Obamacare Floundering Because of Poor Product Quality

Published May 5, 2015

My sense has always been Obamacare appeals to people very differently depending on their incomes.

I will call it the “Obamacare dichotomy”: The impoverished receive by far the lowest premiums and deductibles from Obamacare, and wealthier Americans, who pay very high premiums for high-deductible plans, get very little from it. This explains why most people express dissatisfaction with Obamacare in a majority of polls conducted to measure the program’s approval and why so many voters cast ballots in the 2014 election against the Democrats who have supported the plan since its creation.

It all has to do with who benefits and who does not. We know that people who are having their premiums and deductibles disproportionately subsidized are happy with their coverage. This is hardly surprising because if you paid for most of my insurance and cut my deductibles from standard levels, I’d be pretty happy too.

Data Confirm Gap

Not everyone is getting large subsidies, and few middle-income and upper-income people are using government exchanges. Even fewer are actually benefiting from them.

In March, consulting firm Avalere found the government exchanges have done little for most Americans.

“New analysis finds that while exchanges have succeeded in enrolling very low-income individuals, they continue to struggle to attract middle and higher income enrollees,” the Avalere report stated. “Exchanges will need to attract higher income consumers to ensure enrollment continues to grow over time.”

Avalere’s analysis accurately describes the Affordable Care Act’s effect on the health care market, but the report’s conclusions for improving participation in the market are completely misguided.  

“So far, tax credits do not appear to be enough to entice participation, so greater emphasis on individual mandate penalties may be needed to help increase enrollment among low- and middle-income individuals,” the report’s authors wrote.

I totally disagree. As Avalere has reported before, the average Silver Plan deductible is now up to almost $2,700 a year. The problem for those not having their premiums and deductibles heavily subsidized is that Obamacare offers a lousy product, not that the penalties are too low.

Bad Deal for Most

We don’t need to put more emphasis on the penalties for not buying Obamacare; we need attractive insurance products people want to buy.

Looking at the available data, only 20 percent of those eligible making between 251 percent and 300 percent of the poverty level bought Obamacare. Why?

According to the Kaiser Calculator, a family of four making $60,300 per year would still have to pay out premiums of $4,934 a year, which amounts to 8.18 percent of household income, for the second-lowest-priced Silver Plan after their Obamacare subsidies. This is about half the price of an unsubsidized policy, but it still costs this family $4,934 a year for a policy with a deductible of almost $2,700. How many families making $60,000 have an extra $4,934 in their budget for a policy that will likely pay them almost nothing?

Apparently, many of these families have concluded they are better off staying uninsured and paying for their health care costs out-of-pocket. 

Of course if someone in the family is really sick, this insurance can be a great deal. And therein lays the challenge. The Obama administration must sign up enough healthy people to offset the cost of the sick, but so far it has been unsuccessful.

Better Product, Not Penalties

What can be done to make Obamacare more attractive to consumers? President Barack Obama and Democrats have been wracking their brains over this question, but to no avail.

Placing greater emphasis upon individual mandate penalties so that more people will be forced to buy health insurance is one solution that’s been discussed, but some consumers will still choose not to buy insurance because it’s more than they can afford and it’s still a lousy product.

Others have suggested placing greater emphasis on outreach so consumers will realize how good Obamacare is for them. This won’t work either because many think Obamacare’s value proposition, which is an innovation, service, or feature intended to make a company or product attractive to customers, stinks.

The answer then is to give people health insurance choices they find appealing and worth the cost.

Robert Laszewski ([email protected]) is a contributing editor to Health Care News and a nationally recognized health insurance expert. He runs the Health Care Policy and Marketplace Review blog, where an earlier version of this column originally appeared. Reprinted with permission.