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Obamacare's Long-Term Prognosis

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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Compared to last year, Obamacare's 2015 open enrollment is a boring story -- no spectacular IT failures, no politically charged policy cancellations. And as Obamacare wends to the end of its second open-enrollment period, it would seem that we should know more about the shape of the final program. What have we learned so far?

The answer is "less than you'd think." Here's what we do know so far. There have been about 7.8 million confirmed enrollments or renewals in qualified health plans. Vermont is not going to have single payer. More insurers are entering many markets, but some insurers have already run into trouble. Data on the uninsured is somewhat scarce, but my best guess, based on the Gallup numbers, is that about 4 percent of the population has gotten insured since Obamacare started, or roughly 10 million to 12 million people.

On the other hand, much about the future of the Affordable Care Act remains murky. Here's a list of the things we still don't know, and won't for a while:

1. What will prices look like on the exchanges?

The path of prices depends on a lot of factors, but for our purposes, this is the most relevant question: Are customers sticky -- i.e., do they tend to stay with the insurer they started out with? Or do they shop around every year? If consumers could be expected to shop yearly, then prices should start about where insurers expect them to end up, then stay relatively stable. On the other hand, if consumers are sticky, then prices will follow a very different path: Insurers will underprice for a few years, then jack them up once the flow of new customers into the exchanges slows to a trickle. You can argue that we're already seeing some of this: In many markets, last year's low-cost plan got more expensive while a new insurer assumed the role of "low-cost provider."

Insurers seem to have decided that consumers are sticky, and I'm sure they know better than I do. Plus, this fits what we know about other insurance markets -- when was the last time you shopped around for auto insurance? Maybe you're one of those virtuous souls who reprices insurance every six months, but most of us think that's too much bother. With health insurance, you have the added wrinkle of figuring out which doctors take your insurance; once you're settled into a network, customers may well be reluctant to change, especially with the new, narrower networks that make finding doctors even more of a challenge.

What this means is that prices now don't necessarily tell us much about prices later -- especially since the administration is still funneling subsidies to money-losing insurers through various risk-sharing programs. Also, there are various sorts of startup insurers in many exchange marketplaces, and those insurers may simply be mistaking their eventual costs.

All of this adds up to the possibility that prices will begin to rise steeply in 2016 or 2017, as the risk-sharing programs expire and the markets begin to shake out. Most consumers will initially be insulated from those cost increases by the subsidies, but starting sometime after 2018, there's a subsidy cap that will kick in if prices grow too quickly, meaning that consumers could ultimately see some of those price increases.

That's a lot of "may" and "could," of course; it's quite possible that cost growth will be contained. But it's also quite possible that it won't, and we won't know for a few years yet.

2. How strong is the individual mandate?

I've said it before and I've said it again: The real test for the individual mandate hasn't happened yet. It will come this year or next, as consumers start to get whacked with big tax bills for lack of insurance, or because the subsidies they received were too large. It's not clear whether consumers understand that the individual mandate penalty is the greater of $95 (per individual family member) or 1 percent of your income. They may simply have anchored on that $95 and decided that it was negligible, so why bother? On the one hand, once people get those tax bills, I expect more signups. However, I also expect more screams of outrage and heart-rending sob stories, which could put heavy pressure on Democrats to weaken the mandate.

3. What do the courts do?

You all probably know about King v. Burwell, the lawsuit about to go before the Supreme Court, which challenges the right of the federal government to offer subsidies on federally run exchanges. You may not have been following Armstrong v. Exceptional Child Center, in which Medicaid providers are seeking the right to challenge payment rates they feel are too low. If the plaintiffs win in King v. Burwell, subsidies will disappear in the majority of states, at least until they set up their own exchanges (an expensive proposition, since the law's startup funding will have expired by the time the case is decided). And of course, many may decide not to. If the providers win in Armstrong, the cost of the Medicaid expansion will go up, making it a less attractive proposition for the states that have so far declined to expand their programs. You might even see some states drop out, though I can't say I think that's particularly likely.

4. What will Republicans do?

They're already nibbling at the employer mandate, and there are lots more provisions they'd love to attack. For now, the law is mostly safe from their alterations, because President Barack Obama can veto them. But what if the White House changes party hands in 2016? Or what if Republicans hit on something that Democrats feel forced to go along with, overriding the veto? The evolution of the three factors I mentioned above will determine how likely this is: If taxpayers start freaking out about the mandate or rising insurance costs, even more liberal Democrats may not be able to hew to technocratic principles in the face of overwhelming political pressure. The Cadillac tax is another area where there is going to be steady, angry pressure on politicians.

All this adds up to a giant question mark. We know what Obamacare looks like right now. But the future is still up for grabs.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net