Obamacare stipulations imposed on insurers stand as the primary reason premiums skyrocket within individual markets, according to a report commissioned by the Department of Health and Human Services (HHS).
HHS tasked the consulting firm McKinsey and Company with finding an answer to the question: “What portion of the increase in premium is attributable to the effects of guaranteed issue and community rating?” As it turns out, quite a large portion. The report presented to HHS earlier this year examined rates in Ohio, Tennessee, Pennsylvania, and Georgia between 2013 and 2017, and attributed between 41 percent and 76 percent of premium spikes to these onerous mandates of Obamacare.
Community rating, which forbids insurers from offering varying rates to consumers with varying behaviors (overeating, smoking, alcoholism, etc.), decreases premium costs for a small number of unhealthy people at the cost of inflating premium costs for everyone else. Guaranteed issue, especially when coupled with community rating, seriously undermines the ability of insurance companies in the market for individuals to stay in business without charging exorbitant premiums to consumers. The mandate to offer everyone insurance, and then, to offer them the same rates without reference to self-destructive habits terribly burdens insurers, who, quite predictably and rationally, pass those burdens on to consumers or tap out in specific markets.
Though marked “proprietary and confidential,” Senators Ron Johnson and Mike Lee included the data involving community rating and guaranteed issue in a “Dear Colleagues” letter last month. Wisconsin and Utah’s junior senators wrote, “In Tennessee, for example, these factors were responsible for 73 percent to 76 percent of the 314 percent of the average monthly premium increase of $327.” One can imagine why those administering Obamacare might regard an analysis of public policy much as one regards plans for a missile-defense system. But the public that pays for Obamacare deserved to see this when HHS did.
The report illustrates the failure of the Patient Protection and Affordable Care Act to accomplish its ostensible purpose. Insurance, particularly within the individual markets most affected by Obamacare, grows less, not more, affordable. This unfortunate, yet quite predictable, outcome stems in large part because of the rules imposed by Obamacare, a bill whose true purpose clashed with its stated purpose.
The public support for Obamacare, a bill passed by legislative legerdemain, remained weak in the leadup to it becoming law. According to a CNN poll, 59 percent opposed the bill on the eve of its passage. The public wanted health care costs reined in and did not think the bill, despite a booster media and barnstorming speeches by President Barack Obama, did that. More than seven years later, events vindicate that initial skepticism.
Providing insurance to the few without it, rather than controlling costs to the many possessing plans, served as the raison d’être of the legislation. A redistribution program at the macro level, Obamacare works as one on the micro level as well. By forcing insurers to ignore preexisting conditions and unhealthy habits, pass on the expenses of the old to the young, and issue plans to everyone no matter the preexisting conditions, Obamacare necessarily burdens most consumers with the expenses of a smaller number of older, sicker, and, in some cases, irresponsible consumers.
Like taxing the manufacturers of medical devices, this aspect of the law transfers wealth from most Americans to a smaller group of Americans by passing on costs to consumers. And even with the mandates, this proves untenable. Aetna, Molina, Anthem, and other companies depart certain markets because they remain unprofitable. The cost-sharing-reduction (CSR) payments that essentially bribe insurers to stay within unprofitable markets — another redistribution scheme within a larger redistribution scheme — fails to coax companies to remain where the market tells them to leave. When the state forces private businesses to operate like public welfare, the private businesses flee and public welfare picks up new dependents. If not the intent, this is the result of Obamacare.
With total healthcare expenses eclipsing the $3 billion mark, Americans now spend nearly a fifth of GDP on health care (up from far less than a tenth in 1970). The healthcare crisis that Barack Obama confronted earlier this decade involved costs. But he did worse than punt there. He made a bad situation worse by increasing costs through mandates on what insurers must cover and who they must cover. He imagined it as a crisis of coverage rather than cost.
Any bill to replace Obamacare must focus on the costs for everyone rather than coverage for a small fraction of everyone. The government can tackle, with great difficulty, both costs and coverage. But to fixate on coverage to the exclusion of cost misses the big picture amidst all the dots.
Hunt Lawrence is a New York-based investor. Daniel Flynn is the author of five books.
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