Tag: Obamacare

RomneyCare Unleashed Adverse Selection, As Will ObamaCare

The Massachusetts health care law that Gov. Mitt Romney signed in 2006, and the nearly identical federal law that President Obama signed this year, create perverse incentives that are causing health insurance costs to rise and could eventually cause health insurance markets to collapse. A report released yesterday by the Massachusetts Division of Insurance shows that process is well underway.

Massachusetts requires health insurance companies to sell to all applicants, and imposes price controls that require insurers to charge all applicants the same premium, regardless of their health status.  ObamaCare would do the same.

Those price controls have two principal effects on healthy people.  First, they increase the premiums that insurers charge healthy people (the additional premium goes to reduce premiums for sick people).  Second, they enable healthy people to wait until they are sick to purchase coverage.  Since insurers must take all applicants, and charge them the same premium, there is little or no downside to waiting until one gets sick to purchase coverage.

Those price controls also guarantee that when healthy people drop out of insurance pools, premiums rise for everyone who remains, which causes more healthy people to drop out, and do on.  Economists and actuaries call this an “adverse selection death spiral.”

The Boston Globe reports that the Massachusetts Division of Insurance found that in the wake of RomneyCare, many more healthy residents are purchasing coverage only when they need it:

The number of people who appear to be gaming the state’s health insurance system by purchasing coverage only when they are sick quadrupled from 2006 to 2008, according to a long-awaited report released yesterday from the Massachusetts Division of Insurance.

The result is that insured residents of Massachusetts wind up paying more for health care…

The number of people engaging in this phenomenon — dumping their coverage within six months — jumped from 3,508 in 2006, when the law was passed, to 17,177 in 2008, the most recent year for which data are available.

In the hope of preventing this sort of gaming behavior, RomneyCare requires Massachusetts residents to purchase health insurance.  Yet that “individual mandate” appears not to be working, probably because the penalties for non-compliance are far less than the cost of the mandatory coverage.  Thus many residents decline to purchase health insurance, pay the penalty (or misrepresent their coverage status), and purchase health insurance only when they need medical care.

ObamaCare contains similar price controls and requires nearly all Americans to purchase health insurance by 2014.  Yet ObamaCare’s penalties for non-compliance are also far less than the cost of the required coverage for most people.

As goes Massachusetts, so goes the nation.

ObamaCare Is Undermining Economic Recovery, Job Growth

In a recent Wall Street Journal oped, Carnegie-Mellon economist Allan Meltzer explains how ObamaCare is delaying economic recovery:

Two overarching reasons explain the failure of Obamanomics. First, administration economists and their outside supporters neglected the longer-term costs and consequences of their actions. Second, the administration and Congress have through their deeds and words heightened uncertainty about the economic future. High uncertainty is the enemy of investment and growth…

Mr. Obama has denied the cost burden on business from his health-care program, but business is aware that it is likely to be large. How large? That’s part of the uncertainty that employers face if they hire additional labor…

Then there is Medicaid, the medical program for those with lower incomes. In the past, states paid about half of the cost, and they are responsible for 20% of the additional cost imposed by the program’s expansion. But almost all the states must balance their budgets, and the new Medicaid spending mandated by ObamaCare comes at a time when states face large deficits and even larger unfunded liabilities for pensions. All this only adds to uncertainty about taxes and spending.

Meltzer concludes that the Obama administration is making the same mistake as FDR: “President Roosevelt slowed recovery in 1938-40 until the war by creating uncertainty about his objectives. It was harmful then, and it’s harmful now.”

For more on the harm caused by government-created uncertainty, read my colleague Tad DeHaven’s recent posts.

Business Roundtable: We Love/Hate Big Government

Regular readers of this blog know that big corporations often are enemies of free markets and individual liberty. So it is hardly suprising to know that the Business Roundtable, a lobby representing CEOs of major companies, supported the wasteful and ineffective stimulus program in 2009 and the bloated new health care entitlement in 2010. Big companies, after all, are quite proficient at working the system to obtain unearned wealth and to rig the rules against smaller competitors.
 
What is surprising, however, is that representatives of that organization now have the chutzpah to complain about a “hostile environment for investment and job creation.” Equally galling, the group has published a document called “Policy Burdens Inhibiting Economic Growth.” We’ve all heard the joke about the guy who murders his parents and then asks the court for mercy because he’s an orphan. The Business Roundtable has adopted that strategy, except this time taxpayers are the butt of the joke. Here’s an excerpt from the Washington Post report:

