The most recent news that should worry us regarding the rollout of Obamacare is the news that only a small percentage of of those purchasing plans on the exchanges were without insurance last year.
According to Aetna CEO Mark Bertolini, “Right now we only see that 11 percent of the population is people that were formerly uninsured are now insured, so we didn’t really eat into the uninsured population.”
The argument among progressives was Obamacare would be very attractive to those that had gone without insurance, and would decrease the number of uninsured. So far, that is not the reality.
Instead, what we are seeing is, in many ways, similar to the miscalculation of Cash for Clunkers. Most economists now accept that Cash for Clunkers was a failure all around. A study from the Brookings Institution that using the most optimistic view, it created 1 job for ever $1.4 million spent. Not exactly bang for your buck.
What is relevant to our discussion of the ACA rollout, however, is why this was the case.
Simply put, what Cash for Clunkers did was subsidize car purchases. So what happened? People that were planning on buying a car 1 year or 2 years in the future moved their purchases forward. The government gave them an incentive to spend in the short-term, because they received a huge financial benefit to do so. The problem? That ultimately did little to stimulate anything, because those same people did not buy cars later.
What is occurring in Obamacare right now is that people who were already purchasing insurance have looked at the exchanges, and now see that they could financially benefit from the subsidies. Those people thus made a market oriented choice; why turn away free money?
However, here is the rub: if people are making a market oriented choice…what is the incentive for those who didn’t purchase insurance prior to Obamacare to change their mind now? In many ways, low-cost insurance was cheaper last year than it is this year; so the uninsured, in many cases, have less incentive to purchase insurance today.
Many of these people actually made a market decision prior to Obamacare: they felt the cost was worth the risk. What we are seeing in the Obamacare marketplace is the same thing. People that didn’t have insurance are, for the most part, making the same market decision. On the other hand, those that had insurance before are simply looking for the best deal available…and if the government hands you free money, who is going to say no? Again…the market always wins.
We are making the same mistake on a macroeconomic level on Obamacare as we did with Cash for Clunkers. You really want to motivate people to make choices, you must use the marketplace in your favor. But the government, in both of these cases, was and is fighting the market. They are giving subsidies, but they are not truly making it financially more attractive for people to buy insurance today than before. If the uninsured don’t see a huge financial incentive to purchase insurance, no amount of subsidy will change that dynamic.