Who could have predicted this? Well, pretty much anyone familiar with risk pools, price signals, and the cost of government mandates — in other words, all the people that Democrats ignored while imposing ObamaCare on a hostile electorate.
But that’s just the beginning. Once the government ends a backstop for insurance companies known as the “risk corridor” program, the escalating costs of providing care will fall directly on consumers. University of Minnesota’s Stephen Parente, a professor of health finance, warns in the Wall Street Journal that the big bill will come due soon enough:
According to the rate requests posted on Healthcare.gov, nearly every state has multiple plans that are facing a more than 10% premium increase. Many plans—including some offered by state-market leaders—could see hikes of more than 30%, 40% or even 50%. Though most of these requests have not been approved, nor have all of the rate hikes that are less than 10% been unveiled, it is undeniable that millions of Americans are facing double-digit premium increases for health insurance next year.
For the first time since the law went into effect three years ago, insurers are basing their rate-hike requests on more than a year of data. For 2014 plans, they had to make educated guesses on how to price their never-before-sold ACA-compliant plans. For 2015 estimates, insurers had about six months of information to work with, and the final average premium increase was 5.4%. Now that insurers have a more complete picture, it is clear that costs are increasing much faster than anticipated.
It’s only going to get worse after 2016, as I’ve written in these pages, when two de facto bailouts for insurance companies expire. Through “risk corridors,” taxpayers are on the hook for patients who spend more on health care than insurers predicted. Through “reinsurance,” taxpayers are heavily subsidizing the most-expensive patients—those who make more than $70,000 in claims in 2015. Thanks to these two programs, insurance companies are able to artificially lower their premiums for consumers—by between 10%-15% in 2014, according to CMS—while charging the taxpayer for their losses. Reinsurance alone cost taxpayers $7.9 billion in 2014.
But consumers will pick up that tab once these programs disappear at the end of 2016. Health insurers are aware of this fact, and it’s in their interest to avoid the negative attention—and angry customers—that dramatic premium increases will cause. They thus have an incentive to spread out the coming hikes over both 2016 and 2017, rather than confine them to next year.
After 2017, the annual increases should shrink to 3-6%, but the damage will have already been done. The cost arc will bring its own kind of political and fiscal death spiral within a few years, Parente predicts:
By 2023, I estimate that the average family plan could be 61% more expensive than it is in 2015, with individual plans only one or two percentage points behind. These increases are so high that direct taxpayer subsidies to consumers are unlikely to keep up. So the cost, both financially and politically, will become increasingly intolerable.
Let’s remember two points on that argument. One, Barack Obama and the Democrats actually pegged contribution for subsidized health insurance to a percentage of salary, which means that the subsidies will have to get paid — and that will sink the program into a massively deep ocean of red ink. Two, people making above 400% of the poverty line won’t get subsidies at all, and they will get very, very angry at the massive cost increases in health-insurance premiums and the tax increases that will be necessary to cover subsidies they don’t get.
On top of that, most of the people who get insurance won’t see any benefit from the costly comprehensive insurance they’re forced to buy. That’s because the deductibles are so high that most care will come out of their pockets, along with the skyrocketing premiums. WCPO in Cincinnati offers a look at how the “low $50 co-pay” has vanished in ObamaCare plans, and how that impacts consumers when they actually need medical care — especially through emergency rooms:
Note too that the problem of high deductibles doesn’t just come into play in ERs. A wellness check may be covered outside of deductibles, but any other service will come from right out of your pocket until you’ve spent the thousands of dollars needed to qualify for insurance payouts.
So what does WCPO suggest to lower medical costs while in the deductible range? Using the private marketplace and getting direct price signals. Do research on the lowest cost options. Try to get providers to compete on price. That is exactly the form health-insurance reform should have taken all along, which would have resulted in an emphasis on hospitalization/critical care insurance at much lower premiums, along with HSAs — options proscribed by ObamaCare.
Instead, as I wrote this week at The Fiscal Times, consumers are getting hammered by cost increases of more than 50% in some states while ObamaCare fails entirely at its ostensible goals:
The Obama administration hasn’t done any better in its other goal of driving the cost of care down for American families. Even Slate wondered last week just when the Democrats would start taking ownership of “skyrocketing premiums” in the third enrollment year of the Affordable Care Act. Oregon approved a 25 percent increase from its largest health insurer, and a 33 percent increase from the next largest. BlueCross BlueShield in Tennessee needs a 36 percent increase after getting a 19 percent increase the year before. In my state of Minnesota, BCBS wants to hike rates 54 percent, and 51.6 percent in New Mexico.
At the same time, deductibles have also skyrocketed, leaving people with higher monthly payments and even less ability to access the insurance that those premiums provide. Slate’s Helaine Olen heaps scorn on Obamacare opponents and fails to admit that their predictions of spiraling costs have come true, but she does admit that the system does not work at controlling costs – the most significant reason to have government overhaul the health-insurance system in the first place.
What have we accomplished in the last five years since the passage of Obamacare? We still have roughly the same number of uninsured, estimated to be roughly 30 million people, although the rate of uninsured has dropped significantly. Costs for the insured are skyrocketing, however, and many of the newly insured will find that high deductibles mean they will still have to fund their routine care out of pocket. Provider networks have narrowed considerably, making access even more difficult than before. Emergency room visits for routine care have actually increased. The bureaucracy that runs all of this cannot fix its fraud problem, not even after having it specifically pointed out to them by the GAO and given a year to resolve.
There’s no fixing a structure doomed to failure. The only option is to repeal it and introduce market-based reforms that eliminate price-signal opacity, especially in routine care. “You have to know where to go and where not to go,” the father says in the video, just like any other marketplace. You shouldn’t be forced to spend $15,000 on membership to it beforehand.