The state insurance exchanges have been the highlight of a so far dismal rollout process for the Patient Protection and Affordable Care Act. When Obamacare's supporters are challenged on the law's merits, that’s where they point to show that the new insurance markets can work -- if governors are committed to making them work.
But a CBS News report discusses a growing source of disquiet: In almost half the states with exchanges, the overwhelming majority of enrollments are coming from Medicaid, not the new insurance markets -- 87 percent in Washington, 82 percent in Kentucky and, last time I looked, 100 percent in Oregon (which delayed opening its insurance exchange in order to work out technical bugs). The Medicaid expansion side of the bill seems to be working fine in the states that opted for the expansion. But the private insurance side doesn’t seem to be getting a lot of pickup.
That’s a problem for three reasons. First, signing up for Medicaid is a comparatively simple process, which means that we don’t really know how well things are going on the private side in many of these states. Second, insurance products need a pretty big pool of customers in order to be stable; otherwise, there’s too big a risk that you’ll have a wildly disproportionate number of sick people. Obamacare has risk-adjustment mechanisms to try to mitigate this problem, which I discussed the other day, but they only defray some of the expenses for an insurer that gets too many sick people. Besides, the mechanisms are only temporary; they go away after 2016.
The third reason to worry is our old friend adverse selection. If relatively few people are buying insurance in the private marketplace, those people are likely to be older and sicker than the population that was projected to enroll. That makes it likely that premiums will rise quite a bit next year, scaring off young, healthy people even more.
That said, we shouldn’t be too worried about this just yet. In the early days of the program, who would we expect to be rushing to sign up? People who have had long-time difficulties in obtaining insurance. I had expected that this would mean that old and sick people would be rushing to buy policies on the exchanges, but, of course, that description also fits poor people who didn’t feel they could fit even modestly priced insurance into their budget. As the deadlines approach, we’ll probably see the younger and healthier people rushing to sign up. If we don’t see a spike in purchases starting on the day after Thanksgiving, we should get really, really worried. But that’s still a long way off.