The Affordable Care Act is Unaffordable

 

What’s in a name? The hope that something or someone will live up to that name. So it goes with the names of legislation. A bill is drafted in the hopes of achieving a purpose and the name is supposed to reflect that purpose.

The transformation of our health care system was supposed to provide healthcare for everyone at an affordable rate. Thus we got The Patient Protection and Affordable Care Act of 2010, better known by its nom de guerre, ObamaCare.

There is little doubt that this law has failed to live up to its name. Though it has increased the number of Americans who have health insurance, it has fallen far short of achieving the goal of universal coverage and it is far from affordable for everyone.

In an earlier post, Insurers Seek Skyrocket Rate Increases, I discussed proposed insurance premium hikes in several states. Now it is clear these are not isolated examples.

According to The Wall Street Journal, a new study by the research firm Health Pocket reports that mid-level Exclusive Provider Organization plans are 20% more expensive in 2016 on average. HMOs are 19% more expensive, and for all plan types the average is 14% more.

Yet President Obama continues to describe ObamaCare as “working.” He traveled to Nashville, Tennessee recently to declare “the law has worked better than we expected” and “actually ended up costing less than people expected.” Before we declare him delusional, let’s test the reality of his claims.

In 2015, premium increases for Tennessee plans ranged from 7.5% to 19.1%. For 2016, BlueCross BlueShield of Tennessee – one of the state’s two major insurers – is requesting a 36.3% increase. One product line form Community Health Alliance Mutual if rising 32.8%, while another from Time Insurance Co. is rising 46.9%. Premium increases from Cigna, Humana and UnitedHealthcare range from 11% to 18%.

If this is ObamaCare “working better than expected,” just what was President Obama expecting?

Perhaps you believe the problem is insurance company greed, or at least the rising cost of healthcare. While it is true that healthcare costs continue to rise, the rate of growth of healthcare spending is between 3.5% and 7%, depending on the state. Furthermore, health plan profits are capped by ObamaCare price controls, so the insurance companies are not to blame.

The cause of these escalating insurance premiums is the perverse market created by ObamaCare. The mandated requirements force insurers to cover “essential health benefits” such as mammograms, birth control, prostate screening, and other routine tests for all patients, regardless of gender or need. Furthermore, they must cover all pre-existing medical conditions and can only vary pricing by age, tobacco usage, or geographic location. The usual 6:1 pricing ration has been reduced to 3:1 so the young pay more than necessary while the elderly pay less than the actual cost.

The insurance industry bailout provisions, the so-called “3 Rs” of risk adjustment, reinsurance, and risk corridors, have artificially lowered the cost of insurance premiums thus far. But now the insurance industry is girding itself for the loss of these bailout protections in 2016. The costly experience of the past year has persuaded them to begin price increases even before the loss of the “3 Rs” at the end of 2016.

How is all this affecting the affordability of ObamaCare?

Of those eligible for the ObamaCare exchanges (they lack coverage through a job, spouse or another government program), only about one-third have signed up according to the Department of Health and Human Services (HHS).

Not surprisingly, the number of enrollees declines with increasing income levels and decreasing government subsidies. The subsidies are most generous between 100% and 150% of the Federal Poverty Level (FPL) and decline gradually as income rises. Here are the levels of participation by income level:

Income Level                           Level of Participation

(percentage of FPL)                          (percentage enrolled)

100 – 150%                                                  76

151 – 200%                                                  41

201 – 250%                                                  30

251 – 300%                                                  20

301 – 400%                                                  16

 

The Wall Street Journal summarizes these findings:

“In other words, the more lower and middle income people must pay for ObamaCare with their own money, the less likely they are to participate. They are concluding that ObamaCare plans – with their overly rich mandated benefits, narrow physician networks, and hidden income redistribution – do not offer a good value for the price. This is not a formula for healthy insurance markets.”

 

Unfortunately, there is every reason to believe this situation will only get worse. The loss of the “3 Rs” in 2017, and the lack of widespread participation in the insurance markets, bodes poorly for any control of these escalating premium prices in the future.

 

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