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 …