The Ricochet Podcast - American Wonk with Avik Roy

Episode Date: September 7, 2013

Avik Roy and Manhattan Institute colleague Yevgeniy Feyman discuss their new interactive map, published at Forbes, which explores the impact of Obamacare on the cost of health insurance in every U.S. state plus D.C. Source

Hello, everyone. This is Ovik Roy with American Wonk, a new podcast at Ricochet.com. Some of you may know who I am. If you don't, I guess the first thing I should tell you is how to spell my name. My parents gave me a rather strange name. It's spelled A-V-I-K, but it's pronounced Ovik. And my parents did that because I think they wanted me to figure out who could figure out how to spell my name and who couldn't, so I would know who the cool people were or something. I don't know. Maybe it's just a practical joke they played on the world. But I'm happy to have you here, tell you a little bit about myself and what I'm trying to do with this podcast. We're going to look at all sorts of policy questions and political questions and culture questions that are interesting to you, our listeners. And some of that will

key off of things that I write for my Forbes blog or my National Review blog that some of you may be familiar with, but some of it may not. But today, what we're going to talk about is a very interesting analysis that I and some Manhattan Institute colleagues came up with on Obamacare. Obamacare, as we know, is officially called the Affordable Care Act, and its promise is that it will reduce the cost of health care for every American. Let's listen to President Obama making that promise in the 2008 campaign. A system where we're going to work with your employers to lower your premiums by up to $2,500 per family per year. We will start by reducing premiums by as much as $2,500 per family. Here's what change is saying to people who already have

health insurance and the employers who are providing it, we'll work to lower your premiums by up to $2,500 per family per year. I also have a health care plan that would save the average family $2,500 on their premiums. And if you already have health care, then we're going to reduce costs an average of $2,500 per family on premiums. We're going to work with your employer to lower the costs of your premiums by up to $2,500 a year. And we'll cut the cost of a typical family's health care by up to $2,500 per year. And if you've got health care, we're going to work with your employer to lower your premiums by twenty five hundred dollars per family per year. And we will lower premiums for the typical family by twenty five hundred dollars a year and cut the cost of health care by up to

twenty five hundred dollars per family. And if you already have health care, then we're going to work with your employer to lower your premiums by up to $2,500 per family per year. With me now to discuss a new analysis that we've conducted at the Manhattan Institute is Yevgeny Feynman. And just to give some background, we just put out yesterday at Forbes.com and the Manhattan Institute-org, an analysis of 13 states plus the District of Columbia, analyzing insurance premiums, how insurance premiums will be priced on Obamacare's insurance exchanges, and how that compares to what it costs for you to buy insurance on your own in the pre-Obamacare market, that is

to say the 2013 Obamacare market. This has been a matter of a lot of controversy. President Obama and plenty of his allies and supporters of the law say that Obamacare is going to make health insurance cheaper, as I noted. We have been skeptical. I've written a number of pieces about this for Forbes and National Review, and it is the number one issue, I think, with this law lives up to its stated goals, is whether or not it will make health insurance more affordable, right? Liberals don't care about increased spending or less spending. They want to spend more. But their stated goal, their stated goal, their stated claim, their stated promise is

that Obamacare will make health insurance more affordable. So here with me now to discuss this new analysis that we've published is Yevgeny Feynman, a research associate at the Manhattan Institute, who led a team of graduate student number crunchers looking through all sorts of insurer filings to compile the data that we've published on this map entitled Obamacare, Know Your Rates. So Yevgeny, welcome to the program. Thanks for having me, Ovech. So why don't you describe what we've done here.

And let's start now with, I know there's three parts to our analysis, but let's start with the first one, the most politically sensitive one, which is the state rates. What are the state rates and how did we come up with those figures? Sure. So in the current individual market, it's really important, as you know, to point out that there are not a lot of people. And explain what the individual market is. Sure, sure. So for the listeners that may not already know, there are basically three ways you can get health insurance in this country.

