Insurance Companies Are Making a $500 Million Bet on Obamacare

After waiting for Healthcare.gov to start working, health insurers are preparing a half-a-billion-dollar battle for new customers.
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Reuters

The glitches have been fixed, and the battle for Obamacare has begun.

Okay, not all the glitches have been fixed. There are still back-end problems keeping some people from actually getting the insurance they think they've gotten. But they've become less of a problem in the past few weeks. Enough that the question now isn't whether people can sign up, but whether young and healthy people will.

So far they haven't. As you can see in the chart below from the New York Times, 18 to 34 year olds have only made up about 20 percent of enrollees in states we have data for. That's half of what they need to be for the system to work. Otherwise, premiums could rise, which could make more healthy people forgo insurance—and premiums could rise again. The dreaded "death spiral." (Though the Kaiser Family Foundation doesn't think that's likely even if things stay as they are, since costs would only be 2.4 percent higher than premiums).

That's why insurance companies are preparing an ad blitz to reach out to so-called "young invincibles" who don't think they need coverage. As the Wall Street Journal reports, insurers are set to spend $500 million on local TV ads next year—more than double what they spent in 2012. WellPoint alone is going to drop $100 million on all advertising by the end of this year.

But this isn't just about convincing young people to buy insurance. It's about convincing young people to buy their insurance. Because those young people are probably going to buy it, just at the last minute. At least that's what happened when Massachusetts implemented Mitt Romney's version of Obamacare back in 2007. You can see that in the chart below from a New England Journal of Medicine paper by Amitabh Chandra, Jonathan Gruber, and Robin McKnight. The first dotted line shows when Massachusetts' mandate was phased in, and the second when it fully kicked in—which is when healthy people signed up en masse.

So insurance companies have between now and March to win over a big pool of new customers who could be quite profitable for quite some time. Hence, the ad wars. Or, put another way, insurance companies are making a half a billion dollar bet that Obamacare will work, disastrous rollout notwithstanding.

As Joe Biden would say, that's a big kind of deal.

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Presented by

Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

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