Health care discombobulation: More to come

By Clive Crook • Bloomberg

Last weekend, thinking enough time had passed for the kinks to be ironed out, I installed the latest versions of Apple Inc.'s operating systems on my laptop and iPhone. Trying to sync the phone after this was accomplished, I became trapped in what I'll call an upgrade death spiral. With each failed attempt, vast chunks of my music vanished.

I had to stifle the urge to hurl both devices into the river that runs by my house. I'd have happily tossed Apple CEO Tim Cook in, too.

I gather that I was by no means alone in this. Yet a few days of hassle later — wipe this, reset that — the devices seem to be communicating amicably again. I've decided I really like both upgrades.

Perhaps you've heard the rollout of the government's health-insurance website hasn't gone so well, either. That's so shocking. The world's most admired maker of computers can't create new information technology without driving its customers crazy now and then, but one expects so much more from the federal government.

In due course, the bugs will be fixed and the site will work. There's still time to get it right, and, provided the shambles doesn't drag on too long, it's unlikely to do much harm to the economics of the reform.

What about the notorious health-insurance death spiral? The site isn't going to make much difference. Adverse selection, to use the correct term, is a problem with any kind of insurance. In this case, sick people want health insurance more than healthy people do, which tends to make the pool of customers riskier; that drives up costs, which makes healthy people even less willing to buy.

For now, the damage is mostly political: The administration has again overpromised and underdelivered. Tolerance for the next phase of setbacks will be that much less.

That next phase of setbacks will come, even if the mandate and its timid penalties succeed in curbing adverse selection in the longer term (which isn't certain). Even now, the most embarrassing broken promise — if you're happy with your insurance, you can keep it — has nothing to do with the website. More of this is on the way, and while the site's problems aren't directly implicated, they do hint at these larger difficulties.

I'd focus on two. One is the subsidy mechanism; the other is the Medicaid gap.

Those eligible for subsidies to make insurance more affordable need to provide an estimate of their future income so their subsidy can be calculated. One of the problems with the site, it seems, has been the difficulty of integrating the insurance marketplace with the subsidy calculation so that buyers can see net-of-subsidy prices. But that blending of prices and estimated future income — modified adjusted gross income, to be precise — poses problems that go far beyond the site. Health insurance is complicated to start with. Now marry it to fluctuating incomes and a tax system of ludicrous complexity. It's an administrative nightmare, with or without a working website.

The Medicaid gap, on the other hand, undermines the reform's very purpose. To achieve near-universal insurance coverage, the health care law envisaged a big expansion of the program for the poor. Even though the federal government promised to meet almost all of the cost, 25 states at last count have declined to widen eligibility. As a result, about 5 million Americans will fail to benefit: They're too poor to qualify for the federal subsidy, and in many states, they're not poor enough to qualify for Medicaid.

Both these issues — the burdensome complexity of a subsidy-based plan glued to the existing insurance model and the failure to achieve genuinely universal coverage — were emphasized by critics from the left and the right when the law was being debated. If the costs and complications mount and the goal of universal coverage slips further away, the politics of health care reform are unlikely to settle down, whatever happens to the website.