You can get it through your employer in what's called the group market. There's large group and small group. But it's when you work for a company, they provide you with health insurance. You pay part of the premium. They pay most of it. And that's how about 160 million Americans get their health care, their health insurance rather. You could get it from government programs like Medicare, Medicaid. Then you're pretty much on the hook for almost none of the cost. If it's Medicaid, it's free.

If it's Medicare, there's a small premium associated with it, but still very small. And then the very small sliver of people, I think now around 15 million, get their insurance through what's called the individual market. That's when you go to an insurance company, you say, I want this insurance plan, and they sell to you directly. You're responsible for all the premiums. And what we know about the individual market is that there are a lot of sick people in it. And that's one of the reasons why we see it as being, quote unquote, dysfunctional. Yeah. And I think it's worth also adding that the 50 million uninsured, whether that's a real

number or not, that whoever's uninsured in America, they're in theory also participants in the individual market because they could buy insurance on the individual market. They choose not to, presumably because either it's too expensive or they just don't really believe in buying insurance, one or the other. Right. And we could quibble for ages about whether it's rational or not for them not to buy insurance. But that's the choice they've made. And that's really what we have to look at. Of course, we assume that they're not getting insurance because it's too expensive for them relative to what they expect to spend on their health care costs. So, right. So go ahead now. And so what do we look

at in this analysis? So for this first part of the analysis, we looked at the current rates in the individual market, what plans are available across all the states. We looked at it by county, the most popular zip code in each county, and then we averaged out those counties to get an average state rate that's fairly representative of how expensive individual market insurance is in every state. And for listeners who want to follow along, the map is at Forbes.com. If you Google what will Obamacare cost you, you'll find the map. Keep going. Go ahead. So we faced a few criticisms early on in doing this analysis that a lot of times these rates may not actually be what people get. So people might get

surcharged based on their health status or for whatever other reasons insurance companies decide to. So just to emphasize that point, when we first started looking at California, California was a state where the state government had announced, oh, that rates are going to go down relative to what they were before. It's some great triumph for Obamacare. And when we crunched the numbers on that, we found that, well, it's not an accurate comparison because not everyone gets those low rates on ehealthinsurance.com or finder.healthcare.gov because people with pre-existing conditions are charged more. Now, three quarters or more of people were getting those low rates, but that still means that a significant percentage were not.

And so what you're basically saying is that we responded to that by adjusting the rates that we were compiling to take that into account. Exactly. And the beauty of the finder.healthcare.gov website is we do know exactly what percentage of people received a surcharge rate and what percentage of people were simply denied coverage. So we made some assumptions about how to factor that in. We assumed that if people get surcharged, they get surcharged 75% higher than what the base rate is. And if they get denied, they find a plan elsewhere at three times the base cost.

These are right. So we're assuming that if you can't get that low rate that's listed on finder.healthcare.gov, we're making assumptions that you would have to pay more to get that same plan or get a different plan based on your health conditions, and we factor that in to create this adjusted number of what the overall average for the entire population would be for shopping for insurance relative to those plans. Exactly. And this is in a way to be a little bit more generous to the ACA, to Obamacare, because the law does require that insurers offer health insurance to anyone who wants it,

and they don't discriminate based on health status. Right. It's a key point because the rates that we're listing on the map for the cost of insurance prior to Obamacare are actually higher than they would be for most people. So if you're healthy and you're shopping for insurance today on ehealthinsurance.com or finder.healthcare.gov or any other place, you're actually probably paying significantly lower rates than the rates we're listing because the rates we're listing are including the cost of coverage for people who are really sick. Exactly. And it's sort of a pooled rate.

