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Exchanges Everywhere, Not A Plan To Buy

October 01, 2013

By Paul Howard

In what should have been D-Day for Obamacare, it appears that the health exchanges have opened with a whimper rather than a bang. As my fellow Apothecary blogger, Josh Archambault, notes, technical bugs and errors have led to only a handful of states having their exchanges up and running on time: Colorado, Connecticut, D.C., Kentucky, Massachusetts, Oregon, Rhode Island, and Vermont.

My colleague Yevgeniy Feyman and I did a quick survey on, and none of the federal exchanges are running either – anyone trying to purchase insurance on the federal exchange is (at least as of noon) receiving a message notifying them that they are overloaded with visitors and the website is down.

You’d think that one of the first and most basic tests of the federal exchange infrastructure would be to make sure their servers can take the traffic expected on the first day of the much-hyped launch of federal websites, so this is very disappointing and appears to vindicate critics concerns that the exchanges are really an unfinished product.

(In a bit of cosmic irony, Rockstar Games Grand Theft Auto V is also going online today, and also seems be very glitchy. My guess, however, is that the video-game maker – with a very active and vocal fan base – will fix their glitches faster than the government contractors can fix the exchanges.)

If the government hadn’t shut down last night, the technical glitches would be an even bigger story.

Now, this doesn’t mean that enrollment won’t ramp up, although it’ll likely be some weeks or months before we have concrete numbers, and even longer before other glitches – like giving subsidies to people who weren’t eligible – are uncovered.

For now, some general trends are likely to hold: healthier and younger families with previous coverage will likely see very steep increases. Generous subsidies will offset the cost for many low-income uninsured, but the subsidies tail off quickly at the upper end of the scale – so making just a little more money can really penalize your family when you lose those subsidies. This creates a perverse incentive to work and earn less and, of course, millions of people will gain Medicaid coverage, but that coverage is typically spotty, with long waits to see doctors and specialists.

Finally, lower income workers getting coverage on the exchanges (because their employers don’t offer it) will get bigger subsidies than workers whose employers do offer coverage – creating yet more inequality in health coverage.

Obamacare is neither a panacea nor an apocalyptic disaster. Mostly, it adds more subsidies and more regulations onto already heavily regulated state insurance markets.

Very little in the law will make care more affordable in real (not subsidy-adjusted) dollars. Ironically, employers have already gone a long way towards containing health care inflation, by shifting employees into more high-deductible plans. And, if the exchanges are successful, it’s because young people will also opt for high deductible plans, with cheap premiums but also tighter networks of doctors and hospitals. As my colleague Avik Roy pointed out last week that can be a good thing.

Reformers should look for ways to build around that kind of catastrophic coverage (with wrap-around health savings accounts), while still ensuring that people have access to high value types of care that we know can save money in the long run (like prescription drugs for some chronic illnesses).

When it comes to health care reform, the biggest trends are all happening away from the Obamacare exchanges. Concierge care or “direct-primary care” that provides unlimited basic care for one flat price is proving a boon for consumers, especially as more doctors drop insurance.

Companies like Castlight that make health care pricing and quality transparent, along with health savings accounts, are already dramatically changing how we interact with the health care system. Health care and health insurance is going retail. We need to build on those trends, because so little of what Obamacare does is truly transformative.

For months ahead of the exchange launch, we’ve known that the exchanges were having difficulties calculating subsidies correctly, on top of the major privacy concerns regarding the untested data hub. Perhaps a week (or two) of down-time will allow some more testing and fine-tuning of the health insurance marketplaces.

At the end of the day, however, this simply proves a point that many have been making – the exchanges are not ready for prime time. With the delay of the employer mandate due to confusion about reporting requirements, the privacy issues with the data hub, and the delay of out-of-pocket limit requirements for employer plans, the administration has to (at least) tacitly admit that the exchanges are very much a work in progress – beta testing on live patients and families.

Democrats will not allow a defund (or a delay) bill to pass the Senate, and eventually a continuing resolution will pass to re-fund the government. At that point, Republicans should get back to talking about smart, market-oriented reforms to the law that build on the trends I just mentioned.

After all, recent polls show that while a plurality of Americans don’t want to see Obamacare repealed, a good number are interested in substantive changes to the law – and this includes some Democratic lawmakers like Senator Joe Manchin.

Politics makes the headlines in the short run, but good policy will ultimately shape the future of American health care. And we’ll still have enormous health care challenges to grapple with long after the Obamacare exchanges sort out their various glitches.

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