The chairman of the Business Roundtable, an association of top corporate executives that has been President Obama’s closest ally in the business community, accused the president and Democratic lawmakers Tuesday of creating an “increasingly hostile environment for investment and job creation.” Ivan G. Seidenberg, chief executive of Verizon Communications, said that Democrats in Washington are pursuing tax increases, policy changes and regulatory actions that together threaten to dampen economic growth and “harm our ability … to grow private-sector jobs in the U.S.” …The final straw, said Roundtable president John Castellani, was the introduction of two pieces of legislation, now pending in Congress, that the group views as particularly bad for business. One, a provision of the administration’s financial regulation overhaul, would make it easier for shareholders to nominate corporate board members. The other would raise taxes on multinational corporations. The rhetoric accompanying the tax proposals has been particularly harsh, Castellani said, with Democrats vowing to campaign in this fall’s midterm elections on a platform of punishing companies that move jobs overseas. …Seidenberg polled the members of the Business Roundtable and a sister organization, the Business Council. The result was a 54-page document, delivered to Orszag on Monday, chock full of bullet points about actions taken or considered by a wide array of executive agencies, including the White House Middle Class Task Force and the Food and Drug Administration. We believe the cumulative effect of these proposals will help defeat the objectives we all share – reducing unemployment, improving the competitiveness of U.S. companies and creating an environment that fosters long-term economic growth,” Seidenberg wrote in a cover letter for the document, titled “Policy Burdens Inhibiting Economic Growth.”

ObamaCare Regs’ Effect on Uncompensated Care Overblown

An Obama administration “fact sheet,” released alongside the interim final rules for several of ObamaCare’s cost-increasing mandates, claims those mandates will reduce the “hidden tax” imposed by uncompensated care:

By making sure insurance covers people who are most at risk, there will be less uncompensated care and the amount of cost shifting among those who have coverage today will be reduced by up to $1 billion in 2013.

According to research by the Urban Institute, that “hidden tax” isn’t very large:

Private insurance premiums are at most 1.7 percent higher because of the shifting of the costs of the uninsured to private insurers in the form of higher charges.

As the Congressional Budget Office repeatedly lectures Congress, “Uncompensated care is less significant than many people assume.”

Likewise, these mandates’ effect on uncompensated care will be less significant than the Obama administration would like you to think.  Using data from the Centers for Medicare & Medicaid Services and a reasonable assumption of 6-percent annual growth, total private health insurance premiums in 2013 will be in the neighborhood of $1.1 trillion.  So the administration is boasting that these mandates will reduce the 1.7-percent “hidden tax” imposed by uncompensated care to 1.61 percent.

Indeed, the whole of ObamaCare may not do much to reduce the “hidden tax” of uncompensated care. After Massachusetts enacted a nearly identical law, the Urban Institute reports, “high levels of emergency department (ED) use have persisted in Massachusetts. Specifically, ED use was high in Massachusetts prior to health reform and has stayed high under health reform.”  A lot of uncompensated care comes in through the ED.

Finally, notice how a 1.7-percentage-point premium surcharge is a bad thing if President Obama is ostensibly rescuing you from it, but a good thing if he’s imposing it on you.

ObamaCare’s Unlimited-Coverage Mandates Will Increase Some Premiums by 7 Percent (or More)

Among the many ways ObamaCare will increase the cost of health insurance, it will require all Americans to purchase unlimited annual and lifetime coverage.  The latter requirement takes effect this September.  The former will require consumers with non-grandfathered health plans (i.e., about half of the market) to purchase coverage with an annual limit on claims of no less than $2 million by 2014, and unlimited annual coverage thereafter.

In interim final regulations and a “fact sheet” released this week, the Obama administration claims that the mandate to purchase unlimited annual coverage will increase the cost of employment-based and individually purchased coverage by an average of about 0.1 percent.  That average glosses over the fact that these mandates will have zero effect on consumers who already purchase the required coverage.  Consumers who are actually affected by the mandates will see larger premium increases.

For example, the regulations indicate that the phased-in mandate to purchase unlimited annual coverage will increase premiums for the 18 million Americans affected by a weighted average of 0.15-0.18 percent.  Even that weighted average hides the fact that this mandate will cause premiums to rise as much as 6.6 percent for 278,000 Americans.  This mandate will increase premiums by even more – and for more people – once it is fully implemented.  But the administration did not include an estimate of the premium impact beyond 2014.

The Obama administration also estimates that the mandate to purchase unlimited lifetime coverage, when spread across all insured workers, will increase premiums by about 0.5 percent.  Yet that requirement would not affect the 40 percent of insured workers who already purchase unlimited lifetime coverage.  When spread across the 93.6 million affected workers, the average premium increase rises to 0.8 percent.  The increase will be greater than that for the 26.5 million workers with lifetime coverage limits at or below $2 million, and greatest for the 1.5 million workers with limits at or below $1 million.  But the administration offers no estimates for these workers.

Spread across the entire individual market, the unlimited-lifetime-coverage mandate would increase premiums by an average of 0.75 percent, according to the administration.  But since the mandate won’t affect 11 percent of that market, the average impact on the 8.7 million people affected will also be 0.8 percent.  Again, the 300,000 consumers in that market with lifetime limits at or below $2 million will face larger premium increases.  And again, the administration provides no estimates specific to these consumers. Which is a shame, because – aside from the uninsured – it is these consumers on whom ObamaCare will place the greatest burdens.

