Laszewski: Mix of Healthy and Sick People “Doesn’t Look Good Right Now” and Mandate is “Almost Worthless”

January 9th, 2014

From Ezra Klein’s interview with Robert Laszewski, a leading health wonk.

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.

So who’s signing up? Primarily sick people.

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.

And what about the individual mandate? “Almost worthless” and it will be eliminated soon.

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.

Of course. Just get rid of the cornerstone of the entire fricking law, that the government told us was essential and could not be severed. This is infuriating.

And why will it be eliminated? Because the American people have not “accept[ed] OBamacare.”

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.

And how will the rates be better for next year? Eliminate many of the “mandated benefits.” You know, like forcing single men to pay for prenatal car.

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.

The entire core of this law–the mandate, the mandated benefits, lower premiums–continues to unravel.