HH: I am starting with the story that will dominate your life, and the life of most Americans, for the next many months, the fail of Obamacare, or what looks like the fail. And joining me is one of the people who you ought to have on your Google news alerts. Megan McArdle has been writing about Obamacare with a relentless specificity that you will appreciate if you start subscribing to her Bloomberg View column feed. Megan, welcome to the program. It’s great to have you on.
MM: Thank you for having me.
HH: I want to begin with the number one question in my mind. And it assumes that people know what’s going on and a few different things. But if you’re one of those 300,000 people who got a note from Florida Blue yesterday or the day before that they’re dropping your coverage, and the Florida exchange isn’t working, what exactly are you supposed to do on January 1?
MM: Well, you can still buy insurance in the private market not through an exchange. There’s a good chance that it’s going to cost more for the same level of coverage, because they’ve added a bunch of new coverage mandates, and because of course they can no longer age rate or sickness rate policies. So everyone has to pay the same as other people their age. But you can go into the private market. You won’t, however, be eligible for any potential subsidies. It will be a lot harder, obviously, to shop. You know, the whole idea of the exchanges was that you’d be able to see all of these policies at once and choose exactly the one that you wanted. You’re not going to be able to do that. You are going to have to go from insurer to insurer, or insurance broker to insurance broker and try to collect that information.
HH: And you’d also be a victim of a marketplace that understands you’re at an information disadvantage and panicked. And I’m wondering if you see, and I’m not an advocate of this, I’m just trying to predict what I think will happen with Joe Manchin and Jeanne Shaheen in New Hampshire and other Democrats calling for a delay, do you possibly see a hold in place law coming, meaning that every insurer in the United States is obliged to reinsure for not more than 5 or 10%, those that they previously insured? Having smashed all the glass, do you think the Obama administration will try and find a way to put it back together again for at least an interim period?
MM: It is very much not clear what they are planning to do if they can’t get these exchanges up and working in a few weeks. I think the few signs we have are that they are going to try to push forward as much as they can. More likely, I think, is something like delaying the individual mandate, delaying, extending the open enrollment period, but basically keeping the architecture in place. As I’ve written, I think that that’s a mistake. I think that that is putting the whole market at risk of having what they call the insurance death spiral, where only sick and older people sign up, and then because the pool is quite expensive, the next year when insurers go back to review and they look at what claims they paid out last year per customer, they ask for a lot higher premiums. So I don’t think that that’s the right thing to do, but I think that that is the direction the administration seems to be moving, in part because it would be such a huge political blow, and potentially a fatal blow to Obamacare if they talked about a full one year delay.
HH: I’m talking with Megan McArdle of Bloomberg, who’s been covering the Obamacare story extensively. Megan, back in the late 80s when I was a very young man in way over my head, I got appointed the deputy director and general counsel of OPM. And my first day was spent learning what adverse selection meant for the Federal Employees Health Benefits program with which the administration with which I was charged. And I couldn’t believe that adverse selection was permitted, that you could just simply go to the plan that best sorted you ever single year. But it just cost a lot of money, but only for the federal workforce. That’s what the insurance death spiral is, isn’t it? It’s just adverse selection writ large across the country.
MM: Exactly. The idea of adverse selection is that if you are healthy and you’re not having a lot of bad, what they call bad health care experience, in the industry terminology, then you look at the price and you say to yourself, wow, there’s like a .1% chance that I’m going to have an expensive illness. This policy costs me $400 dollars a month. It’s just not worth it, or I can’t afford it. On the other hand, if you are, have chronic diabetes or some other a very expensive condition, cancer, heart condition, then you are willing to pay almost any sum of money to get insured. And then what happens over time is that more and more of the healthy people drop out. And so the average cost of insuring people just keeps rising. We saw that in New York State where basically it went from 5% of the state being covered in the individual market, and fell dramatically to the point where almost no one was buying insurance there.
HH: This is very basic human behavior, and the best example I give to people, if you are a normal, healthy family, but then you have born into your family a child with extraordinary medical conditions, you will seek out that plan which most covers and takes care of your child. And that happens all the time. And you’ll stay at that health exchange all night long if your children’s health depends on it, right, Megan? That’s what these people will, what did you say, they’ll climb Mount Rushmore with their teeth if they have to, to get…that was a very beautiful line, but it communicates the desperation with which people confront insolvency.
MM: Exactly. So for example, the woman who introduced President Obama at his Rose Garden speech, she had, she was the first person who got insured in Delaware, and she was very excited, because she was getting a policy for $150 dollars a month, whereas before, she had been paying a lot more than that, a multiple of that. She sat on the exchange for seven hours trying to get through. And that tells you, you know, she has health problems, she is, I believe, in her 50s, maybe her 60s, and so she was willing to put in the effort. But you know, while of course that is the goal that the administration had when they set out to cover people was to cover people who are having trouble getting insurance, the problem with that is that in order to make that affordable for both the people or the government, then you also need people who are young and healthy to come along. And all of these problems with the exchanges really put at risk the possibility that we’re going to get young, healthy people into the system. And many of the fixes that they’re talking about, like delaying the individual mandate or extending open enrollment actually just make that problem even worse.