It makes it look like 27-year-olds in the market, for instance, would be paying much more than they probably would. But again, this is all to be a little bit more generous to Obamacare in order to make the analysis a little bit more objective. Absolutely. To make it beyond reproach and to be as fair as possible to supporters of the law and to the law itself. Exactly. Exactly. And we got those rates for every single state. Now, the next step ended up being a lot more difficult, as you know. Insurers have been filing their proposed rates for the state-based health exchanges for several months now, but there are all sorts of problems with getting those rates. In the end, we came up with 13 states

where it was very clear what the rates are going to be based on the insurer filings. And we calculated rates for 27-year-olds, 40-year-olds, and 64-year-olds. That gives us a pretty broad range of the market. So we have people that are relatively young and healthy that won't have access to their parents' health insurance. That's the 27-year-olds. The 40-year-olds, a middle-aged person who might be healthy, maybe not as much. Maybe he or she has been smoking for 10 years. But even if they're a non-smoker, they'll have some other health issues start cropping up. And then the 64-year-old,

that really represents this, quote unquote, uninsurable market. Yeah. And the reason we did that is because 27-year-olds, well, a lot of people say, well, 26-year-olds and under can stay on their parents' plan. And we wanted to just eliminate that as a complication. So we looked at 27-year-olds and then 64-year-olds. Well, when you're 65, you go on Medicare. So 64 is the last year of eligibility for what's left of the private sector insurance market. So that kind of is the age range we're using. And to your point, we looked at whatever states we could, but we only were able to pull up the data for 13 states plus the District of Columbia. So maybe tell us a little bit about why that is. Why is it that these other states, we don't have their information?

Well, a lot of it has to do with how the health exchanges are being set up. So a large majority of states are running with what are going to be called federally facilitated exchanges. That's basically when the states have said, we're not going to set up our own exchanges, we don't want to deal with this, and the federal government is going to run the exchanges for them. In most cases, the federal government has not released the rates for these states. And with less than a month to go for the exchanges to launch, it's really worrisome that we don't know what the rates are going to be in a majority of the states. Why do you think that is? Why do you think it's so late that we're less than four weeks away from the rollout of Obamacare and we still don't know how much

insurance is going to cost in most of these states? Why is that? I'll give you two responses, one optimistic and one pessimistic. The optimistic one is that the You know, I'll give you two responses, one optimistic and one pessimistic. The optimistic one is that the federal government is doing a fantastic job of driving down rates by negotiating with the insurers and making sure that we're going to have affordable coverage. The less optimistic, more pessimistic view is that they're really not seeing great rates and they don't want to sully their reputation too early. They'll just flood the rates onto the market at the latest point they possibly can. And well, that'll be it. We can't really. Yeah, it'll be interesting to see if they're successful, right? Because it seems like, for example, in Maryland, there were news releases. Now,

Maryland isn't part of our map. The states we've got are Washington, Oregon, California, Colorado, New Mexico, South Dakota, Ohio, Virginia, D.C., New York, Connecticut, Rhode Island, Vermont, and Maine. We don't have Maryland, but in Maryland there were these news accounts saying that the state government there, by jawboning the insurers, was able to get their rates down significantly from what they were originally asking. What do you make of what happened in Maryland? Well, I'll make an interesting point first about Maryland. They did release some rates in press releases, but the actual insurer filings where we would be able to calculate our own rates and see the full breadth of the market are unavailable. But when we talk about this negotiation with insurers and states claiming to reduce the requested rates by 20%, 30%, sometimes even more, there's really much more to it than that. When you do this to insurers who are expecting a certain level of enrollment of a certain healthy population, a certain sick population, they're really just trying to cover their costs.

Most of it is not profits, contrary to popular belief. And what might happen the second year is a lot of these insurers decide that it's simply not worth it for them to participate. Right. They're not increasing their rates because they're mean and greedy. They're increasing their rates because the underlying cost of insuring people is going up, and they're raising their premiums to reflect that increased cost. Exactly. There are certainly some commentators who believe that this slowdown in healthcare spending that we're seeing is permanent. Insurers are not part of that.

