Family structure and dysfunction right around the median. You get the picture. And to work on spiritual issues often requires dealing with financial ones at the same time. (Often they are the same problem.) Everything that I’ve seen about the ACA and its implementation seems completely divorced from how say 35%+ of these median Americans function on a daily basis. The ACA and every wonk assumes rational people who can make good financial decisions. Instead what you have is people with $100K of school debt because it compounded when they stopped paying it, who are leasing a new car, who have an interest only mortgage (or a HELOC to help them pay the original mortgage), who have at least 3 credit cards maxed, maintain a pay-day loan they got scammed into, and yet find cable with HBO and an iPhone 5 with all you can eat plan necessities. It is not that on a median salary it is not possible to live a good and prudent life; it just requires some restraint and a minimum amount of simple rules. (Rules like Dave Ramsey talks about, or Benjamin Franklin divorced from the Christian content). But this is what the ACA mandate and cost is going to mean to many of these people: do I keep HBO & Cable, my iPhone, or buy medical insurance? Which bill that I already have must be done without? They will refuse to even think about that.

On top of that, if they recognize Obamacare at all what they think it means is “universal free health care” with emphasis on the free. When you try and say that it will cost them at least 4% of their income, they go directly into denial.

What I’m saying is that for a large minority of people opting out of the ACA probably won’t even be a conscious choice. It will just happen because of the complexity, the upfront sticker cost and the lack of ability to make good financial decisions. They will deal with it later when they file taxes which won’t be until September, because when their tax guy tells them they won’t get the refund they were expecting, they will file the automatic deferral to “put it off” for a little while. My only political axe to grind is that Liberal wonks just never design anything for reality. (I figure it is because they haven’t had to rub shoulders with it since high-school, and even then many went to places where reality doesn’t intrude.) They have no idea how bad this is going to be.  

He's certainly right that most journalists don't know a lot of folks whose household income is likely to top out at $48,000 a year.  So it's good to have the perspective of someone who counsels those folks every day.  4% of your annual income doesn't sound like a lot to me to spend on health insurance.  But of course, I'm not pulling shifts at Walmart.  And what he is saying to me does roughly mesh with what I know about consumer finance.  

Of course, I opposed Obamacare, so I'm more likely to get letters from folks who are worried about it.  So if you do consumer finance work with folks at the median income, and you think it's going to be great, email me!  I'll post those letters, too.

This is one more reason that we may want to wonder how representative the Massachusetts experience will turn out to be.  It's got the second highest percentage of college degree holders in the country (second only to my own home, Washington DC).  Its median income is also well above the national average.  And the skill mix of its jobs means a whole lot of employer health insurance.  How is this going to map to a small town in Alabama?

I guess we're about to find out.