April 2 2013
ObamaCare is starting to unravel even before it is fully implemented.
Diana Furchtgott-Roth has an alarming piece on the anticipated rise in the cost of healthcare that will result from the inaptly named Affordable Care Act.
The nonpartisan Society of Actuaries put out a report that concludes that long-run claims will go up by 32 percent by 2017 in the individual marketplace. Furchtgott-Roth writes:
The report's conclusions are breathtaking. At the top end, Ohio and Wisconsin will see hikes of 80 percent, and at the bottom, the cost of care in New York and Massachusetts will decline by 14 percent and 13 percent respectively. The report projects that 42 states and the District of Columbia will see double-digit percentage increases, 3 will see single-digit increases, and 5 will see decreases.
Note that these costs don't refer to insurance premiums, which will depend on federal subsidies at different income levels, but to the cost of claims made to insurance companies.
Costs will increase, according to the report, because the newly-insured would increase their health care spending to the level of the insured. Savings from more preventive care would be offset by increased spending in areas such as corrective orthopedic surgery and advanced diagnostic tests. …
The actuaries note that their estimated 32 percent increase in costs does not include a number of other factors that might also work to increase the amount spent on healthcare. They specifically mention increased utilization due to pent-up demand for medical services, as the newly-insured get care that they have postponed.
Also, the pool of insured will likely get sicker. Health insurance is projected to get more expensive, reaching $20,000 a year for a family of five in 2016, according to the Internal Revenue Service. With low tax penalties for not signing up for insurance ($95 in 2014, $325 in 2015, and $695 in 2016 and thereafter), combined with the requirement that insurance companies take anyone at open enrollment periods, some healthy individuals may decide not to enroll.
Furchtgott-Roth touches on an aspect of ObamaCare that that Megan McArdle previously addressed in an excellent article over at the Daily Beast (an unlikely place, I know): ObamaCare is not really insurance. Insurance, as traditionally understood, is a policy you take out to provide financial assistance in the event of an unforeseen and catastrophic event. ObamaCare, by contrast, is designed to cover predictable, routine medical procedures. (I have already noted the McArcle piece.)
This is where the catastrophic costs associated with ObamaCare come into play. Furthtgott-Roth writes:
Everyone who has purchased auto or home insurance knows that requiring insurance to pay for minor, foreseeable expenses raises the cost of premiums. With these types of insurance, the higher the deductible-i.e. the more the car or home owner pays out of his own pocket in case of damage-the lower the premium.
One reason is that the insurance company doesn't have the administrative and cost burden of paying for small expenses. Another reason is that when people pay out of their own pocket, they shop around, lowering the cost. …
On the other hand, if these costs are invisible, because visits to the doctor come free or with a low copayment, you don't think twice about making that appointment. Sure, your cold might get better on its own in a few days-but if there's no cost to visiting the doctor, you might as well get him to check it out.
The main reason medical costs are through the roof is that most of us don’t pay out of pocket. We have no incentive to perform any cost effectiveness analysis. A good way to begin to rectify this is for people to buy catastrophic insurance policies and be responsible for the smaller, routine medical services.
Former Indiana governor Mitch Daniels introduced a system that relied on catastrophic insurance in his state in 2007. Hoosiers did get $500 for preventative services to ensure that they didn’t skip check-ups and routine maintenance. The system was popular and it saved the state millions of dollars. Here’s the bad news: unless the federal Department of Health and Human Services gives Indiana a waiver, the state will have to give up on this system because of ObamaCare.
The sad truth is that ObamaCare grew out of faulty thinking about healthcare and health insurance. It is likely to be so expensive and so inefficient for sick people that, unlike Social Security, it won’t be popular with the public.