HH: Yeah, these are downstream problems that are cascading forward and accelerating as they arrive on top of each other. And I want to turn to how the media’s covering it, Megan McArdle. If you went up to the average reporter/journalist who is covering Obamacare for news and, whether print or television, do you think they understand adverse selection?
MM: You know, I think that they do. I’ve actually been heartened by a lot of the coverage. Not all of it, by any means. I have been disappointed to see people just saying well, why don’t we delay the individual mandate, because I do think that that’s a really risky strategy. But you know what? I’ve also seen a number of reporters, a lot of the law’s supporters have actually been very forthright in saying this is not working and it needs to get fixed. And you know, a number of people do seem to be asking isn’t this going to spoil the pool? Isn’t this…it’s not 100%, but on the other hand, having reported on financial stuff for a long time, I’m always happy when 40% of…
HH: Well that’s, you might get a 40%…Ezra Klein wrote a column, and Joan Walsh attacked him, and so there’s a little bit of willingness on the center-left and the far left journalists to mix it up a bit. But I’m still amazed at how little people are covering the second part of the story, the second order, in fact. Let me ask you about one of those. How secure do you think is the data that hundreds of thousands of people are loading into these deeply-flawed websites?
MM: I don’t even think we know, yet. I mean, one of the issues is that the problems with logging in have been masking other potentially much more serious problems like problems with transmitting data to insurers. And the insurers are saying look, we’re only getting 10 or 15 applications a day, and nonetheless, 50% are corrupted and useless, and we have to manually follow up with those people. We’re not actually going to know whether the data’s secure for a while. And unfortunately, the way that we will probably find out, if we do find out, is that someone will hack it, and there will be a lot of people’s Social Security numbers and personal information out there.
HH: A week ago, I went to a conference with the deputy senior prosecutor for cybercrime in L.A., and the similar person in Orange County, California. These international rings are extraordinarily sophisticated. They steal and they store. They’re patient predators. I don’t see media focusing much on this, but I do think the young, healthy, and especially those who are platform kids, who’ve always grown up with mobile platforms, are going to be very leery of inputting data into these things, further accelerating the adverse selection dynamic.
MM: Well, I think if the website doesn’t work, you are not going to get young, healthy people looking for, looking hard for alternatives, particularly if you delay the mandate or extend open enrollment. But even if you don’t, I mean, I was 25, you were 25, I presume, and I know that when I was that age, would I really have put in seven hours, or you know, many people have been trying for more than that and not gotten through in order to buy insurance that was going to cost me $150 dollars a month?
HH: I can’t really answer that, since we didn’t even have modems when I was 25. I’m 57 now.
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HH: And you can follow her at really one of the more unwieldy Twitter handles ever, @asymmetricinfo. Is that right?
MM: That is correct.
HH: Are you ever going to change to something that people like might remember easily?
MM: Yeah, people have, you are not the first person to tell me that. It’s an economics in-joke, and back when I started, there weren’t that many people on Twitter, and it seemed kind of funny.
HH: It’s gotten bigger.
MM: A little bit.
HH: Just a little bit. Okay, Megan, did we play her dance band, too, when we came back? We were reading your column about your favorite band as well, and we played that, but I was reading Skakel, so I got off topic. Question for you, we’ve got the contractors coming up tomorrow to the Hill. Yesterday, I interviewed Joe Pitts and Fred Upton, and Joe Pitts is going to be reading testimony back to them about promises they made. Do you expect any of these contractors to be taking the 5th tomorrow?
MM: I think it’s not out of the realm of possibility. As one person that I talked to said, basically at this point, everyone is just sitting around in meetings shouting, ‘not it.’
MM: And I think that that’s what you’re going to hear more of, in part because it’s actually, it’s not even just a Congressional issue. They can have part of their contracts clawed back if they admit that they didn’t do a good job. And so it’s going to be really tough for them.
HH: Oh, that’s a tough line to walk. They have to be bold in the defense of their work product, but be careful not to go to jail for lying.
HH: The Spanish Obamacare website didn’t even open. And when Marco Rubio told me that on the show yesterday, I was stunned. Do you know anything about that decision? Was it intentional in order to keep the load down of, again, these are adverse selection-driven pools where they are highly likely to be uncovered, or more likely to be uncovered than the non-Spanish speaking language pool. Do you think it’s purposely held back?
MM: Well, it was actually a big surprise, because they’re expecting to get a large number of Hispanic people in. At one point, I was hearing estimates that as many as half of the people who would be covered in a lot of states were going to be Spanish speaking. But I don’t think that it’s deliberate in the sense that they’re trying to prevent adverse selection, because in fact, Hispanics are a disproportionately young group, and they tend to have physical jobs, which means that they’re actually, they’re at a bit more risk of, you know, breaking a foot or something, but they’re actually pretty healthy and not likely to get really big, expensive problems like, say, cancer.