They believe that this is very temporary and that healthcare costs are going to continue rising. Yeah, yeah. Okay, so we've been keeping our listeners in suspense. So what are the numbers? What do we actually find in terms of how Obamacare is affecting premiums in these 13 states plus D.C.? So the simple average across the 13 states plus D.C. is that health insurance premiums increase by about 24%. So that simple average, though,

doesn't really take into account some of the variation that's really interesting to look at. If we look at California, which you did your original blog post on, California is a very unique example. Right now, pre-Obamacare, California has the single largest individual market in the country. And pre-Obamacare, it's fairly unregulated. It's worked pretty well. California is kind of, contrary to its reputation as a blue state, California had a pretty robust and competitive and largely free market for health insurance. Exactly. Exactly. And what the ACA does is throw a ton of new regulations at the California market. And we really see what regulations do to a working health insurance market. For 27-year-old males, they're going to be paying 23% more. So their costs are going from an adjusted rate of $145. And that's important to keep in mind. It is an adjusted rate where under the ACA, they'll be paying $179. Now, the basic problem is this. If 27-year-olds weren't willing to pay

$145, in reality, it's less. They weren't willing to pay $80 or $75. Exactly. Exactly. Because that's how much, if you're healthy, that's how much you'd be charged in California. Yep. That's the unadjusted rate. There's no reason to assume that they're going to be willing to pay $179 for coverage, regardless of whether the coverage is better or not. They're not buying insurance now because they think that they don't need it. And whether that's a rational decision or not is a whole different discussion. But they're not buying it now. There's no reason to think they'll buy it at a higher cost. So let's just go quickly through some of the highlights in terms of the data. So the four states that saw the steepest rate hikes on average were New Mexico, Vermont, South Dakota, and Connecticut, with average increases of 130 percent, 97 percent, 83 percent, and 59 percent, respectively.

So pretty big increases in those relatively smaller but still meaningful states. And then there were four states that are going to see pretty meaningful declines in premiums based on our analysis. Maine is going to see a decline of 71 percent, Colorado 34 percent, Ohio 30 percent, and New York 27 percent. And let's take a little bit of a look at some of those states. So why don't you tell us about the states where we're seeing declines? Because I think we kind of understand why Obamacare is raising premiums in the states where it's raising premiums, because it's a relatively unregulated market before. And Obamacare is imposing all these regulations and mandates upon the insurance product and the design of insurance plans that's making premiums go up. So in general, at least we as free market oriented conservative guys, the fact that we're

seeing rate hikes in a lot of these states is not as surprising. But what's interesting is some of the states where we're seeing decreases. So let's talk about that. Let's first talk about Maine and New York. What do you think is going on in Maine and New York? Well, I'll start with New York. I think it's a great example of a failed individual insurance market. New York has what's called pure community rating. They require insurers to charge the exact same rate for anyone, regardless of health status, regardless of age. And they also have guaranteed issue. Like the ACA, they require insurers to not deny anyone either. Yeah, so they have Obamacare-like regulations without the individual mandate and the subsidies for the most part. Exactly.

And so they had these dysfunctional insurance markets. Yeah, and it's led to what we call the death spiral, where you have predominantly sick people in the insurance market. Healthy people stay out. And on top of that, you have this other segment called Healthy New York, which is government subsidized health insurance in New York. It's not Medicaid, but it tapers off at about 225, 250 percent of the federal poverty line. Which is about, say, $20,000 to $25,000 in annual income for a single childless adult. Yeah, that's about right. And the people in that program are technically in the individual market, but they pay much lower rates because they're relatively healthy compared to people in the pure commercial market.

