Why Obamacare Wishes it Was Amazon

Amazon.com has one of the most peculiar business models out there. For much of its history, it has barely turned a profit, even as revenues have skyrocketed (along with its share price). The underlying story is fairly simple, though

– Amazon’s value comes from the company’s innovation and ability to capture ever larger market shares of most segments of its business. Early in Amazon’s history, investors would have been justified in balking at the concept of a “profit-less” company; since then, however, the company has beat the S&P’s return by at least an order of magnitude proving that there’s more to Amazon than just profits. 

Proponents of Obamacare have made similar arguments – early performance is no indication of future results, and as the President has said “Obamacare is more than a website.” Indeed, the disastrous rollout (which left October with a paltry 27,000 enrollees on the federal exchange) could have been a mere bump in the road. Technical issues could have been fixed quickly, and enrollment could have exploded in the second month. Payments to insurers could have been processed electronically (the infamous “834 forms”), and people would have been notified in no time that they’re now holder of a freshly-minted Obamacare policy.

All of this could have happened, and it wouldn’t make a difference. Here, the devil is in the details. 

The latest enrollment numbers from the department of health and human services help illustrate the problems. Across all the exchanges, about 365,000 people have “selected a marketplace plan.” (Note: this includes people who have paid their first month’s premium and those who have not.) An additional 803,000 people have been determined eligible for Medicaid coverage (this makes them ineligible for subsidies on the exchanges, but they can still choose to purchase a private plan on their own dime). Here’s the kicker – the administration’s goal for private plan coverage by the end of 2014 is 3.3 million. With current enrollment at 11 percent of that figure (and with less than two weeks left until the payment deadline for January 1st coverage), it is unlikely that enrollment will hit anywhere close to that goal. 

Objectively speaking, these are not good numbers. And even if all the glitches were fixed early on, it is unlikely that these numbers would have been any better. The reason is simple – relative to their population, the uninsured in America are disproportionately young; meanwhile, Obamacare explicitly cross-subsidizes the older and sicker population at the expense of the younger generation. Tight age-rating bands, expansive minimum benefit requirements, and unnecessary restrictions on catastrophic plans (deductible caps and ineligibility for subsidies) mean that the coverage under Obamacare is tightly directed towards “gold-plated” standards that are more attractive for the older crowd. 

And if California’s October enrollment numbers are any indication (HHS has not released broad demographic information on enrollees), the young and healthy are not enrolling in droves, while the older crowd is. This means that not only will enrollment numbers be lower than expected, but the cost of enrollees will be greater than expected.

If the structure underlying Obamacare was efficient and allowed broad competition on plan design, premiums, and networks, the argument that it’s “more than a website” would hold some water. As it stands, however, Obamacare doesn’t offer much value beyond the veil.