‘Rate Shock’ Isn’t an Unintended Consequence But a Key Element of Obamacare

by Oct 26, 2013Health & Vaccines, Video2 comments

Paul Krugman pathetically tries to defend Obamacare.... Now, the first thing to notice is that Krugman doesn't actually say that many people won't face higher premiums as a result of Obamacare -- that is, that they won't have "rate shock". He implies it, but he doesn't say it. Why not? Well, that's simple. He doesn't say that because he knows its false. He understands perfectly well that the so-called "Affordable Care Act" is designed to force young, healthy individuals to subsidize the costs for the sick.

Paul Krugman pathetically tries to defend Obamacare by writing:

Remember “rate shock”? A few months ago it was all the rage in right-wing circles, with supposed experts claiming that Americans were about to face huge premium increases.

It quickly became clear, however, that what these alleged experts were doing was comparing apples and oranges — and as Ezra Klein of The Washington Post pointed out, oranges that, in many cases, you can’t even buy. Specifically, they were comparing the premiums young, healthy men were paying before reform with the premiums everyone — including those who previously couldn’t get insurance because of pre-existing conditions — will pay under the new system. Oh, and they also weren’t taking into account the subsidies many Americans will receive, reducing their costs.

Now, the first thing to notice is that Krugman doesn’t actually say that many people won’t face higher premiums as a result of Obamacare — that is, that they won’t have “rate shock”. He implies it, but he doesn’t say it. Why not? Well, that’s simple. He doesn’t say that because he knows its false. He understands perfectly well that the so-called “Affordable Care Act” is designed to force young, healthy individuals to subsidize the costs for the sick. In fact, he’s previously acknowledged this by responding to criticism of the law on this bases by saying, “Well, duh.” (I discuss this purpose of the mandate in my paper explaining why Obamacare is unconstitutional).

The second thing to notice is what he is calling an “apples and oranges” comparison. If you read that carefully, you will notice that what he is calling “apples and oranges” is any comparison of what young, healthy men were paying before Obamacare with what they will be paying after its in effect. Why is that “apples and oranges”? Just because you’re not supposed to believe in any “rate shock”. No other reason.

The third thing to point out here is that if you click through to Ezra Klein’s article, you’ll see that he’s referring to an article by Avik Roy in Forbes in which he does just that. He compares premiums for young, healthy individuals both before and after Obamacare. And guess what he found? Young, healthy individuals will indeed be facing “rate shock”. No surprise there. Again, as Krugman himself has acknowledged, “Under Obamacare, someone blessed with good health might find his (or, more rarely, her) premiums going up”. Specifically, he found that “for the typical 25-year-old non-smoking Californian, Obamacare will drive premiums up by between 100 and 123 percent”. Furthermore, for those with incomes high enough to disqualify them from receiving a subsidy to pay for a health insurance plan “face a double-whammy: higher taxes to pay for those subsidies, and higher indvidual-market insurance costs for yourself.”

But here’s where it gets really funny. While Krugman points to Ezra Klein’s article to back his implied argument that people don’t need to worry about “rate shock”, Ezra Klein sat down with Avik Roy and repeatedly admitted in their discussion that many young, healthy individuals will indeed face higher premiums as a result of Obamacare. Watch it for yourself, above, and see. Near the beginning of the discussion Klein acknowledges,

If you look at what they’re paying, and you assume they don’t get subsidies, they might end up paying more or in many cases, frankly, let’s say they will end up paying more, and for two reasons…. One reason they’ll end up paying more is because we’re bringing in older and sicker people into the market, and essentially the cost of your premium is the average expected cost of the people in the market plus whatever insurers are charging for administration and profit.

In other words, Klein admits that young, healthy individuals will subsidize the costs for the sick under Obamacare. The other reason Klein points out for why their premiums will rise is because they won’t be able to keep their old, cheaper plan, but must get a new plan that comes with more “benefits” they don’t really need because Obamacare mandates it. He summarizes:

So there are two things, basically, Affordable Care Act is doing for the young that will raise cost for them. One, is bringing in older, sicker folks to the market, and the other, is mandating a more generous benefits package than you find at the very low of the individual market.

He asks Roy:

And the question of rate shock for these young people is how does all of that sort of stew up and interact? How does the fact that they maybe paying more for their insurance interact with the fact they’re generally fairly poor, so they get a lot of subsidies, interact with the individual mandate, and how does that end up making the entire exchange work because you need these young and healthy people in there if the exchanges are going to have a reasonable risk pool and low enough premiums?

In other words, Klein is asking how it works that young, healthy individuals who generally have lower incomes will be subsidizing older, sicker individuals who generally have higher incomes, while at the same time the latter group will be paying more taxes in order to subsidize the costs for insurance for the former.

Truly, the people who came up with this system have a dizzying intellect. (Contest! Name that film allusion in the comments and I’ll email you a free PDF copy of my book Ron Paul vs. Paul Krugman!)

