Ezra Klein: Give me your status report on Obamacare. Where do you think the law stands now?
Robert Laszewski: They’re about where I expected them to be. HealthCare.Gov on the front-end is in pretty good shape. It’s where it should’ve been at launch. The back-end is still highly problematic. Clearly the administration put its emphasis on the consumer side. Insurers are still seeing errors in probably 5 percent of the files coming through. That’s compounded by the issue of all the people enrolling in the last few weeks. That’s a huge surge that would create customer-service problems in the best of circumstances, So I think it’ll take until about the end of January till everyone is straightened out and where they should be.
EK: You mentioned the continued problems with error-ridden files. What are insurers doing for these people?
RL: There are two things. There are some obvious errors you get and the insurer can go back to the customer and straighten them out. That’s a very laborious task. The other thing that the administration is doing is a manual reconciliation. There’s unfortunately no computerized check between who HealthCare.Gov thinks is enrolled and who the insurance industry’s computer systems think is enrolled. So it’s being done manually. That’s a big problem.
The other challenge now is getting people to pay for coverage. I was surprised today calling around to people to find only about 50 percent have paid. That’s not a reason to panic yet. The due dates for payment have been sliding all around, so people can be confused. But it can be a mess. Some insurers are doing autocalls like politicians do the night before the election asking people to pay.
EK: I recognize that we won’t really know what the mix of healthy and sick people is until at least April, once we see the surge from the individual mandate. But what are insurers seeing in the mix so far?
RL: It’s not positive. I don’t want to say people have given up on the notion they’ll get a good mix. They know the administration will make a big push. The insurance companies will spend big on advertising and outreach. So no one has given up. But it doesn’t look good right now.
There’s a big misconception that this is about young people. That’s baloney. It’s about healthy people. A healthy 20-year-old might only pay a $100 premium. You want healthy 40 and 50-year-olds. The big problem right now is really total enrollment. We only have about 10 percent of the uninsured in here. Insurers think you need more like 70 percent of a pool of people to sign up.
EK: When you say “a pool,” what do you mean by that here?
RL: The people who are uninsured and eligible for the exchanges and the people coming over from the individual market. That’s the new pool. It’s hard to estimate exactly how many of them there are. But I think we’re going to ultimately need about 20 million people for a sustainable pool. It doesn’t need to be this year. That’s what the transitional risk corridors are all about. But it needs to happen in the first few years. So when I hear people talk about the goal being seven million, I think, “time out.” This needs to be 20 million people within three years.
The problem with the enrollments today is that they’re so small, it’s less than 10 percent of the uninsured coming in, it really can’t be anything but sick people. So if it’s going to be sustainable you need loads of people coming in the door. So when I judge where Obamacare is on December 31st or March 31st, I want to have confidence that this thing is ramping up to 20 million. I want to see momentum.
EK: That brings up two issues. The first is the individual mandate, which begins this year but is a much bigger penalty in year two, and then even bigger in year three. So one question here is how well that works.
RL: I have an interesting answer for that. I think the mandate is almost worthless because the word is getting around that they can’t really collect it. And by year three, it’s really a lot of money. I think there’ll be real pressure to just get rid of it. I don’t think you can force people to buy this insurance. If they don’t want it there’ll be a political groundswell to get rid of it. So in my mind the individual mandate is kind of irrelevant to this.
EK: There seems to be a bit of a contradiction there. You’re saying the mandate wont scare people because it can’t be collected, but that the penalty is so large that they’ll hate it enough to get rid of it. It seems to me that if people really think the penalty is huge, then the mandate is likely to do its work and persuade people to buy insurance.
RL: I think it’s all about whether they have confidence in Obamacare or not. The mandate will be effective for free riders. No one has a problem penalizing people who don’t pay their fair share. But if Obamacare hasn’t been sold to the American people as something they should want then the mandate will just be rubbing salt in the wound and there’ll be enormous political pressure to get rid of it. So I think this gets back to whether the American people end up accepting obamacare or not.
EK: The other issue here are premiums in the exchanges in 2015. You’ve argued that you don’t think they’ll go up very much, even if not that many healthy people sign up. Why?
RL: I think the 2015 rates will be the rates you’re looking at today, more or less. Everyone believes this is an absolutely catastrophic launch. But the “three Rs” buy the administration and the insurers another year to try and reboot the thing. Insurers don’t want to just end up with a bad mix.
Having said that I do have a concern that people are looking at these plans and not finding value. Some people are looking at paying 10 percent of their income for plans with huge deductibles, and then you have politics of Obamacare and the bad press of the launch and if you put all those things in a bag and mix them up, I am really concerned that the uninsured who are healthy are not finding Obamacare the value they hoped it will be. That’s the real risk for Obamacare.
EK: Do you think there’s anything the Obama administration can do about that? Or is it just a question of the marketplace at work now?
RL: I don’t think there’s anything they can do for March 31. But as we move to 2015 open enrollment, the Secretary of Health and Human Services has some power to reshape the plans. The mandated benefits are so high they’ve driven costs up and created narrower networks. The statute talks about actuarial levels so the Secretary can’t just do anything she wants. But given a combination of regulatory authority and what the Obama administration has been willing to do already in overriding statute, I think they could do some pretty significant things.
If an entrepreneur had crafted Obamacare he would’ve gone to a middle class family. A family of four make $54,000 a year has to pay $400 in premiums net of subsidy and for that the standard silver plan has an average deductible around $2,500 and a narrow network. They’re going to pay almost $5,000 for that?
So the entrepreneur would say I’ve got $5,000 in premium and all this deductible, what do they want for that? And they probably would’ve said we want office visits and lab tests because the kids need to go in occasionally and then we want catastrophic care. The problem with Obamacare is it’s product driven and not market driven. They didn’t ask the customer what they wanted. And I think that’s the fundamental problem with Obamacare. It meets the needs of very poor people because you’re giving them health insurance for free. But it doesn’t really meet the needs of healthy people and middle-class people.