Smoother, yes -- but beware of sticker shock.

Photographer: Linda Davidson / The Washington Post via Getty Images

Reality Check on Obamacare Year Two

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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Enrollment opened for the second year of Obamacare this weekend, and so far we know two things. First, the software works a whole lot better than it did last year.  And second, the major markets generally have at least one silver plan that's not much more expensive than the lowest-cost silver plan from 2014.

This is undoubtedly major progress.  What we still don't know is what people will actually be paying.  Coverage has focused on the silver plans, because they're the benchmark that's used to set the subsidies.  Last year, more than 60 percent of the plans purchased on the exchanges were silver plans.  But not these silver plans -- many of the old plans are seeing substantial premium hikes.  The cheaper plans tend to be new or expanded offerings from insurers that didn't do a lot of business on the exchanges last year, even as the insurers who gained a lot of market share in 2014 are charging more.

This is worth reflecting on, because it highlights a bunch of the uncertainties about Obamacare. The market is still very much establishing itself; what's happening this year doesn't necessarily tell us all that much about what will happen in 2018.  

We'll gain some information as this open enrollment period closes, of course.  For example, how many new people sign up?  I can tell a story where the word of mouth from last year's enrollees is great, and a lot more people hit the market.  I can also tell a story where all the people who really wanted to buy insurance but couldn't find it (or afford it) rushed in to buy in 2014, and next year's enrollment isn't much bigger than this year's.  I can't begin to judge which of these stories is true.  Even the anecdotes floating around tend to be produced by activist groups who would like to manufacture a national trend out of 10 hand-selected cases.

Another question: How aggressively will people shop?  Will they display a strong tendency to stick with whomever they have, or will they take a flier on an unknown insurer?  Obviously, this is going to determine what sort of prices people pay.  But it is also going to strongly affect insurance company strategies.  If people tend to be "sticky," then you're going to see cutthroat below-cost pricing in earlier years, then a shakeout, followed by substantial price hikes as people settle into long-term relationships with their insurance company.  If customers tend to shop around aggressively, then  offering a policy below cost is financial suicide. So we'll probably see prices increase substantially next year or 2017 -- though overall prices may be lower in the long run than they would be if people show a strong tendency toward automatic renewal.  

A third question: How forthcoming will the administration be with data?  The pattern during the first open enrollment period was that good data generated immediate whisper numbers, followed by a press release within a few days.  Bad numbers were sat on as long as possible.  If we hear numbers early, then enrollment is exceeding targets, which suggests that the exchanges are starting to deliver more coverage expansion.  If the administration waits until March to put out numbers, then I'll be expecting at best a small improvement over 2014 enrollment.  I reiterate that I have no guess at all as to which of these will be the case.

Another thing to keep in mind, however: This open enrollment period isn't the biggest test for Obamacare in the next 12 months.  The biggest test will be what happens on or around April 15th.  That's the first time all the people who didn't buy insurance will get hit with the individual mandate penalty, and the ones who thought that it was a nominal $95 fee are in for a nasty shock .  April 15th will also be the first time that people who got too much in subsidies are going to be asked to pay back some of that money.  I do not have hard figures on this, but my basic experience in personal finance and tax reporting suggests that approximately zero percent of those affected will be expecting the havoc it will wreak on their tax refund.  Brace for a wave of taxpayers angrily complaining to congressmen and their local newspapers.  The size of this pressure -- and how the administration handles it -- will tell us a lot about the future of this program.  As will Tax Day in 2016, when the penalties get bigger.

  1. My best guess is that 8 to 10 million people gained insurance last year, but that a majority of that gain came from Medicaid, not exchange policies.

  2. The individual mandate penalty for 2014 is $95 or 1 percent of your income, whichever is higher.  Higher income folks who decided to skip insurance this year, be warned.

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