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Those railing about the failure of Obamacare are confused about the cause of health insurance premium increases.

The insurance premium increases in the news are for individual policies for sale under the Obamacare insurance "exchanges," the marketplaces for such policies. However, the vast majority of the 91 percent of Americans now covered by health insurance do not buy individual policies on these exchanges. More than half get insurance from their employers, and a good chunk of the rest get it from government programs such as Medicare, Medicaid and the military. Just 16 percent of Americans directly purchase health insurance, according to the U.S. Census Bureau, and of these, about half do not shop on the exchanges set up under the Affordable Care Act.

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Those who do shop on the exchanges are facing premium increases mostly because not enough young healthy people, who tend to believe they're invincible, bought individual insurance policies to help offset the costs incurred by the older and sicker, who not only bought insurance, but used it. Such "adverse selection" resulted in premium increases for those who bought policies to cover the burden of care.

For those who opt out of Obamacare altogether, the associated tax penalty is too low to prevent the effects of adverse selection. In other words, it's cheaper to pay the tax penalty, about $700, than buy a policy, which could run several thousand dollars. Of course, an unexpected illness or accident could run in the tens of thousands of dollars for the uninsured, who are in effect gambling with their health.

In countries with universal health care coverage (all industrialized nations except the United States), essentially everyone pays in, whether through taxes alone or via employer contributions added to the government funds, as in the German health care system.

As long as we have an opt-out option that does not economically correct for the adverse selection issue through higher penalties or greater incentives for purchasing insurance, those who buy individual insurance premiums will pay higher premiums.

So let's fix the structural issues in Obamacare, which include changing incentives to promote individual responsibility for health behaviors and buying in to the health insurance pool, rather than go back to what we had ― some 50 million people without health coverage. It's hard to imagine how we can maintain our strength as a nation if we continue to be saddled with the most costly health care system in the world that does not produce health outcomes commensurate with our expenditures. Getting everyone insured won't fix the problems that our system faces compared to those of other nations, but it would be a start.

Toby Gordon (tgordon@jhu.edu) is an associate professor at the Johns Hopkins Carey Business School, with joint faculty appointments at JHU's Bloomberg School of Public Health and School of Medicine.

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