David R. Henderson  

ObamaCare: Two Ominous Signs

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In the last few days, there have been two ominous signs about our future under ObamaCare. Both suggest the term "ObamaCare" is more accurate than the more-often used term "Affordable Care Act," because both suggest that the term "affordable" is strongly out of place.

1. The first is from Merrill Matthews, "The Most Ominous Sign Yet: Health Insurance Premiums Will Explode," Forbes.com, January 30. Matthews writes:

Most health insurers in the individual market have stopped guaranteeing a person's premiums for a year. And as one commentator quipped: they aren't doing it because they expect to be lowering people's premiums.

Traditionally in the individual market, where people buy their own (i.e., non-group) health coverage, applicants sign a contract and the insurance company guarantees that premium for a year. I'm told that about 12 percent of individual applicants would write a check for the year's premium, rather than being billed monthly.

No more. Health insurers started sending out notices in January informing insurance brokers and agents that the companies will no longer guarantee that premium rate. From now on it's month to month.


2. The second is from the IRS's own proposed regulations. In laying out some examples of what kinds of penalties (even the IRS, interestingly, despite Judge John Roberts' claim that the penalty is a tax, doesn't call the penalty a tax) people will pay for not buying insurance, the IRS gives some hypothetical numbers for the cost of an insurance policy. In my experience, the IRS tends to come up with numbers that would apply relatively widely. So, in estimating the cost of a "bronze" health insurance policy that would satisfy the government's criteria (bronze is the lowest level of coverage allowed), what estimate does the IRS use for the cost for a family of five? The answer I found on page 70: $20,000.


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COMMENTS (27 to date)
muirgeo writes:

Balony! Any plan that goes month to month or charges $20 K for a family of 5 will quickly lose market share to those that don't and they will go out of business.

Yeah because this market is efficient and consumers have a lot of pricing power. It's not like anyone's putting a gun to their head forcing them to buy insurance or anything.

Oh. Oh, wait.

Doug writes:

Let's take one of the so-called "greatest achievements" of Obamacare: mandatory coverage of birth control.

We all know that for years patriarchal evil insurance executives were not covering birth control, likely influenced by fundamentalist Christians, because they hate women and think anything reproduction related is "icky."

Luckily Obama and his team of super-progressives finally brought this country into the 20th century and mandated that birth control be covered from dollar one. Praise the lightworker himself!

Except, let's just do a little math. Generic birth control bills cost $9 for a monthly cycle at Wal-Mart. On-brand birth control pills cost $70 for a month's cycle. Same dose, same chemical.

Now if someone's getting first dollar coverage, are they really going to care about getting the generic or the on-brand? No, there's absolutely zero incentive, so naturally if someone else is paying, then yes anyone would take the higher priced item.

But of course this is going to reflect in the premiums that young healthy women pay for insurance. In the individual market you can get a high-deductible plan for a young healthy woman at $80 a month before the changes. Since over 50% of young women are on birth control, this means premiums have to rise by at least $35 to compensate for the additional cost.

Probably more because more women will start oral contraceptives either in lieu of or in addition to other methods since they're now completely subsidized.

So even for a young healthy woman on birth control she's now paying 40% more for the insurance with the birth control coverage than she used to pay for the insurance and generic birth control separately.

Thank God for Obama finally liberating women the likes of such backwards cavemen like Mittler Romney!

Bryan Willman writes:

I wonder what states the "policies no longer priced for a year" issue comes up in?

I believe (without checking) that's actually illegal in some states - that insurance pricing is regulated, rate increases regulated, timing of when you can adjust your policy regulated, etc.

That sometimes backfires - if the regulators set the price for some class of policy too low or make it otherwise onerous companies will leave - that actually happened in WA state at one point.

I would think the real symptoms are either endless crushing annual price rises (that cause eventual rebellion) or insurance carriers failing.
We'll see.

Roman Lombardi writes:

I'm not an economist, but I've been in the insurance business for over a decade. Day one of insurance licensing class, you learn that in order to properly price an insurance product you have to be able to determine what definable risk you're insuring. The affordable care act began by eliminating lifetime maximums for health insurance policies on 9/1/2010 (I think) and we have seen a significant rise in premiums...in 2014, insurers will be unable to fully underwrite health policies...so, by force of law, the gub'ment is saying to insurers that you are a) on the hook for everything and b) you have to take any and all comers regardless of risk...this is going to be a disaster...

ssh writes:

David,

Do you feel the probability of repeal is starting to increase to a meaningful level? Whats the feeling in among the folks in your circles? thx

Matt C writes:

We buy health insurance on the individual market, for a family of 4. We might be some kind of outlier, but $20K sounds awfully high.

