The Affordable Care Act (ACA) was intended to solve the
problem of affordable coverage for people with preexisting conditions by
using an age-old strategy that politicians love. That strategy is often
referred to as OPM (other peoples’ money). For instance, ACA
regulations force insurers to accept all applicants -- including
unprofitable ones -- at rates unadjusted for their health risk.Premiums can vary somewhat by age, but not by health status. Thus, Obamacare is a bad deal for most people by design; the majority of enrollees are charged much more than their expected costs. In theory, this should allow individuals with health problems to obtain health coverage cheaper than they otherwise would. The problem with these schemes is they rarely work as advertised. Moreover, there are perverse incentives for individuals to cheat if they can -- and delay enrollment until they need expensive medical care.
This dubious policy was briefly tried back in the 1990s and it was a disaster. Overcharging healthy people caused them to avoid health insurance like the plague, resulting in a condition known as “adverse selection.” Over time, health coverage became incredibly expensive. Premiums shot up 500 percent to reflect the higher costs in health plans composed of mostly unhealthy enrollees. Coverage became a bad value for everyone except the sick for whom any coverage was better than nothing. Sound familiar? It should: that’s what’s happening to Obamacare plans today. The ACA attempts to lessen the risk of adverse selection by forcing younger and healthier people to buy expensive health coverage that’s a poor value.
