November 23rd, 2015

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Does possible withdrawal of big insurers from Obamacare spell doom? History of USF suggests not.

News that United Health, the largest health insurer in the country, may pull out of the Affordable Care Act health insurance exchanges has started the usual stampede of predictions that Obamacare is dying (this time for sure!). While I am not an expert in health insurance, telecom provides me with a little experience about government subsidy programs and how even something that looks like a big deal to us normal folks may not be tempting to the biggest providers.

In my case, it's the Universal Service Fund, which collects about $8 billion a year, but is increasingly uninteresting to major carriers like AT&T and Verizon. This has not, however, caused any appreciable collapse of the fund. I elaborate why big boys pulling out is not a particularly good indicator of the underlying economics of a government subsidy program below.

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So yeah, as Paul Krugman noted, we have come to the end of unmitigated good news on Obamacare and now we get the usual issues associated with a complex program. But those looking for signs of a "death spiral" are, I believe, still looking in vain.