Our old insurer (BCBS) just raised our rates again this year. We would have been about $10K/year. This was for BCBS's idea of a high deductible policy (still various prepaid benefits).

I was able to find a real catastrophic policy (we didn't used to have these in KS) for about half of that. We switched. Wish I had realized this sooner.

It will be interesting to see what happens as more people get shoved into the individual "market".

I know the idea is that this will provide the dynamism we've been missing all along, and we'll rapidly progress to something like what a real competitive market would look like (with added benefits of course).

I think it is more likely that people will game the hell out of the loopholes in the system, the insurance companies will retaliate via lobbying for new fine print, and the system will become increasingly nutty until the next round of "reform".

Yancey Ward writes:

Matt C,

Kansas explains it.

Steve W from Ford writes:

Matt C
Obamacare prohibits just the sort of catastrophic policies you describe. Enjoy it while you may.

Rick Caird writes:

Matt C.

Steve is right. All those catastrophic care, high deductible plans will be disallowed (unless, of course, the actually cover everything and have a small deductible /sarc).

God help you if you are a low income smoker. ObamaCare allows the insurance company to impose a 50% penalty on you and that penalty will not be eligible for a government subsidy. The figure I have seen notes that a person making $30K and who smokes could have a mandated insurance policy costing $10K or 1/3 of his gross. Sure, that'll work out just fine.

Earlier, muirgeo, claims that a $20K policy or a month to month policy will not fly because of competition. Well, the idea of the exchanges is to eliminate competition.

We can also note that the 2.3% medical device tax on gross revenues just cost another 100 workers their jobs as they are being laid off at Smith Nephew. There will be more.

If we think ObamaCare is unpopular now, just wait until the actual costs and restrictions become widely known. I remember Dan Rostenkowski being chased down the streets of Chicago by angry Medicare recipients. I foresee the same thing for Congress, but with the addition of pitchforks, torches, tar, and feathers.

ColoComment writes:

Please note as well that the IRS guidelines just out also impose the MDT on dual-use, but not intended for human use, devices. (IIRC, it's devices regulated by FDA under Sec. 510(j), or something close to that.)
For example, I work for an animal health products distribution company, and we've begun seeing invoices with itemized MDT on veterinary equipment intended for livestock or companion animal use.

Matt C writes:

Somehow I got confused and thought this was the year when most of the ugly parts of Obamacare went into effect. I had assumed if a plan was for sale this year, it was probably good to go on with.

Anybody who has a good (fact and reference based) link discussing what plans will and won't be allowed under Obamacare, I'm interested.

Looks like I may end up one of the ones gaming the system. I'll have to see what happens. We may very well drop out if we're forced to a 10K/year plan, and we certainly would if forced to a 20K/year plan. I suspect we're not unusual in this respect, so maybe the insurance companies will actually lobby in our direction on this one.

Jamie_NYC writes:

Unfortunately, the pending increase in premiums is not a bug in ObamaCare, it's a feature. It's step towards government takeover of the healthcare sector. Just like the 'banksters' were blamed for the financial crisis caused by collapse of the house prices, the insurers will be blamed for the soaring premiums, which will open the way for the takeover. And it will work - what percent of people see the connection between the decline of house prices and the financial crisis?

Methinks writes:

Jamie_NYC,

Honestly, what's the difference between the fascist Obamacare and socialized medical care? In fact, single-payer might even be better at this point. It won't actually deliver better health care, but it will at least focus people's anger on the government promising to deliver it.

R Richard Schweitzer writes:

Insurance is the Transfer of Risk. The business of insurance is the spreading of risks.

Whilst the risk factors in premium calculations (referred to in the comments) remain, the major shift has come in the political determination that the "contracts" shall now serve the additional function of transferring and redistributing costs.

Much has been written about redistribution of "incomes," but not much attention has been paid (or at least in not much detail)to the far more (and more stealthy) impacts of transfers and redistributions of costs that are implemented principally through the regulatory processes, generally controlled by the executive braches st the state and federal levels.

Tom West writes:

It won't actually deliver better health care, but it will at least focus people's anger on the government promising to deliver it.

Of course, it didn't quite work out that way for Canada, where Tommy Douglas, the 'Father of Medicare' was voted the 'Greatest Canadian' last year by a fairly large audience, beating Wayne Gretzky and our equivalent of George Washington, John A Macdonald :-).

However, there's no free lunch - Canadian health outcomes *are* marginally below American ones for similar cases, albeit at roughly half the price.

Methinks writes:

"Half the price" my behind!

I have family in Canada who have partaken of your sometimes infinite wait lists. A possible cancer took months to diagnose because the diagnostic equipment had such a long wait list. That which takes days in the United States took months in Canada. All the while the patient was in excruciating pain.