HH: Off air conversation with you in an extended period of time. That probably isn’t true about the younger demographic who are actually citizens of the United States born here to parents who are not, and have some fairly high incidences of things like juvenile, adult onset of, onset of adult diabetes in juveniles and other unusual circumstances for the recently arrived population. I mean, there’s some reasons why they’re going to be expensive. But I wanted to dig into, they did a big rollout plan. They had a big, huge Spanish media buy. And then they don’t have the product? Is there any parallel to that in the private marketplace?
MM: Well, I mean, there certainly have been issues of private companies that have made big promises and then failed, but I can’t think of anything parallel where you have a huge ad buy for a product that people can’t even log into, that in fact at this point, doesn’t even exist.
HH: Yeah, can you imagine the Shave Club, which just pours billions of dollars into advertising, not having any razors to sell when people go to their website? It’s…how about the tech surge? Have you investigated that as to whether it’s real or imagined? And if so, are the people flying in from Silicon Valley vetted? And in my days at OPM, you weren’t allowed to work for free for the government, and you had to be cleared for access to governmental files.
MM: That is still the case. Are they talking to Obama’s many supporters in Silicon Valley? I have no doubt that they are, that they are reaching out to people who they know, who they may have other contracts with for other issues. But the tech surge is kind of an illusion. It’s one of those things that sounds like wow, we’re doing a lot. But the best example that I’ve heard given of this is trying to make a computer project go faster by adding people is kind of like thinking that you can produce a baby in one month if you use nine women.
MM: It just doesn’t work that way.
HH: It does not. Anyone who’s ever tried to design any kind of a website, and I’ve got a few of them…all right, here’s the old reliable one. What did the President know and when did he know it? There are reports emerging that in fact Kathleen Sebelius was more a captive than a captor in this, and that the White House ran this deal from top to bottom. Are you hearing that, Megan McArdle?
MM: I have certainly heard rumors that the White House was heavily involved, and there is reporting that indicates that yes, the White House was really front and center in running this, and that many of the worst politically-driven decisions, such as the decision to make sure, to basically force people to log in and get verified before they could even look at policies, that those came from the White House and not Kathleen Sebelius. I’ve been a big critic of hers, but frankly, I don’t that it would have been possible for anyone to build a website of the scope that this law demanded in the time that this law allowed. And so she may end up falling on her sword, but ultimately, I think the responsibility lies in a much broader group of people who architected a system that just couldn’t be built in this sort a time frame.
HH: Now I’m totally guessing here, only on the little bits of whispers that are out there in the media, that look at feel issues were what concerned the White House most, and that means Valerie Jarrett. And I’m hoping, I’m praying someone asks the contractors tomorrow did you have any interactions with Ms. Jarrett. What do you think, given that she’s sort of the look and feel guru of the White House, Megan McArdle?
MM: Well, she was meeting with insurers today, and I think that obviously, she has played a big role in this, because she is a trusted advisor to the President, and this is his signature policy. I do think that yes, there was not as much understanding that what actually mattered more than how it looked or felt, or how easy it was to use, was getting the nuts and bolts of the system right, was making sure that all of these databases got hooked together. And that’s actually, as anyone who’s done a tech implementation will tell you, that is one of the hardest things that you ever do.
HH: Yeah, yeah.
MM: …is getting multiple old databases to talk to each other.
HH: Last question, Speaker Boehner had advice for Republicans today not to focus on the website. That’s correct. But my advice is that they know what they want when the Democrats come to them to ask for an extension, and they are going to come to them and ask for the authority to do a bunch of things. What should the Republicans ask for at that moment?
MM: In my opinion, they should ask for a one year rollback of everything. It is dangerous to just try to pull this thing apart. It’s all so tightly linked that if you just pull one piece out, there’s a real risk that you could just damage the whole individual market for insurance for a really long time.
HH: But that, but Megan, if I can interrupt, but that means those 300,000 people in Florida, or all of the small businesses covered by California Blue Cross/Blue Shield that aren’t getting renewed, they don’t have insurance, and they have no way to get it. Don’t they have to intervene at the market, then, and order a put back?
MM: Yes, I agree. They do have to do something like a right of reissue law, where you say look, anyone who had insurance last year gets to renew it at some cost-plus, and possibly even with some money to defray insurers who might otherwise lose money doing that. It’s a real mess. You know, we have gotten to a point where this is incredibly hard to either move forward or move back. And I think there was some unfortunate decisions made. But Republicans, you’re absolutely right, they not only need to know what they want to give Democrats if Democrats come and ask for an extension. They also need to have a broader idea about what kind of health market they want to move towards, because if this thing fails, as Republicans have been predicting, and you know, I was not a big supporter of this law, either, they need to be able to say okay, well, here’s our one alternate vision, this is basically where we want to go, and this is how we get there. And if they’re going to do a delay, that should be the first step towards articulating a market-oriented conservative version of what do we do about health care reform.
HH: Megan McArdle, come back early and often, great stuff. I appreciate you joining me from Bloomberg.
End of interview.