And what Obamacare does, under Obamacare, those people that are now in healthy New York are actually going to move onto the commercial market. And what Obamacare does, under Obamacare, those people that are now in healthy New York are actually going to move onto the commercial market. So first of all, we have about 115,000 people moving from this state-funded program into the pure commercial market. That's going to bring down rates. On top of that, you have the individual mandate, federal subsidies. That's going to entice more people to enter the market. A lot of them are going to be relatively healthy compared to who's in the market now. That brings down rates. So it's really no wonder that rates are going down in New York because just adding the individual mandate and the subsidies will bring a ton more people in. And how about Vermont? Because Vermont is a state like Maine and New York

that has a highly regulated Obamacare-like insurance market. Washington State is another that has a highly regulated insurance market. And yet in Washington State and Vermont, we're seeing increases, not decreases. So what explains that? So in Vermont, they're sticking to their community rating just as New York is. They're also going to have a very, very regulated insurance market under the ACA.

Although they technically have pure community rating or at least pure age-based rating pre-ACA, there are different plans actually available to 27-year-olds, 40-year-olds-based rating, pre-ACA, there are different plans actually available to 27-year-olds, 40-year-olds, and 64-year-olds. So effectively, they do get charged different rates. Under the ACA, that disappears. You have to offer all your plans to all the same populations. Interesting. So they've kind of gotten around.

They have community rating, quote unquote, but they've done an end around it by offering these better plans for younger people. Exactly, exactly. And, you know, it's it's it's the same story as the same story in Washington. Washington's not going to have a one to one age rating, which moderates their their increase a little bit. But again, it's still a very regulated market. Their market pre-ACA wasn't great to begin with, and that just means that Obamacare doesn't really improve it. It didn't have the same regulations as New York did, so it's not seeing those kind of declines. But the pre-ACA rates are tremendously lower than pre-ACA rates in New York. Yeah. And how about Colorado and Ohio? So Ohio, the Department of Insurance had announced that rates were going to go up 41%. There had been

other analyses showing pretty significant increases in the rates in Ohio, but we're showing a decrease in rates in Ohio by 30% and also in Colorado by 34%. What's going on in those two states? Sure. So Ohio is an interesting case. It wasn't only the insurance commissioner there, but the RAND Corporation released the study saying that in Ohio, rates are going up by something like 41% or 42%. So it's important to understand the methodological differences between what we're doing and what the insurance commissioner and Rand did there. What the insurance commissioner was looking at was just the average rates across the entire market. What we did was take the five cheapest plans in the market. And the reason we do that, as I mentioned before, is that we assume that the uninsured are relatively price sensitive.

They want to buy a cheap plan. They don't want to buy an expensive plan. Exactly. Exactly. That's why they're uninsured to begin with. So we really focus on the cheapest offerings, whereas what Rand did was also a little bit different. They decided, let's do a quote unquote apples to apples comparison.

So when they compared plans, they controlled for the value of the plan, the actuarial value, which is what percent of your expected healthcare costs the plan will cover. And they controlled for age as well. So there are some problems with that. It doesn't look at the whole market. It looks at this small sliver of plans that you can really compare. And then whether you're actually comparing apples to apples is also questionable. If you're just controlling for actuarial value and age, you're not controlling for things like the exchange fees. You're not controlling for the guaranteed issued provision. So it tells a different story.

It tells a story where that makes the ACA look pretty bad. For us, it looks better than what Rand thinks. Another factor there is there are going to be a lot of insurers participating in Ohio, much, much, much more than in other states like Maine and Vermont, which are going to see very, very few insurers participating, there is absolutely an element of competition that's driving down costs. Yeah. There was this Kaiser report that came out yesterday that claims that premium increases are lower than expected, even though they actually declined to compare rates to last year's rates because that would be complicated or something like that. And we'll talk about that a little more in a minute.

But what I want to touch on is they have one interesting table in their report, which is they list the number of insurers participating in the various states. And what's interesting about that is Ohio is one of the highest in terms of the number of insurers participating. And it could be that, to your point, the fact that a lot of insurers are participating is the reason why there's a diversity of plan prices and more competition. And thereby, if you look at the five cheapest plans, Ohio is going to look better than other states. Exactly. It just makes sense that these insurers are going to want to offer more and more cheap plans to compete with each other on price.

