Monday, November 11, 2013

From the mailbag: Gaming the ObamaTax

We get mail!

Readers may recall Dr Stuart Fickler, a retired but not retiring physicist. During his career, Dr Fickler has been involved in research, education and high-tech business. He has received national recognition in the area of systems based Total Quality Management, and has led successful efforts in improving manufacturing and educational systems.

Today, he writes:

Although I am very familiar with complex systems in general, I am not familiar with the practical application to the insurance industry.  Therefore, I am requesting your expert opinion on the following.

It is well known that the more complex a system is, the more vulnerable it becomes to "gaming." By gaming, I mean the process of manipulating the system in a manner that would be detrimental to the users of the system.  This manipulation can be external or internal. A familiar simple example of external manipulation is identity theft. An example of internal manipulation could be a system that is designed to achieve outcomes other than those stated to the user. An illustration of this might be a financial system that manipulates its fees and costs in a way that reduces earnings to investors.

It appears to me that a system as complex as Obamacare is vulnerable to a vast range of gaming.  To be clear, I am not referring to just the computer aspects of the system, but the entire system, from applying to delivery of the care itself. 

A simple example of this might be the following. Someone whose income meets the income requirements for Medicaid (about $15,000/year single, about $31,000/year family of four) and who is in reasonably good health might opt for the free care offered by that program. If, at a later time, that person is told by a physician that he/she might require a major medical procedure, that person can game the system. That is, if they don't want to take the risk of "second class medical treatment", they can switch over to the "marketplace" insurance. The result would be a considerable cost savings to the "gamer". On the other hand, this would add to the risk of the insurance pool, and additional cost to those who purchased the insurance in good faith.

Is this a feasible scenario in the present context of Obamacare? Also, can you and your colleagues think of other "games"? It might be useful to forewarn those who depend on your trust.


Stuart Fickler, Ph.D.

Thanks, Dr Fickler, for a great question, and an interesting challenge. The major issue that jumps out at me is this:

"If, at a later time, that person is told by a physician that he/she might require a major medical procedure, that person can game the system ... they can switch over to the "marketplace" insurance."

I'm not convinced it'd be that easy: what if the diagnosis came, and treatment was scheduled to begin, between regularly scheduled Open Enrollment periods?

It's true that "[l]oss of minimum essential coverage" would trigger a Special Enrollment Period. But note how this is worded: "e.g., loss of Medicaid eligibility" [emphasis added]. It's not clear to me that unilaterally and voluntarily "quitting" Medicaid would be treated as "losing eligibility." I think that, at best, it would be treated as an "[o]ther exceptional circumstance" and require a review. Does someone with (say) Stage 4 cancer really want to voluntarily leave their fate in the hands of bureaucrats whose rules will likely look a lot like the IPAB Death Panels?

On the other hand, I'm sure there are other ways for "bad actors" to take advantage of this complex, unwieldy system. I'll echo Dr Fickler's call for other possible examples. Have at it!
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