Chicago Tribune
Friday, September 09, 2016
Come November, the grim trudge across the increasingly
barren Obamacare landscape begins anew. Illinois consumers likely face
staggering price hikes for individual insurance policies. Some types of plans
could cost an average of 43 percent to 55 percent more. Ditto across the
country: A first tranche of states approved 2017 rates with similarly
cardiac-arrest-inducing premium increases.
Many Illinois consumers will find fewer choices because
major carriers fled this market. UnitedHealthcare bolted. So did Aetna. Land of
Lincoln Health collapsed mid-year, leaving policy holders to scramble for
coverage that could cost them plenty. In many places across Illinois and the
nation, people will find drastically fewer choices of plans than they did last
year.
Those insurers fled because they didn't want to lose more
money on a government-run market that is so far out of whack — a market they
think likely will never be profitable for them. That isn't surprising, as we
enumerate below.
But by diagnosing Obamacare, all of us can see the
mistakes that any repair or replacement can avoid. So let's look at the
failings and how they can drive solutions:
Obamacare failed because it flunked Economics 101 and Human Nature 101. It straitjacketed
insurers into providing overly expensive, soup-to-nuts policies. It wasn't
flexible enough so that people could buy as much coverage as they wanted and
could afford — not what the government dictated. Many healthy people primarily
want catastrophic coverage. Obamacare couldn't lure them in, couldn't persuade
them to buy on the chance they'd get sick.
Obamacare failed because the penalties for going
uncovered are too low when stacked against its skyrocketing premium costs. Next
year, the penalty for staying uninsured is $695 per adult, or perhaps 2.5
percent of a family's taxable household income. That's far less than many
Americans would pay for coverage. Financial incentive: Skip Obamacare.
Obamacare failed because insurance is based on risk pools
— that is, the lucky subsidize the unlucky. The unlucky who have big health
problems (and big medical bills) reap much greater benefits than those who
remain healthy and out of the doctors' office. But Obamacare's rules hamstring
insurers. They can't exclude people for pre-existing conditions, and can't
charge older customers more than three times as much as the young. Those are
good goals, but they skew the market in ways Obamacare didn't figure out how to
offset. Result: Young and healthy consumers pay far more in premiums than their
claims (probably) would justify in order to subsidize the unexpectedly large
influx of older, sicker customers who require expensive care. Too many unlucky
people, too few lucky people: That will collapse any insurance scheme.
Obamacare failed because it allowed Americans to sign up after they got sick and needed help
paying all those medical bills. Insurance should be structured so that,
although you don't know if you'll need it, you pay for it anyway, just in case;
your alternative is financial doom. But if you can game the system and, for
example, buy auto coverage after you crash into your garage, then you have no
incentive to buy insurance beforehand.
Obamacare failed because it hasn't tamed U.S. medical
costs. Health care is about supply and demand: People who get coverage use it, especially if the law mandates
free preventive care. Iron law of economics: Nothing is free; someone pays. To pretend otherwise was folly.
Those forces combined to spike the costs of care, and thus insurance costs.
Obamacare failed because too many carriers simply can't
cover expenses, let alone turn a profit, in this rigidly controlled system.
Take Blue Cross and Blue Shield of Illinois, the state's dominant Obamacare
insurer. Last year, for every dollar the carrier collected, it spent $1.32
buying care and providing services for customers, according to BCBS President
Maurice Smith. No wonder BCBS is proposing rate increases from 23 percent to 45
percent for its individual plans.
A question looms: Is Obamacare plunging in a so-called
insurance death spiral? Is the market so unstable that plans are doomed to get
more and more expensive, driving more Americans and more insurers out of the
market until ... Obamacare thuds to the pavement?
We won't predict that, but neither do we see a
mathematical alternative. What's clear is that the solutions to Obamacare are
implicit in its failures. A repaired or replaced system has to be more
flexible, letting insurers offer a wider range of plans so that consumers, not
lawmakers or bureaucrats, dictate what's best for them. That system should
protect those who carry continuous coverage, not coddle those who duck in and
out of plans when their health needs change.
A new system also should scrap the job-killing Obamacare
mandates that discourage companies from hiring and discourage workers from
adding hours. Instead of gearing subsidies to incomes, let Americans not
covered via an employer reap tax credits to help finance their insurance
purchases on the open market. And tell us again: Why can't insurers sell
policies across state lines? Imagine the pricing competition that would
unleash.
We can deny the current system's failings, or we can
parlay our evolving knowledge into something much better.
Put another way: The next president and Congress either
reckon with Obamacare's failures or ... wait for the thud.
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