By Michael Tanner
Wednesday, December 23, 2015
You know that Obamacare is having a really bad year when
Paul Krugman starts to concede that it “has hit a few rough patches lately.” To
be sure, Krugman still believes that Obamacare is working, but even he must
acknowledge that it is “an imperfect system” and that “the run of unexpectedly
good news for Obamacare has come to an end.”
That’s one way to spin it.
For example, one of the few positive claims that
Obamacare could make was that it had expanded coverage. And it is true that the
number of Americans without insurance has fallen by about 12.6 million since
2010. However, a new study cited by Health
Affairs suggests that the number of uninsured in 2010 was artificially
inflated by the financial meltdown. Many people who lost their jobs
(unemployment, you will recall, reached 9.6 percent) also lost their health
insurance. While it is impossible to judge a counterfactual for certain, it is
likely that many of those temporarily uninsured workers would have regained
coverage as the unemployment rate dropped — even without Obamacare. The Health Affairs article shows that
insurance coverage today is just 2.6 percentage points better than the
pre-recession baseline. That means it is reasonable to presume that we’ve spent
hundreds of billions of dollars and disrupted the entire health-care system to
expand insurance coverage to surprisingly few people.
Essentially, the people signing up for an Obamacare plan
are the people getting it for free. A recent report from the Robert Wood
Johnson Foundation and the Urban Institute looking at enrollment so far found
that almost all Americans with incomes of between 100 and 150 percent of the
poverty line (who receive the biggest subsidy) sign up for exchange plans, but
less than a third of those with incomes between 200 and 300 percent of the
poverty line do, and just 13 percent of those with incomes above 300 percent of
the poverty line (who receive little or no subsidy).
I guess even lousy health insurance is okay if it’s free.
If you have to pay for it, however, you might think twice.
There’s bad news on the cost front as well. Obamacare has
benefited from a general slowdown in the growth of health-care costs that
started in 2003. Lower overall health-care costs have helped keep both subsidy
costs and premiums lower than they would otherwise be. Americans have
complained about rising premiums, but it could have been worse.
And it might yet be. Last year, national health-care
expenditures rose by 5.8 percent (4.5 percent per capita), the fastest rate of
increase since 2008. That’s certainly not good news for something called the Affordable Care Act. (It’s also very bad
news for the federal budget deficit, since it means higher costs for Medicare
and Medicaid.)
Insurance premiums are already headed higher.
Exchange-based premiums are expected to rise by about 13 percent on a
weighted-average basis, although some states are likely to see much higher
increases — as much as 41 percent in Minnesota, for example, 39 percent in
Alaska, 28 percent in Tennessee, and 28 percent in North Carolina. In more than
a dozen states, rate hikes will exceed 20 percent. According to a report from
McKinsey & Company, which tracks premiums, 38 percent of consumers will see
an increase of greater than 10 percent in the net premium of the lowest-priced
plan. Krugman calls this “disappointing.” Most Americans would call it
predictable.
Another reason for rising health-care costs and insurance
premiums is the growing lack of competition in the health-care marketplace.
Anyone with a rudimentary understanding of economics realizes that increased
competition is good for consumers. Providers must offer better quality or lower
prices to increase their customer base. That’s why monopolies are generally a
bad thing.
But Obamacare has spurred a rash of mergers and
consolidations among health-care providers. The number of hospital mergers and
acquisitions, for example, has roughly doubled since Obamacare went into
operation, with almost 100 last year alone. This is more bad news for
consumers. Two thorough reviews of the literature on the subject have found
that hospital consolidation generally results in higher prices, with increases
often exceeding 20 percent in the most concentrated markets.
Competition in the insurance market is disappearing as
well. For instance, with the announcement by Maine’s Community Health Options
this month that it was losing money, every single Obamacare co-op is now
running in the red. More than half of them have been forced to shut their
doors, leaving hundreds of thousands scrambling to find new insurance.
Even more ominously, the United Health group has
announced that it may stop offering insurance on the Obamacare exchanges. In
2013, United Health had a 46 percent market share in Nevada and 30 percent in
New York; it was one of the three biggest sellers of exchange-based plans in 29
states. It has been suggested that United Health’s threat is simply an attempt
to extort continued bailouts from the federal government, but, if it does pull
out, it will dramatically reduce choice in the exchanges.
Already, 13 states have three or fewer insurers offering
plans on their exchanges. Five states have just two insurers offering plans,
and Wyoming has just one. That’s a recipe for high prices and poor quality.
Also driving premium increases is the fact that those
signing up for Obamacare policies have generally been older and sicker than the
population at large. As a result, according to the left-leaning Urban
Institute, minimum loss ratios (the ratio of payouts to premiums) in eleven
states exceed 100 percent. That is, insurers are paying more in benefits than
they charge for policies. Losing money on every transaction is not a good
business model, but insurers were hoping for a federal bailout to offset those
losses. Taxpayers would have had to pony up nearly $2.5 billion to cover just
last year’s losses. (Total losses have exceeded $2.9 trillion, but successful
insurers were hit with a $400 million assessment to cover a portion of the
losses.) Unfortunately for the insurers, an amendment pushed by Senator Marco
Rubio successfully blocked this assault on taxpayers, one of the few
substantive victories against Obamacare so far.
So as the year draws to a close, health-care costs are
rising, premiums are skyrocketing, choice and competition are shrinking, adverse
selection is taking hold, and coverage is not nearly as good as hoped. If only
someone had been able to predict these things . . .
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