All the Wrong People Are Getting Obamacare

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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The state exchanges have been the highlight of a so far dismal rollout process for the health insurance exchanges of the Affordable Care Act. When supporters of the law are challenged, that's where they point to prove that the new insurance markets can work -- if governors are committed to making them work.

But this CBS News reportdiscusses a growing source of disquiet: In almost half those states, 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 to work out the 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 part of the expenses of an insurer that gets too many sick people, and besides, they 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 on 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.

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