2013 October 17 Thursday
Obamacare Medical Exchanges Causing Adverse Selection

Only really sick people will put up with the repeated failures and delays to persevere and get medical insurance. So the medical insurance companies think they are headed for a financial fall.

One key worry is based on the fact that what they’re facing is not a situation where it is impossible to buy coverage but one where it is possible but very difficult to buy coverage. That’s much worse from their point of view, because it means that only highly motivated consumers are getting coverage. People who are highly motivated to get coverage in a community-rated insurance system are very likely to be in bad health. The healthy young man who sees an ad for his state exchange during a baseball game and loads up the site to get coverage—the dream consumer so essential to the design of the exchange system—will not keep trying 25 times over a week if the site is not working. The person with high health costs and no insurance will. The exchange system is designed to enable that sick person to get coverage, of course, but it can only do that if the healthy person does too. The insurers don’t yet have a clear overall sense of the risk profile of the people who are signing up, but the circumstantial evidence they have is very distressing to them. The danger of a rapid adverse selection spiral is much more serious than they believed possible this summer. They would love it if the administration could shut down the exchange system, at least the federal one, until the interface problems can be addressed. But they know this is impossible.

The insurance companies should have spent their own money to build the federal web site for the feds so that this problem didn't happen. But they made their deal with the federal devil when they supported the original legislation. So perhaps this is just punishment.

My guess is this system won't get killed. Now that it is enacted it would take a huge public reaction against it to peel it back. So the challenge is to avoid getting your health damaged by getting into a chintzy insurance plan with few choices of doctors. My advice: Keep some money saved that you can use to consult top specialists. If you get seriously ill with a mystery ailment which is hard to diagnose you will need to see the best. Be prepared to pay for it with cash out of pocket.

Share |      By Randall Parker at 2013 October 17 09:15 PM 

J. said at October 18, 2013 8:30 AM:

Be prepared to pay for it with cash out of pocket.

I used to do that using FSA. One of the obscurer provisions of Obamacare is that FSA deductions are now capped at $2500, or effectively zero. They don't want people to escape.

Vektor said at October 18, 2013 8:31 AM:

Gotta love the law of unintended consequences.

Nick said at October 18, 2013 4:21 PM:

Great advice about saving up money to consult specialists on your own. People often confuse health and medical care, I believe Thomas Sowell had a good piece on this a few years ago. Neither the government nor private doctors are going to help you if you neglect your health (diet, exercise, preventative exams, etc.). Now that this law is enacted it's even more important for people to take care of their own health and not rely on doctors. Many people who are sedentary and gluttonous will end up sick in hospitals one day that won't be able to address their diabetes, heart problems, or anything else. You'll end up like patients in the NHS who die or suffer because of insufficient resources or intentional neglect.

PRCD said at October 18, 2013 7:51 PM:

You can still sign up for an HSA and pay cash. HSA contributions are tax-deductible.

I'm not seeing any advantage to having health insurance except catastrophic insurance. Most fees can be negotiated with doctors if you pay cash. If you end up with a hospital bill, it's usually negotiable since the hospitals like to shift the cost of nonpayers onto payers, which is really illegal. You can threaten to sue or use a medical billing advocate.

Really, insurance companies are in business to make money for themselves. You pay monthly to insure yourself against risks you may not have if you eat your vegetables and maintain normal weight. On top of the monthly payments, you pay a deductible and copayments. Taken together, it's a lot more money out-of-pocket than paying cash.

Randall Parker said at October 19, 2013 8:46 AM:


I hate the way that Obamacare is undermining the direct purchase of health care services. Funneling more health care spending thru insurance companies is a really bad idea. We will see far more innovation, lower costs, and more prudent purchase of health care services if it is done directly.

We ought to have a way to say basically "I have x dollars put aside in an HSA and therefore I can just buy catastrophic health insurance".


They don't want people to escape.

In a nutshell, yes. This infuriates me.


If you get something seriously wrong with you the key problem you face: how to figure out who are the greatest specialists? The best are so much better than the rest. A $250 or $500 consultation can be life saving.

PRCD said at October 19, 2013 7:14 PM:

"I hate the way that Obamacare is undermining the direct purchase of health care services"

Me too, but insurance companies and Medicare started doing this long before Obamacare.

As near as I can tell looking at our corporate literature, there is no minimum HSA balance requirement to open an HSA and have a high-deductible plan. "High deductible" means to me, "Negotiate rates at every opportunity in exchange for paying cash."

I don't think insurance is stifling innovation. I think the West is increasingly anti-science and more interested in bureaucratic science for special interest groups #HIV research for gays, breast cancer research, etc#.

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