Tuesday, August 13, 2013

Oregon Delays Key Element of Insurance Exchange––Good for Them!

Five years from now no one will remember if their "Obamacare" health insurance exchange launched on October 1.

The state-run Oregon health insurance exchange, Cover Oregon, recently announced it will be delaying web access to the its new "Obamacare" health insurance offerings two to four weeks later than the scheduled October 1 launch date.

People will be able to begin signing up for health insurance on October 1 but only through participating insurance agents and community partners. Covered Oregon said they wanted more time to "debug" the website before opening it up to the general population.

For months, we've all been speculating about whether the insurance exchanges, state and federal, will be ready on time. Given the complexity of the new exchanges and given that the Obama administration didn't finalize key regulations until just after the November 2012 election, being ready on time has turned out to be a huge challenge.

It strikes me that Oregon's decision to delay the online exchange for consumers until they are certain things are in good shape is the prudent thing to do.

While worrying about whether this will all launch on time has been the source of lots of speculation, the thing I most worry about is whether the exchanges are going to get a good cross-section of people––that enough healthy will sign-up in order to offset the costs of the sick.

If the launch is an administrative mess, it is likely that sick people desperate for health insurance will be sure to get signed-up no matter what the hassle factor while healthy people who don't now need coverage will delay rather than deal with the administrative problems they will be hearing about. Why wait on hold for long periods of time or deal with an impossible web portal if you don't really need the insurance right now? It is already hard to get healthy people to buy health insurance without putting unnecessary road blocks in their way.

The biggest long-term threat the Affordable Care Act's insurance exchanges face is that far more sick people than healthy people sign up leading to even higher and higher prices in subsequent years and ultimately the risk of an underwriting "death spiral."

Getting off to a bad start is not an option. Just how many people sign up in the first year, and how healthy or sick they tend to be, will be critical. A poor outcome in 2014 will require insurance companies to raise the rates even higher the next year. That in turn will likely hurt the ability of the pool to improve the following year as costs are even higher, and so on until the "Obamacare" insurance pool looks like the current bad underwriting outcome in states like New York or New Jersey that suffered a similar long-term "death spiral" deterioration in their state-run health insurance pools.

Hitting the October 1 launch date for "Obamacare" should be a minor consideration compared to making sure nothing happens to discourage as many people as possible from signing up––particularly healthy people who don't have an urgent need for health insurance.

It is good to see that the leadership in Oregon understands that where they are in five years is a lot more important than where they are on October 1, and had the courage to announce the best decision.
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