In the Rose Garden the other day, President Obama insisted that, while the federal Obamacare exchanges weren’t working very well, the product they were selling was a good product. Once the IT “glitches” were solved everything would be hunky-dory. Unfortunately for the President, and for Obamacare, the disastrous roll-out of the federal exchanges presents problems that go way beyond IT glitches. The exchanges are the centerpiece of Obamacare. Should they fail, the viability of the Obamacare itself would be in jeopardy, because the exchanges aren’t just selling a product, as the President said, they’re building an insurance market.
The stability of that insurance market depends on people—mostly young, healthy people—who currently choose to go without insurance, buying insurance. The insurance purchased by these low-risk young and healthy enrollees will offset the cost of insuring higher-risk enrollees, including those with pre-existing conditions, who really need insurance the most. If not enough low-risk people sign up, the pool of insured will consist disproportionately of high-risk enrollees and premiums will rise. The more premiums rise, the lower the incentive for low-risk enrollees to sign up, and the more disproportionate the insurance pool will become. In such a scenario, prices can quickly spiral out of control as high-risk (and therefore high cost) enrollees make up an ever greater percentage of the insurance pool.
The reason Obamacare includes an individual mandate—and the reason the administration refuses to delay that mandate—is precisely to drive low-risk people into the insurance pool and prevent a price spiral. (For an assessment of the immediate challenges facing Obamacare, read this piece by my colleague Yuval Levin. It’s lengthy, but very worthwhile.)
All of this explains why the roll-out has been such a nightmare for Obamacare. While people who really need insurance are likely to go to great lengths to sign up, how many twenty- and thirty-somethings do you know who are going to spend hours and hours attempting to enroll for health insurance that they don’t want, don’t think they need, and for which there is only a small tax/penalty (as little as $95 per year) for not purchasing?
The administration knows that the success of the exchanges, and thus of the whole law, depends on young people signing up, which is why we get ads for the exchanges like this one, from Colorado:
As ridiculous as it is, this ad demonstrates very clearly one of the weak points of Obamacare: the system depends on young people (including those who relate well to the three geniuses pictured above) dipping into their “beer money” to buy health insurance. That was always a risky proposition (how risky is, of course, debatable). By making it such a hassle to sign up, the disastrous roll-out of the federal exchanges has made that proposition look even riskier–and made the system depending on it look all the more fragile.