Wednesday, September 17, 2014

Obamacare Doesn't Reduce Health Care Premiums. It Is Going to Drive Them Up...Big Surprise!

The rise in health care costs has been a concern for many Americans. One of the reasons that Obamacare was legislated because it was the proponents' intent to contain health care costs. With a name like "the Affordable Care Act," you would expect health care to be more affordable, right? Not so much, especially when you think about it from an economic standpoint. Under Obamacare, insurance companies are legally obligated to provide insurance to all that apply for insurance under Obamacare, and the law also mandates that everyone purchase health insurance. Since the law does not address providing more doctors, hospitals, or medical equipment, what these provisions do, at least according to textbook microeconomic theory, is increase the demand for health insurance, thereby increasing health care prices. It should go without saying that proponents would like to ignore this, or simply hope that the government can miraculously contain prices. Will Obamacare actually succeed in keeping health care costs low, or will economic theory be correct in predicting the increase in health care premiums?

On the one hand, it can be tricky predicting actuarial forecast. Premiums vary from individual to individual, and given the wide variance of health insurance laws, they also will vary from state to state. Some will see their premiums increase, others will see them decrease. A lot of it depends on one's demographics, particularly since Obamacare redistributes risk from the more elderly and/or infirmed individuals to younger and/or healthier ones. In spite of that nuance, what inquiring minds would like to know is whether the overall trend going to increase or decrease as a result of Obamacare. This is where looking at studies comes into play.

Price WaterhouseCoopers recently aggregated data from ACA state exchanges. Although PWC was unable to collect data from all states, as of August 27, the average increase in premiums was 7 percent. The Manhattan Institute did a county-by-county study to find that the premium increases would be much higher, i.e., roughly 41 percent. Kaiser Foundation published a report about the premium charges for silver versus bronze plans, and its findings were less unpleasant than those of the Manhattan Institute. Silver plans shows a modest decrease. Those on the bronze plan, which I assume is for those who can't afford nicer plans, will see a larger spike in health care premiums. I'm sure proponents will take the decrease of 0.8 percent in the silver plans (see below) as a win for Obamacare.

Obamacare proponents want to see a decrease in premiums. It was one of the promises they made in order to pass the legislation. If Obamacare does not keep costs down, it will be one of those "I told you so" moments that unfortunately harms Americans. Can the decrease in health care premiums in recent years be attributed to Obamacare? The answer to that is a resounding "No!" The Office of the Actuary in the Centers of Medicare and Medicaid Services projects health care costs on an annual basis. The most recent projections (see summary here) makes for interesting reading, all the more so since this is a bureaucratic agency under the Obama administration. Here were the takeaways from their findings verbatim:

  1. Health care spending growth for 2013 is projected to have remained slow at 3.6 percent due to the modes economic recovery, the impacts of sequestration and continued slow growth in the utilization of Medicare services, and continued increases in cost-sharing requirements for the privately insured.
  2. Improving economic conditions, the Affordable Care Act (ACA) coverage expansions, and the aging of the population, drive faster projected growth in health spending in 2014 and beyond.
  3. Health spending is projected to be 19.3 percent of GDP by 2023, up from 17.2 percent in 2012.

To put these findings in simplest terms, Obamacare has not done anything to keep health care costs down; our less-than-satisfactory economic growth did. What's more is that we are going to see health care costs increase for many Americans, in no small part thanks to Obamacare. This is something the opponents of Obamacare have been saying for a while now. This does not even consider that deductibles and other cost-sharing provisions have also been increasing under Obamacare or that premiums under exchange plans have a smaller increase than initially anticipated is due to "narrower networks of providers and tighter management of subscribers' use of health care than employment-based plans do (CBO, 2014, p. 7)." These latest findings only confirm the extent to which the government royally screws up with health care costs and provisions. Rather than give the government control of something as vital and essential as our own health care, we should frame the conversation in terms of how to have less government in our health care decisions, not more.

10-28-2014 Addendum: In case you needed more proof that Obamacare is driving up premiums, here is a study from the non-partisan, health insurance organization called HealthPocket showing double-digit health care premium increases. 

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