If you're like Vermont, where there are only two insurers participating, they really don't have much of an incentive to compete on price. A lot of them have an existing market that they're catering to and there's really not much competition to encourage them to pull their prices down. Now, one thing that we heard from a lot of our liberal friends when we started writing about rate shock and Obamacare is that you can't talk about increased premiums for Obamacare. It's unfair and inappropriate and irresponsible, was the headline in one New Republic article. It's irresponsible because if you don't take into account that poor people are going to get subsidies to protect themselves from

these rate increases, then you have to take that into account because, well, Obamacare will drive up the cost of premiums in terms of the underlying cost, but since everyone's going to be subsidized, it's all going to be fine. What's your take on that argument? Well, so as free market conservatives, we believe that the underlying cost of a product is much more important than the cost minus the subsidy. And the basic reason for that is you have to pay for subsidies with money coming from somewhere. The subsidies aren't free. They don't just magically fall down from the sky. Exactly.

And if we're at all concerned about our fiscal mess, then we should absolutely be concerned about how much subsidies are going to cost us. But more importantly than that, what these subsidies are doing is divorcing people further and further from the real cost of their health insurance. That has two effects. On the one hand, it tells insurers that they can raise prices. People are going to feel less of those price increases, and insurers can keep going and going without really any concern published at Forbes and the Manhattan Institute is who's actually eligible for these subsidies. So why don't you walk us through that second tab on the map, which talks about who qualifies for subsidies and what the population is like that's subsidy eligible and what those subsidies are going to actually accomplish. Sure. So we'll grab an example state. Let's take Texas, for instance.

In Texas, you know, we look at this in two ways. So first we look at the uninsured that are going to be eligible. Those are really going to be the main people funneling into the individual market. That's what's going to swell the size of the individual market to somewhere around 20 to 27 million just on the exchanges, according to the CBO. But then, as you know, we also said, well, wait a minute, there's an existing individual market. So a lot of those people on the current individual market who buy insurance for themselves might end up being eligible for subsidies. We certainly want to take those into account to be fair to them. Now, in Texas, which has one of the highest rates of uninsured people in the country, I think at the last count,

it's 25% according to the census. Yeah. 20-somethings, only about 38% of 20-somethings in Texas, of uninsured 20-somethings, are going to be eligible for subsidies. That's remarkable. So in Texas, only 38% of 20-somethings qualify for subsidies of any level. We're not talking about full subsidies or partial subsidies. If you're to qualify for any level of subsidies on the Obamacare exchanges, only 38 percent of the uninsured will qualify for subsidies. And according to the data we've got here, 16 percent of the overall individual market participant age group, 20 somethings, will be eligible. So it's a pretty strikingly low percentage, considering that the exchange subsidies are supposed to really be the thing that helps out the uninsured. Exactly. And the reason I picked Texas, like I said, it's because it has the highest population of uninsured.

So if it helps anyone, it should help people in Texas. Now, this 38% is people who are eligible for subsidies, meaning it excludes the people under 100% of FPL, I assume, right? Yes. It actually excludes people under 139. 138. Right, right. Well, 138 and below because we assume in this analysis that every state eventually expands Medicaid. We're seeing more and more states do that. So it's a reasonable assumption. It's an assumption that a lot of other studies have taken. Actuaries make the same assumption when they look at this. So we just ran with one of the very standard assumptions here. But what percentage of these people, we may not know in this case, what percentage of them

