We Told You So
As the Affordable Care Act--otherwise known as ObamaCare--begins to be implemented, we are seeing its first big consequence: it is making care less affordable.
The New York Times reports that "Health insurance companies across the country are seeking and winning double-digit increases in premiums for some customers, even though one of the biggest objectives of the Obama administration's health care law was to stem the rapid rise in insurance costs for consumers."
"Even though"? In fact, Obamacare is simply doing what a lot of people predicted it would. Critics of ObamaCare warned that it would produce precisely the kind of premium increases we are now seeing, for precisely the reasons that new reports are now citing.
I was one of those critics, and I take no joy in pointing out that we told you so.
In 2009, as ObamaCare was being crammed through Congress, I gave three reasons for predicting disaster.
The first is "guaranteed issue," which requires insurance companies to cover you for a pre-existing condition. This forces insurance companies to take on extra costs, while reducing the incentive for healthy people to pay their insurance premiums. Why pay premiums for years, if you can just wait until you're already sick to buy coverage? So insurers are mandated to take on extra costs while losing revenues. As I wrote back in 2009, "Rather than increasing the number of insured by making health insurance more affordable, this bill makes health insurance more expensive and increases the incentive to simply drop your insurance until you need someone to pay for your medical bills."
And so we see today a report that as this takes effect and people who are already sick demand insurance, "paying for their care could add massive costs to the system."
"For one thing, they'll have no waiting period to get insurance. Someone who just got bad news from the heart doctor can walk into an insurance office and order a policy, Davis said. 'It's as if could you go home, see your house on fire, call Allstate and say, "Cover my home,"' Davis said.
"With medical bills easily reaching into the millions of dollars, a few of those cases could quickly add up, significantly boosting overall rates."
That leads to the second provision we warned about, the individual mandate. This is supposed to prevent free riders from waiting until they are sick by forcing them to buy insurance. But the penalty for refusing to buy insurance was set at $750, which is far lower than the cost of insurance. As I wrote back then, "we end up getting the worst of both worlds. This provision won't actually drive anyone to buy health insurance and prop up the risk pools for those who are insured. All it will accomplish is to create a brand new form of tax."
Finally, there are the federally mandated health-insurance exchanges, in which the federal government dictates what insurers are required to pay for, banning less expensive bare bones coverage and requiring insurance policies that cover more procedures and "preventative" tests. As I warned, "under the guise of making health insurance more affordable, this bill will restrict your menu of choices to include only the most expensive options."
Lo and behold, we see reports today that insurance premiums are going up partly because of "new federal rules that increase the services that health insurers are required to include in the health plans they sell."
There are also a couple of new reasons why rates are going up. We couldn't predict every negative effect of ObamaCare, because as Nancy Pelosi told us, Democrats had to pass the bill so we could find out what was in it. Thus, Peter Suderman points to a rule that requires insurance companies to refund part of their premiums if they don't spend enough on patient care in a particularly year. Suderman explains the results.
"If claims are low in a given year, they end up rebating the difference to the customer because of the MLR rule. If claims are unexpectedly high, however, they end up eating the difference. Insurers thus have an incentive to protect themselves by charging high premiums at the outset, and then paying those premiums back in rebates should claims come in at low or expected levels."
And then there is the extra cost passed on from new taxes on health insurance. Imagine that: when you tax something it becomes more expensive.
We can look to the consequences of RomneyCare in Massachusetts--the model for ObamaCare--as a preview of the near future. Massachusetts now has the highest insurance premiums in the country. The figures are quite staggering. A new study finds that "the average Massachusetts family health plan had a premium of $16,953 in 2011." One small business owner reports that "health-care benefits account for a quarter of the cost of hiring a new person." Even more startling is that this is an increase of 72% from 2003--nearly a doubling of insurance premiums in ten years.
As one expert explains, "Massachusetts is a state with a lot of mandates for coverage which other states may not have," and the report concludes that "The discrepancy will decrease once the Affordable Care Act is implemented." The discrepancy will decrease, not because Massachusetts premiums will go down, but because premiums for everyone else will go up to match them.
The rising premiums are bad enough in themselves, but they raise the prospect of crashing the whole structure of the health insurance system created by ObamaCare. Philip Klein explains:
"Should premiums continue to rise, more and more uninsured Americans are going to choose to pay the penalty rather than purchase expensive insurance. And those who go without insurance are more likely to be the ones who can afford to do so--young and healthy Americans with limited medical expenses. Should this occur, insurers would have to raise premiums even more to subsidize the expenses of the sicker beneficiaries they must cover under the law. This, in turn, would cause additional people to forgo insurance and pay the fine. And so on. This is known in the health care policy community as the 'death spiral' and it's one of the biggest threats to the structure of Obamacare."
Another article which cites many of the same problems I have just described marvels that "The congressional Democrats who crafted the legislation ignored virtually every actuarial principle governing rational insurance pricing."
But I don't think that's any kind of mystery. The consequences of ObamaCare--particularly the built-in "death spiral"--are so predictable that I don't think the legislation's architects can profess innocence. From the beginning, I have had suspicions, so to speak, that a stable health insurance industry was not the goal of ObamaCare. Rather, I warned: "It is an attempt to turn health insurance into what the left really wants: another welfare program in which everyone is entitled to free benefits, mandated by the government."
"But this would wreck private health insurance, making the whole industry financially unsustainable....
"This bill so comprehensively wrecks private health insurance that pretty soon a 'public option' will seem like the only alternative, and they will already have put into place one of the new taxes needed to pay for it. If the left's goal is to impose socialized medicine in America, this bill does it in the most callous and destructive way possible. It smashes private health care--then leaves us stranded in the rubble, at which point we will be expected to come crawling back to the same people who caused the disaster and ask them to save us."
The first half of our predictions from 2009 are already coming true. I am afraid that we're going to have to come back in another few years, after the second half has come to fruition, and say once again: we told you so.