Friday, September 9, 2016

ADVERSE SELECTION: A Scary Obamacare Mystery.

...when too few sign up, the insurer has to ask, “Who’s declining to buy insurance?” and the most likely answer is, “Healthy people who don’t expect to use it much.” The remaining pool, then, will be sicker. The lower the participation rate, the more likely it is that you’ve got a small group of people who are going to make expensive claims.

This is a phenomenon known as “adverse selection.” And it tends to get worse as premiums rise to reflect the cost of covering this sicker pool, because more people start dropping the ever-costlier insurance, and usually the folks who drop out are the healthiest ones.

Obamacare’s individual mandate was supposed to prevent this death spiral by levying a tax penalty on those who refused to sign up. But...
Despite the headline, there’s no mystery here. Many of us, McArdle included, explained ObamaCare’s perverse incentives and adverse selection problems ad nauseum even before it was passed into law.

If its supporters still don’t understand why ObamaCare is failing, it’s their own damn fault.