are eligible for Medicaid? Because I could imagine somebody saying, well, look, yeah, 38% of people are eligible for subsidies, but there's another chunk that's eligible for Medicaid. So the overall subsidized population is actually larger. Well, you know, if our goal is to push people onto Medicaid, we could just institute Medicaid for all and save a ton of money, right? That is true. I think it's a huge mistake to view increasing the Medicaid population as a success. Access to care in Medicaid is abysmal. Outcomes are not great to be generous, especially if you look at specialists. I mean, people in Medicaid can't see dentists. There's so many stories about people either going years without seeing a dentist or, in the worst cases, dying because they have an abscess that leads to a brain infection. Right, right. So we'll leave the Medicaid discussion aside since we're really focused here on the exchanges, but it's worth noting for our listeners that if they're looking at this second set of data here on our map, which is at

the tab called who qualifies, it's only talking about people who are qualified for exchange subsidies. It's not talking about people who would get subsidies through the Medicaid program, because this is really about how insurance in the individual market, not government programs, will be affected by the law. So we're showing that a relatively small percentage of people are going to get subsidies through the exchanges, and then we're going to have in the third tab, the Your Decision tab, which we don't have up and running yet, but we're going to have up and running, we're going to talk about the percentage of what income you would need to have in order to be eligible for those subsidies. Is that right, Yev? Sort of. So it's not even

subsidy eligibility that we're exploring in the Your Decision tab. It's what income level do you need to actually see a decrease in the states that are facing increases. And that's a very different point, because you might be getting subsidies. If you're getting a $10 a month subsidy, you're probably still seeing an increase if the cost of insurance is going up. On the other hand, if you're getting a $150 subsidy, that'll probably help you out quite a bit. Right. So in California, for example, the paragraph I have in the Forbes piece where we sort of preview what this analysis will look like, the average 27-year-old male in California makes $31,550 a year, but in order for the subsidy to have enough of an effect on him

that his net premium will go down, meaning the impact of the subsidies will equal the increase in rates from Obamacare, and therefore the cost of insurance to that person will be the same, he'd have to make less than $24,759. So basically, if you're making less than $25,000, you're going to see an equal or lower insurance price net of subsidies. And if you're making more than that, the cost of your health insurance is going up. Exactly. That's a long and short of it.

There's actually – on a similar note there, there's a great paper out by one of the best labor economists, Casey Mulligan, exploring the work disincentives in the Affordable Care Act. And this is a great example. I mean, you're looking at people that are already facing high marginal tax rates from government programs that they might be eligible for. If you're losing subsidies and then you have to spend money on this health insurance, that's a disincentive to start making more than $24,800 for a 27-year-old Californian. Right. And, well, you could also see people misrepresenting their income to a degree, right? Or having a cash income, right? Like let's say you're a waitress and you get a lot of your income through tips.

All you have to do is make sure you don't report that on your tax return and you fall below a certain range and you'll qualify for more subsidies. Right. Exactly. Exactly. There are so many ways to game the system here and this just creates another incentive for people to try to cheat the system as they do with other government programs.

Do you think, and this is something that obviously a lot of conservatives are concerned about, do you think that subsidies, the amount we spend on subsidies under Obamacare will be higher or lower than what's expected by the Congressional Budget Office and other sort of neutral parties? Well, I'll say this. If it's lower, I'll be very, very, very surprised. There was a recent analysis by the Kaiser Family Foundation, KFF, a very, very neutral party. Well, I'd call them left-leaning, left of center, shall we say. Sure, sure. Left of center, but certainly credible. Credible, certainly. And in their analysis, one of the assumptions they made was that actually a lot of people in the individual market do get subsidies. This is something the CBO doesn't address directly.

