Obamacare’s Fatal Flaw

But the biggest danger to Obamacare’s survival is that many individuals who do not receive insurance from their employer will choose not to insure themselves and will instead pay the fine of just 1% of income (rising permanently after 2015 to 2.5%). The preferred alternative for these individuals is to wait to buy insurance until they are ill and are facing large medical bills.

That wait-to-insure strategy makes sense if the medical condition is a chronic disease like diabetes or a condition requiring surgery, like cancer or a hernia. In either case, the individual would be able to purchase insurance after he or she receives the diagnosis.

But what about conditions like a heart attack or injuries sustained in an automobile accident? In those cases, the individual would not have time to purchase the health insurance that the law allows. If they are not insured in advance, they will face major hospital bills that could cause serious financial hardship or even cause them not to receive needed care. Anyone contemplating that prospect might choose to forego the wait-to-insure strategy and enroll immediately.

But private insurance companies could solve that problem by creating a new type of emergency insurance that would make enrolling now unnecessary and allow individuals to take advantage of the wait-to-insure option. Such insurance would cover the costs that a patient would incur after a medical event that left no time to purchase the policies offered in the Obamacare insurance exchanges. Emergency insurance might also cover the cost of care until the open enrollment period for purchasing insurance at the end of each year (if political pressure does not lead to the repeal of that temporary barrier to insurance).

This type of insurance is very different from existing high-deductible policies. Given the very limited scope and unpredictable nature of the conditions that it would cover, the premium for such a policy would be very low. It would not satisfy the broad coverage requirements that Obamacare mandates, forcing individuals to pay the relatively small penalty for being uninsured and to incur the subsequent cost of buying a full policy if one is needed later. But the combination of emergency insurance and the wait-to-insure strategy would still be financially preferable for many individuals, and the number would grow as premiums are driven higher.

Employers with a large number of full-time employees could encourage their existing insurance companies to create the emergency policies. They might even choose to self-insure the emergency risk for their employees.

The wait-to-insure option could cause the number of insured individuals to decline rapidly as premiums rise for those who remain insured. In this scenario, the unraveling of Obamacare could lead to renewed political pressure from the left for a European-style single-payer health-care system.

But it might also provide an opportunity for a better plan: eliminate the current enormously expensive tax subsidy for employer-financed insurance and use the revenue savings to subsidize everyone to buy comprehensive private insurance policies with income-related copayments. That restructuring of insurance would simultaneously protect individuals, increase labor mobility, and help to control health-care costs.

Martin Feldstein, Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research, chaired President Ronald Reagan’s Council of Economic Advisers from 1982 to 1984.

Copyright: Project Syndicate, 2013.