Opinion and Economic Analysis

Hicks: Odds of Affordable Care Act failure keep rising

October 26, 2013

It is far too early to call the rollout of the Affordable Care Act a failure; most new programs have rocky starts. But this one has most of the signs of inevitable failure. If the situation doesn’t remedy itself quickly, the complete redo of the law will be hastened considerably.

Anyone who has participated in a large-scale technology overhaul knows how long they take and how many elements perform dismally with the first tests.

The ACA technology must work for more than 30 million American households—one-third of which are functionally illiterate, and another third of which have no home computers or Internet access.

As the president rightly notes, the failure of the website does not mean a failure of health care, but what he will shortly acknowledge is that, unless the website works really well, much of the rest of the legislation will fail.

One admirable feature of the ACA any future health care law will wrestle with is that it is designed to pull everyone into the health care insurance marketplace. The goal is to spread risk across the entire population and so reduce premiums.

In coming months, insurers will set premiums based upon the actual health risk of participants. If the folks registering for the ACA are all young and healthy, then premiums could fall, while Medicaid costs will rise.

If those who register are in the most need of insurance (the older and sicker of the 30 million households), premiums will rise.

Simple economics suggest that if premiums drop, and the website improves, more will sign on. If premiums rise, many will drop coverage, leading to increasingly higher premiums and even more dropping coverage.

This death spiral will cause the ACA to fail, and will expedite serious reforms to the law. So here are my predictions:

The website will slowly get better, but not good enough this year to save the program. Late in the game, the president will suspend the individual mandate penalty, which is probably strictly beyond his powers, but few will complain.

Insurance rate increases will hit many, mostly the middle class, hard. There will be a huge push to enroll more young, healthy folks into the plan.

The most optimistic vision for the plan is that success will be mixed. Failure is an option.

America’s health care laws will be the prime focus of the next election, and a major focus of every election from now until my 9-year-old is old enough to run for Congress.•

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Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.
 

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