Tuesday, July 3, 2012

How Obamacare Encourages People to Drop Their Coverage

The Wall Street Journal reported yesterday that Connecticut is seeking to scale back the Medicaid expansion it embarked upon immediately after the passage of Obamacare.  Just as interesting are the reasons why the Nutmeg State wants to scale back its program:

Connecticut officials believe some parents of college-aid children are taking advantage of the state’s Medicaid health-insurance program for low-income adults, seeking government subsidies for their children’s health care so they don’t have to pay for private insurance….The agency wants to count parental income and assets for applicants under 26 years old who live with their parents or are claimed as a dependent on their parents’ tax returns.  “If your son’s or daughter’s college provides a basic medical coverage for $1,200 or $1,300, our taking on that expense is not what this program was designed for,” Democratic Gov. Dannel P. Malloy said last week.  “And certainly, it was not designed for people who have substantial assets.  So we’re just trying to get it right.”

As of December, expenditures for LIA Medicaid applicants 18-21 years old had grown to 4.3 percent of the total expenditures, according to the state’s draft application.  The caseload for that age group increased from 0.1 percent of the total caseload in June 2010 to 8.2 percent, or 6,114 cases, as of December 2011.  It is “expected to continue to climb as more parents with college-age children become aware of the availability of…coverage,” according to the state’s application.

In other words, if the government gives health insurance away for free, people will find ways to game the system to qualify.  No wonder the state’s Medicaid director called the Medicaid expansion a “self-inflicted wound” recently.  That’s because the expansion turned out to be a solution in search of a problem – the expansion led affluent families to game the system and have their college-age children obtain “free” health insurance, contributing to a 70 percent increase in enrollment in just over a year.

We previously wrote about how Obamacare’s under-26 mandate was leading millions of individuals to drop their existing health coverage to obtain “free” insurance under their parents’ health plans.  The news from Connecticut provides further evidence of this “crowd-out” phenomenon, whereby government insurance crowds out private health coverage.  But the bigger question is this:  If parents are gaming the system to obtain “free” health coverage for their students, why won’t private businesses do the same by “dumping” their workers on to Exchanges?  That would lead to trillions in new spending, undermining any notion that Obamacare  will reduce the deficit.

The preliminary evidence from the student population indicates that families are functioning as rational actors, and dumping their private coverage when the government offers them a better deal of “free” health insurance.  If businesses follow suit, Obamacare could see a “Big Dump” of employers in 2014 – and the federal fisc may never be the same again.