The viability of the Affordable Care Act—Obamacare—is premised on getting young, healthy people to pay way too much for their health care in order to subsidize coverage for older, sicker people. Unfortunately for the scheme, young, healthy people have turned out to be less gullible than anticipated. They're enrolling in underwhelming numbers after discovering that it's cheaper to pay a penalty than to get milked by the government. The likely result is financial woes for health insurers tasked with making Obamacare's impossible numbers work—which has led to a thumbs-down on the industry by Moody's.
According to a Moody's press release:
Uncertainty over the demographics of those enrolling in individual products through the exchanges is a key factor in Moody's outlook change, says the rating agency. Enrollment statistics show that only 24% of enrollees so far are aged 18-34, a critical group in ensuring that lower claim costs subsidize the higher claim costs of less healthy, older individuals. This is well short of the original 40% target based on the proportion of eligible people in this cohort, says Moody's.
The ratings agency also cited regulatory uncertainty and tax issues among the reasons it "changed the outlook for US health insurers to negative from stable." The overall effect is a vote of no confidence in the economic sustainability of the Affordable Care Act, and in the industry which once thought it hit the jackpot with a law that ordered Americans to buy its products, but now discovers (as so many have before) that government is an unreliable business partner.
Earlier this week, the conservative American Action Forum released a report which found "that after accounting for subsidies and cost-sharing, 6 out of 7 uninsured, young adult households will find it financially advantageous to forego health coverage, and instead pay the mandate penalty and cover their own health care costs. As the penalty increases, that number will drop from 86 percent in 2014 to 71 percent in 2015 and 62 percent in 2016, before ticking back up to 66 percent in 2019."
Economic incentives. So politically inconvenient.
*A reader points out that there's a difference between a negative outlook and a formal downgrade, which is what I originally implied. A credit downgrade is likely, but has not yet occurred.