Megan McArdle seems nonplussed about the chances of a death spiral on the ♡bamaCare!!! exchanges, even though the demographics aren’t what the White House had promised:
It’s also older; the administration was looking for about 40 percent of exchange enrollment to come from folks 18 to 35, and at the end of the last enrollment period, that number was stubbornly stuck around 28 percent.
This is not surprising, exactly, but it is perhaps somewhat disappointing. Subsidies or no, people who don’t get a lot of value out of insurance don’t seem to be buying it. As a result, the cost of the cheaper policies — the ones you’d expect the healthier folks to be buying, since they don’t expect to use it much — is going to have to go up, because the average cost to cover the people who remain is higher than initially hoped.
Does this mean that Obamacare is in the early stages of a death spiral? We’re certainly not in death spiral territory now, and it’s too early to say whether we’re headed there, because the program is still evolving. As I say, the mandate has so far proven surprisingly irrelevant. But this year it goes up to a pretty hefty sum — the higher of $695 per adult and $347.50 per child, or 2.5 percent of your annual income — and perhaps people will look at the higher fees, sigh, and finally decide that they might as well pay a little bit extra and get some insurance. More realistically, perhaps they will freak out in spring of 2017, when they see what the mandate penalty does to their 2016 tax refund, and head over to the exchanges when the next open enrollment period finally rolls around.
Lots of people — too many in my view — actually like their income tax refunds, even though those refunds are little more than an interest-free loan to Uncle Sugar. The IRS took too much money from you during the previous year, then gives it back to you, sans interest, after you (and perhaps your accountant) go through the drudgery of preparing and filing your tax returns. But most people, especially young people, don’t look at it like that. They get a nice check and think, “Hey, free money!”
Well, people might not actually be so silly as to think “free money.” But for folks who aren’t that good at saving, paying too much in taxes and then getting it back in a lump sum isn’t such a dumb move.
But what if ♡bamaCare!!! makes the free money go away? What if ♡bamaCare!!! disincentivizes using the IRS as a savings account?
The only way the IRS can make you pay the ♡bamaCare!!! penalty (“It’s a tax, I swear!”) is if you’re owed a refund. It doesn’t take much planning to pay a little too little during the year, then make it up by writing the IRS a small check in April.
Incentives are about to change, and behavior will follow suit — no matter what the White House may have “initially hoped.”