Citizens in states acting responsibly in past will see largest increases.
By Merrill Matthews & Mark Litow
Texas Insider Report: WASHINGTON D.C. Health-insurance premiums have been rising and consumers will experience
another series of price shocks later this year when some see their premiums skyrocket thanks to the Affordable Care Act aka ObamaCare. The reason? Congressional Democrats who crafted the legislation ignored virtually
every actuarial principle governing rational insurance pricing.
Premiums will soon reflect that disregard indeed premiums are already reflecting it. Central to ObamaCare are requirements that health insurers:
- Accept everyone who applies (guaranteed issue)
- Cannot charge more based on serious medical conditions (modified community rating) and
- Include numerous coverage mandates that force insurance to pay for many often uncovered medical conditions.
Guaranteed issue incentivizes people to forgo buying a policy until they get sick and need coverage (and then drop the policy after they get well). While ObamaCare imposes a financial penalty or is it a tax? to
discourage people from gaming the system it is too low to be a real disincentive. The result will be insurance pools that are smaller and sicker and therefore more expensive.
How do we know these requirements will have such a negative impact on premiums?
Eight states
New Jersey New York Maine New Hampshire Washington Kentucky Vermont and Massachusetts enacted guaranteed issue and community rating in the mid-1990s and wrecked their individual (i.e. non-group) health-insurance markets. Premiums increased so much that Kentucky largely repealed its law in 2000 and some of the other states eventually modified their community-rating provisions.
States wont experience equal increases in their premiums under ObamaCare. Ironically citizens in states that have acted responsibly over the years by adhering to standard actuarial principles and limiting the (often politically motivated) mandates will see the biggest increases because their premiums have typically been the lowest.
Many actuaries such as those in the international consulting firm Oliver Wyman are now predicting an average increase of roughly 50 in premiums for some in the individual market for the same coverage. But
that is an average. Large employer groups will be less affected at least initially because the law grandfathers in employers that self-insure. Small employers will likely see a significant increase though not as large as the individual market which will be the hardest hit.
We compared the average premiums in states that already have ObamaCare-like provisions in their laws and found that consumers in New Jersey New York and Vermont already pay well over twice what citizens in many other states pay. Consumers in Maine and Massachusetts arent far behind. Those states will likely see a small increase.
By contrast
Arizona Arkansas Georgia Idaho Iowa Kentucky Missouri Ohio Oklahoma Tennessee Utah Wyoming and Virginia will likely see the largest increases somewhere between 65 and 100. Another 18 states
including Texas and Michigan could see their rates rise between 35 and 65.
While ObamaCare wont take full effect until 2014 health-insurance premiums in the individual market are already rising and not just because of routine increases in medical costs. Insurers are adjusting premiums now in anticipation of the guaranteed-issue and community-rating mandates starting next year.
There are newly imposed mandates such as the coverage for children up to age 26 and what qualifies as coverage is much more comprehensive and expensive. Consolidation in the hospital system has been
accelerated by ObamaCare and its push for Accountable Care Organizations. This means insurers must negotiate in a less competitive hospital market.
Although President Obama repeatedly claimed that health-insurance premiums for a family would be $2500 lower by the end of his first term they are actually about $3000 higher a spread of about $5500 per family.
Health insurers have been understandably reluctant to discuss the coming price hikes that are driven by the Affordable Care Act. Mark Bertolini CEO of Aetna the countrys third-largest health insurer broke the silence on Dec. 12.
Were going to see some markets go up by as much as 100 he told the companys annual investor conference in New York City.
Insurers know that the Obama administration will denounce the premium increases as the result of greedy health insurers greedy doctors greedy somebody. The Department of Health & Human Services will likely begin to threaten arm-twist or investigate health insurers in an effort to force them into keeping their premiums more in line with Democratic promises just as HHS bureaucrats have already started doing when insurers want premium increases larger than 10.
And that may work for a while. It certainly has in Massachusetts where politicians including then-Gov. Mitt Romney made all the same cost-lowering promises about the states 2006 prequel to ObamaCare that
have yet to come true.
But unlike the federal government health insurers cant run perpetual deficits. Something will have to give which will likely open the door to making health insurance a public utility
completely regulated by the government or the lefts real goal: a single-payer system.
Mr. Matthews (right) is a resident scholar with the Institute for Policy Innovation in Dallas Texas. Mr. Litow (left) is a retired actuary and past chairman of the Social Insurance Public Finance Section of the Society of Actuaries.
