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Obamacare’s Real Glitch
You can fix computer problems, but you can’t alter the laws of economics.


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Michael Tanner

Opponents of Obamacare could perhaps be forgiven a bit of schadenfreude over the massive computer problems that accompanied the launch of the exchanges last week. Certainly, the system’s problems bore out the critics’ warnings that the program was far from ready.

On opening day, for instance, some sort of computer malfunction was reported in at least six state-run exchanges, as well as on the national website that’s used in 34 other states. The situation has barely improved in the days since.

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The Obama administration blames the problems on unexpectedly high traffic. That’s bad enough, since the administration had three years to estimate the volume of web traffic and prepare for overflows. But most experts put the real blame on fundamental system design. For example, five outside technology experts told Reuters they believe architecture flaws were responsible for the crashes. Experts interviewed by the Wall Street Journal blamed a “sloppy software foundation.”

Still, one should not get carried away. While it is satisfying to observe the administration’s incompetence, it’s a mistake to focus too much on Obamacare’s messy rollout. Computer glitches can and likely will be fixed.

A bigger problem for the program might be the lack of people enrolling. The administration has refused to provide any estimate of how many people actually signed up for insurance, but anecdotal reports suggest that there has been less than overwhelming enthusiasm. After one week of the exchanges, Kentucky was being widely hailed as leading the country in Obamacare enrollment. Still, just 8,309 people had signed up, about 0.2 percent of the state’s population, and just 1.3 percent of the estimated 650,000 Kentuckians without insurance. On the other end of the scale, not one person was reported to have signed up in Kansas on the program’s first day, and only a handful since.

Fewer than 500 people had enrolled in Connecticut as of late last week, and just 366 in Rhode Island. Even in the big, populous, presumably pro-Obamacare states, participation has been minimal. In California, one insurance-industry official estimated initial signup as being in “single digits.” The Washington Post quoted other officials who were only slightly more optimistic: “a trickle, not a wave.” Maryland, a state that has eagerly supported implementation since Day One, has only managed to sign up 326 people. While all those numbers have undoubtedly risen this week, enrollment so far has been far from impressive.

This could become a significant problem, because Obamacare needs large numbers of young and healthy people to sign up in order to offset the cost of covering older and sicker people. If those young people don’t enroll — by some estimates, the administration needs at least 2.5 million — the entire insurance pool could collapse amidst what actuaries refer to as a “death spiral.” While the administration is correct to point out that it is very early in the enrollment process — the current eligibility window technically lasts until March 31 — those early numbers can’t be encouraging. The ongoing computer problems are only going to discourage some otherwise interested buyers — especially the marginal young, healthy customers who could do without insurance.

Yet both critics and supporters of Obamacare should keep in mind that the program’s real issues have nothing to do with computers or enrollment numbers.

Even if the administration can eventually make its computers run seamlessly, Obamacare will still cost almost $1.8 trillion over the next ten years, according to the latest Congressional Budget Office report.

And it will drive up the cost of insurance, even if young people show up as expected. True, initial premiums appear to be coming in somewhat below CBO predictions — but they’re almost universally higher than the cheapest previously available plans. Those states, such as New York or New Jersey, that have long had dysfunctional insurance markets are seeing lower overall premiums, while other states are facing significant average increases. The comparison is made even harder because most individuals purchasing insurance on an exchange are eligible for government subsidies to offset premiums. However, according to a study by National Journal, even after accounting for subsidies, Americans will pay more in premiums for Obamacare plans than they do for employee plans today.

And out-of-pocket costs — deductibles, copayments, co-insurance — are all likely to be higher for exchange-based plans, especially the low-cost plans like the ones quoted above. A study by Avalere Health found that Obamacare’s “affordable” bronze plans had an average deductible of $5,150, more than four times higher than the average deductible in employer-sponsored coverage this year.



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