E-piphany

At this writing, Presidential Candidate Donald Trump is trailing Hillary Clinton in most assessments of the political map. While it is much closer than the 6-point spread in the national polling indicates (if all of the “toss-up” states on Real Clear Politics flip to Trump, rather than to Clinton as they now lean, then Trump scores a fairly easy victory), the winner-take-all betting markets put Clinton’s chance of victory near 90%. To be fair, though, let’s remember that the betting markets had the Brexit vote failing with similar certainty, even though the polls were similarly close.[1]

The October surprises, which by now are no surprise, have had essentially no effect. The jaded and cynical US public yawned at tales of Trump’s peccadilloes and the shocking, shocking tale that Clinton may have padded her pockets by selling influence while in office. And so…it’s over?

Well, not so fast. While the public now dismisses as normal behavior the sorts of things that we would fire an employee for (or divorce a spouse for) if they happened to people around us, and seems content to elect a flawed candidate regardless of the outcome on November 8^th, there is something that they do care about, and deeply: their own money.

It is incredible to me, since I am just as cynical as the rest of the electorate, that when the Affordable Care Act was passed the open enrollment date was systematically placed just a few days before Election Day. That was either great confidence (“this is going to be great! They’ll love us and vote for us!”), great hubris (“it doesn’t matter whether this works, the sheeple will vote for us anyway”) or great carelessness (“oh, rats, didn’t think of that”). Because we now know that over the next several days, millions and millions of Americans will receive letters explaining to them that their existing plan will be outrageously more expensive in 2017 – in some cases, premiums will double – or may not be available at all.

I suspect that a taxpayer in North Carolina, who sees his premium jump 40%, is going to suddenly take notice of the Presidential election and wonder which candidate is more likely to solve that problem. Now, before you write your hate mail to me, let me note and acknowledge a few facts:

1. I am not voting for either of the two major party candidates. I’m no Trump stooge. I think they’re both awful candidates. This article is just a commentary on what I think will happen, not cheerleading for an outcome I want to happen.
2. Some voters will not see any change in their premiums because their subsidies will rise an equivalent amount to the premium. But,
   1. Most people who are squarely in the middle class will not get these subsidies. On the calculator at https://www.healthcare.gov, I can see that a family of four in New Jersey, earning $45,000, should not expect to be eligible for a premium tax credit or other savings. According to the Pew Research Center, a family of four with a $45,000 pre-tax income is in the lowest 25% of New Jersey residents arranged by income.
   2. Furthermore, someone who continues to get a subsidy is not likely to be as motivated to go out and vote for a continuation of the status quo as a person who is seeing a 40% rise is motivated to go out and vote for change. So, this is likely to cause a major change in the degree of motivation for one party compared with the other.
3. Many voters will, instead, get a letter that their existing plan will no longer be offered, and this too will cause angst and anger.
4. Voters who are covered by an employer plan are not immune just because the “employer pays.” When an employer’s cost for employee insurance rises 40%, that employer will either lay off workers, make them cover more of their own premium costs, or hold down other costs…such as salary increases.

Simply put, unless you are living under a rock you are aware of these dramatic changes in insurance costs and coverage. If you’re one of the few lucky ones to be subsidized (and even more if you’re lucky to have a cheap plan that you wouldn’t have had to get at all before the ACA passed), then you’re probably going to like the current regime. You may even be grateful, and go out to vote your thanks. But this is a small (and expensive!) minority of the electorate. The vast majority is going to see painful and drastic changes in the health care landscape. And they’re going to see it right about now. Again, what is really amazing to me is that the program designers made November 1^st the notification deadline for re-enrollment letters.

Aside from the effect on the election, which I think might be dramatic, we need to also think about the effect on the economy. The good news is that while medical care inflation is likely to keep rising, the large jump this year is possibly a one-off effect because the ACA is removing subsidies of insurance companies that previously caused insurance to look cheaper than it really was. But that won’t help this year’s politicians.

The large rise in premiums, incidentally, is also going to have a depressing effect on economic growth next year because it hits the middle of the income distribution the hardest. If Bill Gates sees his insurance costs go up 40%, it’s no big deal. But if Fred the plumber from Poughkeepsie sees his insurance costs go up 40%, he’s going to be buying less of something else that is discretionary. Cars, clothes, meals out perhaps?

The election is mere days away. If Trump wins, despite his every effort to make himself unelectable, he will have one person to thank most profusely: President Obama.

[1] Remember that the betting markets work like options – as time to maturity goes to zero, gamma at the strike price goes to infinity. That is, with no time left the value of the Clinton option – which, since it’s a binary option, is the same as its delta – goes from 100% if she wins by 1 vote in a state that puts her 1 electoral vote over Trump, to 0% if she loses by 1 vote in that same state. Six months ago, one vote would have no effect on option price; but if we are around the strike as we are now even small changes can have large effects on price.