May 11 2012

How to Buy Votes with Health Insurance Rebates

Hadley Heath

Perhaps you've seen the recent report from the Kaiser Family Foundation that shows how $1.3 billion in health insurance rebates will reach some American homes this summer, due to a provision in ObamaCare called the "Medical Loss Ratio."  This provision basically tells insurance companies that 80 cents of each dollar they collect in premiums must be spent on claims.  If they don't reach this level, they owe their consumers a rebate.  According to the Kaiser report, those rebates will total about $72-$127 per household.  In total, across individual, small group, and large group markets, about 15.8 million people will receive a rebate.  Oh, and insurers have to send these out by August (conveniently three comfortable months before November).  

My first reaction is "Woohoo!" I will be looking for my $100 check in the mail.  

But then I remembered, my insurance premium went up last year.  A rebate on the high end ($127) wouldn't even be enough to make my insurance costs equal what they did the year before. 

Turns out, I am not alone.  When President Obama was elected, the average family premium in the U.S. cost an annual $12,680.  In 2011, it was $15,073.  That's an increase of nearly $2400.  I don't think American families are going to recover that in this summer's rebate.

Even more disappointing is the distant memory of a candidate Obama in 2008: "We’re going to work with you to lower your premiums by $2500 per family per year.  And we will not wait 20 years from now to do it or 10 years from now to do it.  We will do it by the end of my first term as President."

So much for that.  The problem with this approach to lowering premiums is that the major driver of increasing health insurance costs is not gluttonous health insurance companies.  Yes, they can be frustrating at times, and I, like many other Americans have had to fight tooth and nail with them to get them to pay up on a claim (and eventually they did).  But government micromanagment - like making sure companies spend 80 percent of their revenues on claims - isn't going to get to the root of the health care cost problem.

Two other issues - cost-shifting and over-consumption - are actually bigger problems.  

Cost-shifting (when you pay for someone else's health care) is only going to get worse under ObamaCare.  More and more people will go to the emergency room for care, because more and more people will be on Medicaid and will be unable to get timely doctors' appointments.  Just consider the current situation: We haven't expanded Medicaid yet, and beneficiaries already struggle to find doctors who will treat them at the government's measly reimbursement rate (about 55 percent of the market rate).  We all pay for Medicaid just like we pay for the uninsured.

And over-consumption will get worse with ObamaCare too.  As the government requires that more and more treatments and services be required as "minimum essential" coverage, more people will take advantage of those treatments, even if they don't need them, or even if they could pay for them without insurance (like... birth control for example).  And doctors will be happy to sign people up for more tests and procedures, as they continue to practice defensive medicine to shield themselves from costly lawsuits.  

Remember that when the government says something is "free," this actually means it will be more expensive than before.  The costs will just be more difficult to track.  Until ObamaCare addresses the real causes of high health insurance, we can expect the upward trend in premiums to continue.

Sadly, some American voters will get a $100 check in the mail and won't give any thought to the fact that their premiums have increased by a greater amount.  They will just look at the check and think, "Wow, what a nice thing President Obama has done for me."  And that's how you buy votes with health insurance rebates.

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