The Right Prescription

Get Ready for Obamacare Premium Defaults

Exchanges coerce families living paycheck to paycheck to enroll in unaffordable plans.

By 4.4.13

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Last week, the Society of Actuaries warned about sticker shock ahead for individuals and families buying health insurance.

How did the White House respond? In its usual Orwellian fashion, saying “healthcare costs are falling thanks to the reform law.” Falling is correct only if you’re standing on your head.

President Obama repeatedly promised that insurance exchanges will save families up to $2,300 a year. He couldn’t possibly have believed it. From day one, it was obvious the law would push up premiums. That’s because it requires insurers to cover services rarely covered in the past, puts sick people in the same risk pool with the healthy, and slaps insurers with $100 billion in taxes to pass along to consumers.

Who will be clobbered by high premiums? Everyone buying insurance on the exchanges: people who customarily buy their own insurance (about 25 million) plus people currently uninsured who will have to get it beginning in 2014, and finally millions of people whose employers will drop coverage in response to the law’s costly requirements. Milliman predicts, 67 million people in all by 2017.

These people will have no choice but to buy the one-size-fits-all “essential benefits package” that includes treatment for drug addiction, maternity care, and dental and vision care for children. Only 2% of plans currently include all these services. When the law compels insurers to cover more, it compels consumers to pay more. It’s like passing a law that your auto insurance has to cover wiper blades and oil changes, or that the only car you’re allowed to buy is a fully loaded Cadillac. Secretary of Health and Human Services Kathleen Sebelius says “folks will be moving into a fully insured product for the first time.”

An unaffordable product. The Ohio Department of Insurance says the requirements will push up premiums 20% to 30%. It cheats the couple not having more children and the straight-arrow who will never shoot heroin.

The healthy also get whacked. Until now, most states helped people with pre-existing conditions by setting up separate, subsidized risk pools. Someone in the sickest 5% of the population will use 17 times as much care as a healthy person, according to the Agency for Healthcare Research and Quality. The Obama health law pools everyone together and requires the healthy to pay as much as the sick. The few states (including New York) that already do this have the highest premiums in the country. Imagine if you and your friends split the tab for coffee every day, and then someone joins the group who orders a five course meal. Oliver Wyman, management consultants, reported that putting people with pre-existing conditions in the risk pool will push up premiums 40%. Similarly, the Society of Actuaries predicts medical claims going up 32% on average, and by as much as 62% in California and 80% in Ohio by 2017.

$100 billion in new federal sales taxes on health plans over the next decade will clobber consumers too. In New York, where premiums will be highest, the taxes will add $900 a year to the cost of a family plan, Oliver Wyman estimates.

The White House dismisses concerns about rising premiums, saying consumers with moderate incomes will get subsidies. That’s like arguing that it’s okay for food prices to double, because the needy can get food stamps. Taxpayers foot the bill for subsidies. And consumers ineligible for them get socked with sky high costs.

Even with subsidies, millions of people coerced to sign up will stop paying premiums. A family with two adults, two kids and a household income of $35,300 will be eligible for a $11,090 subsidy paid directly to the insurer, but they will have to pay at least $118 a month toward the premium. Families living paycheck to paycheck will default in order to make rent or car payments. This is the mortgage crisis and the college loan crisis all over again. Another gift from the politicians who think “Washington knows best.”

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About the Author
Betsy McCaugheyis a senior fellow at the London Center for Policy Analysis and author of Beating Obamacare 2014.