A bit later on, when Roy points out how that “having the young subsidize the old” is the purpose of the individual mandate under Obamacare, Klein goes, “Mhmm” in agreement (not in transcript, but you can listen to him in the video). Then Klein himself again explicitly acknowledges that “we are going to see some people paying more in order to have older, sicker folks be able to come in and pay sort of more reasonable premiums”. Far from disputing this fact, Klein admits it and then says,

I actually think that’s fine, right? So when I hear that, I think this is actually what we want to do.

That’s what we want to do…. We want to have healthy people pay the costs for the sick to get health care. That’s what we want to do. Truly, dizzying intellect. (Name it!)

Roy sensibly argues that, no, we emphatically do not want this:

I have a problem with age-based community rating: the young subsidizing the old. To me, that makes no sense.

You take people who are just entering the workforce, who have no savings, who are taking entry-level jobs, who don’t have a lot of money, and you’re asking them to subsidize the people who’ve had their whole lives to save for their health insurance, who are at senior-level positions, who’ve had jobs for a long time. So that seems to me, from an equity standpoint, unfair.

Klein’s counterargument is to point out again “the young get more subsidies than the old because they are poor”. So everybody is just subsidizing each other:

I mean there’s a lot of insurances, the young subsidizing the old, the healthy subsidizing the sick, and the rich subsidizing the poor, and we do that because we assume that one day we will be old and one day we will be sick and one day we could, if we’re doing better now, could be poor. And that’s the idea of it.

Klein apparently thinks this is brilliant. This is what “we want to do”, in his mind. The young, healthy, low-income people can pay more for premiums to subsidize the costs for the older, sicker, higher-income people, who then in turn just give the money right back to help cover the costs for the higher premiums that are supposed to help them cover the costs of their own premiums.

Truly. Dizzying. Intellect.

Roy then points out further that according to a report by the American Academy of Actuaries magazine, even among those younger folks who qualify for some subsidization, and after taking that into account, they will still be paying more for premiums as a consequence of Obamacare.

Near the conclusion of their discussion, Klein further observes that “If young people all decide to pay the individual mandate [penalty tax], the exchanges will completely collapse in on themselves.” Why? Because, of course, the whole purpose of the mandate is to force young, healthy individuals to buy insurance and pay more in premiums in order to subsidize the costs to cover the sick.

So, long story short, while Krugman tries to dismiss concerns that many people will face “rate shock”, (a) he knows that this is in fact an integral part of Obamacare (“Well, duh”!), and (b) the very source he cites to bolster his attempt to dismiss “rate shock” likewise acknowledges the fact that, yes, many young, healthy individuals will be forced to pay higher premiums under the law.

Krugman doesn’t stop there, however. He has more sleight-of-hand to perform in his defense of Obamacare. He next argues:

Enter the same experts, more or less, who warned about rate shock, to declare that Medicaid actually hurts its recipients. Their evidence? Medicaid patients tend to be sicker than the uninsured, and slower to recover from surgery.

As far as I can tell, however, this is a strawman argument. Who among “the same experts” warning about rate shock have made this criticism of Medicaid? I pay attention to this subject, and I’ve never seen this criticism. I have seen Medicaid criticized, however, because its patients have a harder time finding doctors, since many are not willing to accept the fees that Medicaid would pay them. And once again, Krugman doesn’t deny this problem. As I’ve noted previously, he admits that sometimes “Medicaid patients have trouble finding doctors who’ll take them”, but simply tries to downplay it as “a greatly exaggerated issue”, that Medicaid only “slightly reducing choice and convenience”.

Then, near the end of his column, Krugman writes:

And the reliance on such arguments is itself deeply revealing, because it illustrates the right’s intellectual decline.

Krugman’s reliance on his own arguments is likewise deeply revealing, offering yet another illustration of the seeming endless examples of his intellectual dishonesty.

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About Jeremy R. Hammond

About Jeremy R. Hammond

I am an independent journalist, political analyst, publisher and editor of Foreign Policy Journal, book author, and writing coach.

My writings empower readers with the knowledge they need to see through state propaganda intended to manufacture their consent for criminal government policies.

By recognizing when we are being lied to and why, we can fight effectively for liberty, peace, and justice, in order to create a better world for ourselves, our children, and future generations of humanity.

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  1. Getapoint

    While “contest” was not hard – quote is from “The Princess Bride” by “Westley”, the article is very hard to read… cringe inducing, this whole disaster was so transparent from the day one. Voters fell for it, elected representatives sold us down the river, Chief Justice flipped and now “the experts” are defending it with unbelievable duplicity and straight faces…. reminds me of a friend who said: “But, lying with a straight face is my core competence….” http://www.youtube.com/watch?v=D1n5CQe1krI

    • Jeremy R. Hammond

      Thanks for playing. An easy one, I know! Your PDF is in the mail. Email, that is.


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