When I think about a “dumping” problem, it brings to mind those people who dump their trash along the roadside – or in my parking lot. They’re anxious to get rid of something they don’t want and too lazy to do it in the proper way.
John C. Goodman, healthcare economist writing in Forbes, says ObamaCare has a similar problem. The system encourages dumping of those patients insurers don’t want to enroll and medical conditions patients don’t want to pay for until they must.
· Group plans dump their sickest, most costly enrollees on the individual market
· Individual market plans dump these same enrollees on each other
· Individual patients dump their costs on other individuals by waiting to insure until they get sick
In other words, ObamaCare has created an environment where everyone is trying to avoid accepting responsibility for costly healthcare. Here’s how it works.
How Group Plans Dump Costs on the Individual Market
Before ObamaCare, when you left your employer’s group plan and purchased your own individual policy, you paid rates based on actuarial analysis. That means they calculated a fair policy rate based on your medical condition. If you were a high-risk patient and denied coverage, a state high-risk pool subsidized your insurance, funded by a small premium tax on all commercial insurance.
Since ObamaCare everything has changed. Imagine you’ve worked for 40 years for the same employer and then get cancer and have to quit work. You’re forced off your employer’s plan and must get ObamaCare insurance on the Individual market. The individual plan must absorb the full cost of your cancer treatment and your old employer plan that benefitted for 40 years from your good health now is exempt from paying for the cancer treatment. This is unfair to the new insurer – and to the other individuals who pay for their insurance from the same insurer.
Moreover, the new insurer can’t calculate the fair price of your treatment because ObamaCare did away with actuarial analysis and mandated 3 to 1 premium spread instead of the usual 6 to 1. That means the sicker patients pay less and the healthier patients pay more than the real cost of their insurance. This is unfair to healthy patients in the Individual market.
How Health Plans Dump Costs on Each Other
Health plans naturally try to make their plans appealing to the best customers. When actuarial analysis was used, all customers were good because actuaries could predict the expected costs of insurance and rates reflected those calculations. But with actuarial analysis eliminated, health plans are now trying to appeal only to healthy patients who cost them less.
To achieve this goal, health plans create narrow networks with high deductibles that exclude the best doctors and the best medical centers in order to make their plans unappealing to the sickest patients. Healthy patients don’t mind since they don’t expect to use the plans. Sick patients know they will be using the plans so they steer away from plans that don’t offer the best care. The low premiums in these plans attract the healthy patients and the sick patients stay away.
In other words, instead of trying to attract customers, health plans are trying to avoid customers – those that will cost them more than they can charge. They hope their competition will get stuck with the customers they don’t want – the expensive ones.
How Individuals Dump on Each Other
Before ObamaCare you needed to carry health insurance before you got sick. If you got sick without coverage, no insurer would cover you for pre-existing conditions.
Since ObamaCare, you can get insurance after you get sick. It’s like buying fire insurance for your home after the fire! ObamaCare makes this possible because there is a long list of exceptions that allow people to obtain insurance outside the annual open enrollment period – after they know they need it. Others may purchase a cheap plan before they get sick and then upgrade when they know they’ll need better coverage.
These people are gaming the system – and passing the real cost of their healthcare on to other individuals who must pay higher rates to make up for the losses.
Is there a better way?
Goodman says there is. He says premiums in the individual market are two to three times higher than they should be. But to change this will require the federal government to give up control to the states.
He says states should be given the authority to make dumpers pay the full cost of their own behavior, although they could choose other options as well. He proposes the following changes – which will require changes in federal law:
· Group insurers should pay for any above-average costs they send to the individual market. Employers who do not provide post-employment insurance would pay a small premium tax to compensate insurers who must absorb above-average costs to insure these individuals. Even better would be allowing employees to take their insurance with them when they leave their employer (like an IRA or 401 K plan)
· Insurers in the individual market should pay for any above-average costs created when an enrollee leaves their plan for some other plan. Medicare Advantage could serve as a model. This would give insurers an incentive to accept sicker patients
· Individuals should not be allowed to game the system.Those who try should pay a higher premium. You can’t buy insurance after the fire! Actuarial analysis should replace ObamaCare’s “community rating”
These are wonderful ideas but, alas, they require Congress’s approval. As long as Democrats believe single-payer healthcare is a political winner and Republicans can’t agree on how to fix ObamaCare, these ideas will never happen.