ObamaCare nails its first “villain”

posted at 2:20 pm on June 8, 2010 by Ed Morrissey

Nancy Pelosi called insurance companies “villains” last year, and in that sense, ObamaCare scores its first success today.  The Virginia firm nHealth announced that it will close its doors by the end of the year, thanks to the costs associated with insuring people under the mandates imposed by Congress:

A Virginia-based insurance company says “considerable uncertainties” created by the Democrats’ health care overhaul will force it to close its doors by the end of the year.

The firm, nHealth, appears to be the first to claim that the new law has driven it out of business. “We don’t know what the rules are going to be, and, as a start-up, our investors need certainty,” nHealth CEO and President Paul Kitchen told POLITICO. “The law created so much uncertainty that is beyond our control.”

Sarah Kliff warns at Politico to take Kitchen’s missive with a grain of salt, but in doing so, underscores the idiocy of casting health insurers as profiteering villains in the first place:

The company’s finger-pointing — first reported by the newspaper Richmond BizSense — must be read with caution: For years, employers and health insurance brokers have struggled to keep pace with steeply rising health care costs.

Asked about nHealth’s decision to shut down, a White House aide said, “It’s difficult to comment on this case without fully evaluating the company in question.”

The blame game — whether health reform can be held responsible for the continuing woes of an already struggling system — will very likely become a familiar plotline as the health overhaul takes effect and political parties vie for control of the narrative.

But Pelosi and the Democrats blamed the steep rise in health care costs on insurers like nHealth while drumming up support for ObamaCare.  They repeatedly demonized the supposedly rich insurance companies in order to play class warfare with health care.  They and the media mainly ignored the fact that health insurers have very thin profit margins, averaging somewhere between 2-6% depending on the year.  They didn’t have much room to meet the new coverage mandates while keeping costs at an affordable price, and nHealth merely felt the pain first.

Instead, this exercise shows where the actual cost drivers are — in government mandates.  The intervention of governments in demanding certain coverages distorts prices.  The intervention of courts in casino-like malpractice actions creates both higher insurance costs and tremendous incentives for a great deal of unnecessary care — by the CBO’s estimate, over $11 billion a year in defensive medicine.   Democrats were well aware of these costs, but chose not to make malpractice tort reform a part of the ObamaCare package, despite many calls from Republicans to include it.

And what kind of insurance plans did nHealth offer?  The kind of high-deductible, HSA-driven plans that put patients in charge of routine care and leaves insurance to cover the crises instead.  They saved money while offering better pricing signals to hold down overuse of provider networks.  In other words, nHealth was part of the real solution to “steeply rising health care costs,” and ObamaCare drove them out of business.  That serves as an example of how badly this government intervention will work out in the long term — and as a harbinger of what will eventually happen with other insurers.


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