Amazon, ObamaCare … and the “power of free”

Since “repeal & replace” is in play, it’s time to update a prior ObamaCare posts …


Everybody knows that Amazon’s free shipping program has been a resounding success.

The free shipping program’s success was highly predictable based an an apparently inadvertent “matched market test” that Amazon did.


Early-on, Amazon launched  free shipping on $25 orders in the U.S. and sales skyrocketed.

In the UK, Amazon launched “nominal shipping” (think, 99 cents) for orders totaling the equivalent of $25.

Sales increased … but only by a fraction of the U.S. sales gain.

Proof-positive of the “power of free” … and evidence an equally important dynamic: there’s a big difference between “free” and “almost free” … when you slip a price on something – even a small one, people recoil.

Now, what’s the link to ObamaCare?


Of the roughly 20 million people that ObamaCare newly insured, the majority (about 12 million) are “near poor” folks signing up for Medicaid.

Technically speaking, the Medicaid sign-ups are linked to ObamaCare since the ACA raised the income-qualification for Medicaid,dramatically increasing the number of people of people qualifying.

Specifically, ObamaCare expanded eligibility to nonelderly adults with incomes up to 138 percent of the federal poverty level ($16,243 for an individual and $33,465 for a family of four in 2016).

States had the option of extending Medicaid to the “near poor”.

The carrot: The Feds offered to reimburse participating states for the added enrollees … 100% for the first couple of years, 90% after that.

31 states and the District of Columbia took the bait … and Medicaid rolls swelled … much more than originally projected when ObamaCare was proposed.


Why the huge numbers?

Simple, Watson.

It’s the power of free.

For qualified low-income applicants – the poor and the near-poor – Medicaid is a free-to-them program.

There’s no reason not to sign up … it’s an economically rational decision.

Unfortunately, the ObamaCare architects didn’t take into account the power of free and budget accordingly.

Enrollments were grossly understated … as were the costs per enrollee.

The 2015 Medicaid actuarial report, government spending on newly eligible enrollees equaled about $6,366 in 2015—an amount 49% higher than its original projection of $4,281.

As a result, spending on the Medicaid expansion is much higher than originally pitched … and is literally trending off-the-charts.



Free vs. “almost free”

To close the loop …

Enrollments on the ObamaCare exchanges have lagged projections (by far).

The blotched roll-out explained the slow initial take-up.

But, why haven’t the exchanges gained traction.


Increasing premiums and …

On the exchanges, many policies are subsidized but few are free — since folks qualifying for free could just enroll in Medicaid.

Subsidized = “almost free”


Wonder if there’s a difference between free and almost free?

Ask Amazon, and don’t be surprised by the results.

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