All told, ObamaCare’s unlimited-coverage mandates will increase the premiums of affected consumers by an average of about 1 percent, and as much as 7 percent for some consumers.  Or maybe more: the administration acknowledges that a “paucity of data” about the impact of these mandates means that there is “tremendous,” “substantial,” and “considerable” uncertainty about the mandates’ costs.

Obama to Health Insurers: Stop Revealing How Expensive Our “Protections” Are

In the upside-down world of ObamaCare, politicians can force health-insurance companies to spend more yet blame them when premiums increase.

Today, President Obama extolled new “protections” included in the sweeping legislation he signed into law on March 23.

One category of “protections” requires consumers to purchase coverage for more and more expensive medical services (e.g., limitless coverage, requiring insurers to recognize ob-gyns as primary care physicians, coverage for “children” up to age 26).  If consumers valued such “protections,” they would have already bought them – and if they’re not in a position to select their own coverage, Congress should have fixed that problem.  Instead, Congress and President Obama forced consumers to buy them, and they are pushing health insurance premiums higher.

Another category of “protections” are actually just price controls.  Beginning this fall, ObamaCare will force insurers to cover minors with expensive conditions and at the same time charge those families far less than the costs they impose on the insurer.  Beginning in 2014, similar price controls will govern the entire market.  Insurers will respond by avoiding, mistreating, and dumping sick people, because that’s what these price controls reward.  Harvard health economist David Cutler, a sometime-advisor to President Obama, finds that health plans that provide quality care to the sick go out of business in the presence of those price controls.  If you think insurers mistreat the sick now, just wait until ObamaCare takes hold.  Along the way, ObamaCare’s price controls will increase premiums for young and healthy Americans.

Rather than take responsibility for its own law, the Obama administration is scapegoating insurance companies.  According to The New York Times, “The White House is concerned that health insurers will blame the new law for increases in premiums that are intended to maximize profits rather than covering claims.”  We’ve seen this before.  Massachusetts enacted a nearly identical law, which also caused premiums to rise.  State officials responded by imposing premium caps (more price controls!), which will force insurers to ration care.  As Massachusetts’ Deputy Commission for Financial Analysis at the Massachusetts Division of Insurance put it, premium caps will be a “train wreck.”

Meanwhile, “The administration worries that escalating premiums will force more people drop their policies before the law is fully implemented,” writes the Associated Press.  The administration is right to worry.  ObamaCare is already increasing premiums, and in 2014, it will force insurers to cover you at standard rates even if you get sick, which creates an even bigger incentive to drop coverage.

Hmm…there’s gotta be someone the administration can blame for that, too.

Study: RomneyCare Increased Health Premiums by 6 Percent

One of the main arguments for both RomneyCare (the health care law Massachusetts enacted in 2006) and ObamaCare (the federal law enacted in March of this year) is that once the government mandates that everyone purchase health insurance, premiums will fall due to broader pooling. A new study published by the Forum for Health Economics & Policy suggests the opposite.

Supporters of those laws, like MIT health economist Jonathan Gruber, point to data showing that premiums for individually purchased health insurance policies in Massachusetts fell after 2006.  Yet that was expected, and is not evidence that RomneyCare reduced health insurance costs.  RomneyCare merged Massachusetts’ “individual” health insurance market with the market for small employers.  The individual market accounts for just 4 percent of the private market, and premiums in that market were higher than for employment-based coverage.  When the two markets merged, the price controls that Massachusetts imposes on health insurance led to an averaging of premiums: premiums for individual purchasers fell, and premiums for small-business employees increased to pick up the slack.  That is, RomneyCare shifted costs from people who purchase their own coverage to workers who obtain coverage on the job.

Economists John Cogan, Glenn Hubbard, and Daniel Kessler compared premiums for job-based coverage in Massachusetts, before and after RomneyCare, to job-based premiums nationwide. They found evidence that RomneyCare increased employer-sponsored insurance premiums, particularly at small firms:

We find that health reform in Massachusetts increased single-coverage employer-sponsored insurance premiums by about 6 percent in aggregate, and by about 7 percent for firms with fewer than 50 employees. The effect of reform on family premiums is less uniform. If Massachusetts is compared to the nation as a whole, reform had a modest 1.5 percent effect on family premiums. However, in the Boston MSA, and among employees of small firms, the effect of reform on family premiums was much greater. Family premiums grew by about 8 percent more in Boston than in the 19 largest other MSAs from 2006-08, as compared to 2004-06. For small employers, the differential Massachusetts/US growth in small-group premiums from 2006-08, over and above the growth from 2004-06, was 14.4 percent.

Their study is subject to important limitations.  But it is getting harder and harder to claim that RomneyCare – and ObamaCare, which is just RomneyCare 2.0 – are going to reduce costs.