Health-insurance premiums have been rising—and consumers will experience another series of price shocks later this year when some see their premiums skyrocket thanks to the Affordable Care Act, aka ObamaCare.
The reason: The congressional Democrats who crafted the legislation ignored
virtually every actuarial principle governing rational insurance pricing.
Premiums will soon reflect that disregard—indeed, premiums are already
Central to ObamaCare are requirements that health insurers (1) accept
everyone who applies (guaranteed issue), (2) cannot charge more based on serious
medical conditions (modified community rating), and (3) include numerous
coverage mandates that force insurance to pay for many often uncovered medical
conditions. (sounds like a good idea)
Guaranteed issue incentivizes people to forgo buying a policy until they get
sick and need coverage (and then drop the policy after they get well). While
ObamaCare imposes a financial penalty—or is it a tax?—to discourage people from
gaming the system, it is too low to be a real disincentive. The result will be
insurance pools that are smaller and sicker, and therefore more expensive.
How do we know these requirements will have such a negative impact on
premiums? Eight states—New Jersey, New York, Maine, New Hampshire, Washington,
Kentucky, Vermont and Massachusetts—enacted guaranteed issue and community
rating in the mid-1990s and wrecked their individual (i.e., non-group)
health-insurance markets. Premiums increased so much that Kentucky largely
repealed its law in 2000 and some of the other states eventually modified their
States won't experience equal increases in their premiums under ObamaCare.
Ironically, citizens in states that have acted responsibly over the years by
adhering to standard actuarial principles and limiting the (often politically
motivated) mandates will see the biggest increases, because their premiums have
typically been the lowest.
Many actuaries, such as those in the international consulting firm Oliver
Wyman, are now predicting an average increase of roughly 50% in premiums for
some in the individual market for the same coverage. But that is an average.
Large employer groups will be less affected, at least initially, because the law
grandfathers in employers that self-insure. Small employers will likely see a
significant increase, though not as large as the individual market, which will
be the hardest hit.
We compared the average premiums in states that already have ObamaCare-like
provisions in their laws and found that consumers in New Jersey, New York and
Vermont already pay well over twice what citizens in many other states pay.
Consumers in Maine and Massachusetts aren't far behind. Those states will likely
see a small increase.
By contrast, Arizona, Arkansas, Georgia, Idaho, Iowa, Kentucky, Missouri,
Ohio, Oklahoma, Tennessee, Utah, Wyoming and Virginia will likely see the
largest increases—somewhere between 65% and 100%. Another 18 states, including
Texas and Michigan, could see their rates rise between 35% and 65%.
While ObamaCare won't take full effect until 2014, health-insurance premiums
in the individual market are already rising, and not just because of routine
increases in medical costs. Insurers are adjusting premiums now in anticipation
of the guaranteed-issue and community-rating mandates starting next year. There
are newly imposed mandates, such as the coverage for children up to age 26, and
what qualifies as coverage is much more comprehensive and expensive.
Consolidation in the hospital system has been accelerated by ObamaCare and its
push for Accountable Care Organizations. This means insurers must negotiate in a
less competitive hospital market.
Although President Obama repeatedly claimed that health-insurance premiums
for a family would be $2,500 lower by the end of his first term, they are
actually about $3,000 higher—a spread of about $5,500 per family.
Health insurers have been understandably reluctant to discuss the coming
price hikes that are driven by the Affordable Care Act. Mark Bertolini, CEO of
Aetna, the country's third-largest health insurer, broke the silence on Dec. 12.
"We're going to see some markets go up by as much as 100%," he told the
company's annual investor conference in New York City.
Insurers know that the Obama administration will denounce the premium
increases as the result of greedy health insurers, greedy doctors, greedy
somebody. The Department of Health and Human Services will likely begin to
threaten, arm-twist or investigate health insurers in an effort to force them
into keeping their premiums more in line with Democratic promises—just as HHS
bureaucrats have already started doing when insurers want premium increases
larger than 10%.
But unlike the federal government, health insurers can't run perpetual
deficits. Something will have to give, which will likely open the door to making
health insurance a public utility completely regulated by the government, or the
left's real goal: a single-payer system.