That is a high price indeed to pay for your shoddy Canadian healthcare.

Soetoro writes:

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Tom West writes:

Methinks, one can match anecdote for anecdote.

And yes, absolutely there are wait lists. No free lunch, remember.

However, the net outcomes as measured by hospitals for similar cancers, heart attacks, etc, are statistically very close.

Not bad for 2010 spending levels of $4,445 per person in Canada vs. $8,223 per person in the US (http://www.oecd.org/health/healthpoliciesanddata/BriefingNoteCANADA2012.pdf)

However, Americans who believe that on can have half the cost, universal coverage, the latest expensive technology, massive testing *and* low wait times, etc, all at once are dreaming.

Paul writes:

My understanding is that the exchanges are primarily for people who will be getting subsidies. What is the incentive for an insurance company to provide cheap insurance on the exchange when the person buying it is still not paying the full cost? Why not charge alot and just get the people who are getting most of the money from the government - that way you know you will get paid.

Luther writes:

Tom West - what ARE Canadians spending their extra $4,000 on if not health care? Could be, in aggregate, they prefer other goods & services to health care. In large part, Americans pay more on health care because they want to, and Milton Friedman agreed.

Tom West writes:

Luther, the main problem is that the cost/benefit of Canadian style healthcare is not available without essentially coercing the entire market into that one arrangement.

Thus no American has the option of Canadian levels of healthcare for the lower prices (and more-or-less vice-versa).

Now while Canadian-style healthcare is very popular with Canadians, it has to be noted that it is only available by (practically) removing choice from those who might want a different arrangement.

Given the degrees of freedom in any evaluation of the trade-offs of the two systems, I won't try to render a judgement except to say that Canadians are overwhelmingly happy with it, while I'm not at all certain that Americans would value universal coverage of their fellow citizens and the cost savings over marginally higher outcomes, prompt service, and the freedom to spend unlimited amounts as desired.

Chris Koresko writes:

Tom West: ...the net outcomes as measured by hospitals for similar cancers, heart attacks, etc, are statistically very close.

I'm wondering how these statistics are measured. In particular, if the higher health spending in the US leads to earlier diagnosis and treatment, then a comparison between outcomes for patients at the same stage of the disease will effectively hide the US advantage, no?

Concrete example: Joe has incipient heart failure due to a clogged artery. This causes moderate symptoms six weeks before his attack would occur. Joe goes to his US doctor two weeks after his symptoms appear and is diagnosed, has his treatment, and goes home with a good outcome. Joe's Canadian twin brother John, who has an initially identical condition, can't get to his doctor for six weeks. He has his heart attack, is hospitalized, and survives. Is John's case then compared to Joe's (making the US system look good), or to some other American whose symptoms came on much more suddenly and went undiagnosed until too late (making the US and Canadian systems look similar)?

Tom West writes:

You may well have a point.

I haven't read about cross-border diagnosis studies, and no doubt there'd be the usual arguments about "the uninsured shouldn't really count" and "you're only finding more because the population is fundamentally unhealthier, etc." etc. :-).

On the other hand, we're learning an awful lot about killing patients by diagnosing and treating diseases that would not have actually affected the patient if they had been undetected (hence the current confusion about whether a lot of mass testing such as mammograms, PSA tests, etc. are actually saving lives, etc.)

Giley writes:

We know that we have been duped by Obama's rhetoric and lies. The best healthcare system in the planet will soon look like copy of the Socialized medicine that many Europeans come to the USA to get away from or to get adequate treatment, at least for those who can afford to make the trip. Obama robbed the Medicare system to pay for his Draconian plan.

Johanna Tek writes:

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Bob Hertz writes:

Doug, your exposition on covering birth control was great, but you missed one point:

the $80/month policy that a young woman could obtain up until now in the individual market would not have covered pregnancy.

Group insurance does cover pregnancy, which is why group coverage costs more.

Although I am a libertarian on many parts of health care, I believe that health insurance should cover childbirth. Given the billions that Medicare spends on the elderly near death, we can spend maybe $8000 per birth on the 4 million or so births that take place each year. It seems barbaric that a nation as rich as this would have young parents deep in debt for bringing a child into this world. (and they will be in debt unless they are poor enough for Medicaid.)

I understand that health insurers in the volatile individual market have a problem with pregnancy. Some couples will game the system by signing up when the pregnancy starts, and terminating coverage a year later if the baby is healthy.
(if the baby has problems, they will hold onto coverage for dear life.)

This is a flaw in individual coverage. But I would rather attack the flaw than deny it exists.

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