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'Obamacare's Looming Train Wreck'

2:11 PM, Jun 28, 2013 • By DANIEL HALPER
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Philip Klein, writing for the Washington Examiner:

After four years of contentious debate, court challenges and failed repeal efforts, President Obama's health care law is set to go into effect in the coming months. The law, which will make sweeping changes to a sector that accounts for one-sixth of the nation's economy, promises to be a dominant issue in the 2014 Congressional elections. Even before then, the incredibly complex law faces tremendous hurdles. One of the law's key authors, Senate Finance Committee Chairman Max Baucus, recently warned that its implementation could be a "train wreck." What follows is an overview of five reasons why the law could fail.

1. Young people don't sign up for insurance: One of the central aims of Obamacare is to make sure that older and sicker Americans (particularly those with pre-existing conditions who are currently denied coverage) can obtain health insurance at an affordable price. Achieving this goal will require attracting younger and healthier individuals into the insurance market, giving insurers a cushion so they can offset the higher cost of covering sicker individuals.

The problem is that because the law limits how much premiums can vary by age or health status, younger Americans will end up paying much higher rates than they would today. And that's for young Americans who are currently insured. Maintaining the existing pool of young Americans will not be sufficient for Obamacare to function -- insurers will need to pull in millions of young Americans who have decided to go uninsured under the current system. And young Americans who go uninsured effectively pay $0 a month in premiums. So, if they aren't purchasing insurance under the current system, why would they choose to purchase insurance once Obamacare kicks in, when it promises to drive rates even higher? California, which has been touted by Obamacare supporters as a model adopter of the law, recently announced that the cheapest plan for a 26-year-old will be nearly $2,000 per year. Supporters of the law tout the subsidies that will help individuals purchase insurance, but a 26-year-old would not receive subsidies to purchase insurance if he or she earns $32,000 or more.

The administration hopes that the law's requirement that individuals purchase health insurance or pay a penalty will compel young and healthy Americans to purchase insurance. But in the first year, the penalty will be just $95 (or a percentage of taxable income). If an insufficient number of young and healthy Americans sign up, it would mean that insurers would have to raise rates, which would then prompt even more young and healthy people to drop coverage, triggering another round of premium hikes. This scenario, known in the health care industry as the "death spiral," could eviscerate the nation's health insurance market.

Whole thing here.

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