They give us very broad numbers to look at and don't really focus on how the churn between the markets might happen, so how people from the current individual market might end up on the exchanges. And so some of our friends at the American Action Forum did calculations using those assumptions, and they found that subsidies annually increase by something like $23 billion when you take into account the people

that are going to go from the current individual market into the exchanges. That's $23 billion higher than the CBO figure. Right. So it could be that because people are smart and they figure out what the thresholds are to make money from the government on this, they're going to adjust their behavior. They're going to adjust the kind of jobs they take. They're going to adjust the amount of income they report in order to maximize the amount they make from subsidies and minimize the degree to which they're exposed to higher costs. Exactly. It's all about incentives, and the incentives here are stacked in a way that encourages people to game the system as much as possible. Now, it seems like from what you're saying that there's going to be a real bifurcation,

because there are going to be people on the low end who do a lot better under this system because they're going to get large subsidies. And then there are going to be people who do a lot worse because their premiums are going to go up even if they qualify for a small amount of subsidies. And, of course, there are the people who are going to pay the taxes to fund those subsidies. So it's kind of like there's almost a segregation of the population of these two groups. Is that a fair way to look at it, or is it going to be more of a gradual scale? Well, I think you're absolutely right. It'll be bifurcated. Not only that, there's going to be one group of people that benefits a lot and one group that basically pays for those benefits. But there's also going

to be further bifurcation of the individual insurance market. A lot of the plans that are going to be offered on the exchanges have much more limited networks compared to what they offer in the non-exchange market or to employers through group insurance. So you might have a person on the exchange have a very similar plan on paper as someone off the exchange, but the person who buys it using subsidies on the exchange only can see maybe 30% of the doctors that the person who gets it elsewhere can. Yeah, so that's one of the – go ahead. It's going to be Medicaid light for all intents and purposes. Yeah, and we have a clip of Nancy Pelosi promising that everyone will see price decreases due to Obamacare. Let's play that. They'll bring it up, and when they bring it up, they will ask for repeal,

repeal of all the things I said that help children, help young adults, help seniors, help men or women who may have prostate cancer, breast cancer, whatever it is, any precondition, and everybody will have lower rates, better quality care, and better access. So this is, I think, one of the interesting challenges, and as we try to wrap up our podcast here, this is the interesting political challenge of the Affordable Care Act, is there are going to be people who benefit from the subsidies, and there are going to be a lot of people who don't benefit from the subsidies. And particularly these young people, and actually older people, they're going to be older people are going to have to pay more too, not just younger people, but people in general who are

healthy today, who shop for insurance on the individual market, are going to have to pay more. I think in our analysis, we found that younger men, 27-year-old men, will pay on average 43% more, and older women will pay on average 27% more. Those are the two groups that are hardest hit. They're going to pay a lot more for insurance, and yet the law is promising that everyone's going to see lower rates. How do you see that playing out? Do you think that people will sign up for this coverage? Do you think the mandate will work? Well, first year, probably not. For first year, the mandate is relatively weak. It's either the greater of $95 or 1% of your income. That's really not a lot of money for people who might be seeing a huge increase. So first year might be especially bad. Once 2016 comes around and the mandate is a little stronger,

I think more people will probably go in. But it's still not going to be perfect. There's going to be a lot of people who realize that they don't need this insurance. A lot of times it comes with deductibles of $5,000. So it doesn't actually kick in until they've already spent $5,000. So paying – in 2016, it's 2.5% of your income, I think, might be a better deal for them who might be making 350% or 400% of FPL than actually buying insurance. Let me ask you a multiple choice question. We've bombarded our listeners with a lot of wonkery here. Do you think that these individual markets, these Obamacare exchanges, are going to be A, a success, B, a train wreck, or C, somewhere in between?

I'd have to say somewhere in between. I think that in states like Ohio, where we're seeing a lot of competition, it might work out fairly well. In a state like Vermont, which I believe is trying to implement a single-payer system by 2017, probably a train wreck. Got it. Okay, so a train wreck in some states, a success in other states, and in between for the country as a whole. Is that fair? Yes, and I think a good majority of people, especially the uninsured,

are going to see it as more of a train wreck than a success. Interesting, interesting. Well, with that, I thank you, listeners, for working through our first podcast with us. A lot of very closely, add more states to our map, and debate this issue with people who both support and oppose the law. Thank you very much. Thank you. ¶¶ ¶¶ ¶¶ I don't need no doctor.

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