In preparation for the Health Care Summit, President Obama unveiled his first official health care proposal. It is intended to reconcile the differences between the highly unpopular House and Senate bills. Curiously, President Obama’s latest iteration of the liberal health policy agenda includes more federal power: the power to control “private” health plan premiums.
Price Controls. According to the President’s proposal, a new “Health Insurance Rate Authority” would oversee rate review for private insurers, so that “if a rate increase is unreasonable and unjustified, health insurers must lower premiums, provide rebates, or take other actions to make premiums affordable.” On the face of it, this means price controls on health insurance.
The President knows the unhappy history of price controls, and the genuine misery- shortages, mainly- that such a policy guarantees. Think of the long, hot gasoline lines of the 1970s, courtesy of the Carter Administration.
Getting it Wrong. The underlying assumption – a big one- is that federal officials will set the right premium price. Not likely. If they don’t, we pay too much for insurance. Or, we don’t pay enough to cover the real insurance costs. In the meantime, whether insurance premiums are “unreasonable” or “unjustified” would reflect the reigning mental or political impulses that drive federal officials.
Health insurance industry profits are marginal, between two and three percent. But much of the rationale for creating this federal power is rooted in the recent premium increases in plans offered by Anthem Blue Cross in California. Secretary of Health and Human Services (HHS) Kathleen Sebelius asked Anthem to justify the increases, which experts attribute to increases in provider rates, new state mandated benefits, and the current economic climate. The recession has encouraged younger and healthier people to drop coverage, leaving sicker and more costly persons in insurance risk pools. Under such circumstances, insurers have little choice but to increase premiums if they wish to stay in business and pay claims.
No Happy Ending. But price controls on premium rates would make sure that there is no happy ending to this movie. Either the insurers will comply with the government controls and crack down on physician and hospital reimbursement for medical services, making those services less available, ie. Rationing. Big cost to patients. Or, insurers, running deficits, will do what the automakers and the bankers have done who are “Too Big To Fail” and run to Congress and get their a bail-out. Big cost to taxpayers.
Heritage’s Ed Haislmaier further lays out the shortcomings of price controls in health care: “Price controls would not work in health care because they attack the symptoms of runaway costs, not the cause. Medical costs today are soaring because consumers are largely insulated from them…and because the tax system discourages consumers from seeking good value for money in health care”.
Because price controls do not attack the root of increased health care spending, they would be more likely to exacerbate the problem than to fix it. Haislmaier lists the unintended consequences of price controls: shortages of goods, reduction in the quality of goods, and diversion of economic activity and investments. Furthermore, price controls can result in queuing, rations, and bribes as a way to allocate services, since inflexible pricing cannot address the normal fluctuations in supply and demand.
In the case of President Obama’s agenda, other provisions of the President’s proposal would make insurance costs even worse. His proposal would increase costs for insurers, while limiting their ability to offer different levels of coverage. For example, a requirement for insurers to cover any and all applicants, regardless of pre-existing conditions, would encourage persons to put off buying insurance until they are sick. The Obama tax penalty, to enforce his proposed individual mandate to buy coverage, would be cheaper than the Obama specified health insurance premiums. The potential result: even more uninsured.
According to Haislmaier, “Most policy makers who favor health care price controls view them as a way to curb rapid medical inflation. But most of the blame for that same inflation can be traced directly to previous government health care policies that they support or maintain. Health care price controls also are attractive to Members of Congress because they provide a benefit (cheaper medical care) to a favored constituency (health care consumers) at the expense of less favored constituencies (doctors, hospitals, pharmaceutical manufacturers, and insurance companies). This is why some Members of Congress are so quick to blame the health care industry for escalating medical costs, when in fact it is largely government laws, regulations, and policies that are responsible.”
Rather than bring back the old Nixon-era price controls for the insurance industry, the President should address causation behind increased premiums. His proposal would only make the insurance market problems worse.
You’re 27 and employed, but you’re not raking in the dough. You’ve always been healthy, so the fact that you don’t have health insurance isn’t a big deal to you. Now, though, you’re hearing something about a “congressional mandate” to buy health insurance.
The health insurance industry considers you a member of the “Young Invincible” demographic (whether you realize it or not). Like many of the rest of the people in your demographic, you’ve decided that you don’t want to shell-out a few thousand dollars a year for health insurance because you usually don’t go to the doctor, and the cost just isn’t worth it. After all, that’s your prerogative, right?
According to reports, among the millions of Americans in your demographic, one in three is uninsured. Who you are or why you don’t want to spend money on health insurance really doesn’t matter.
Maybe you’re waiting tables, saving up some money so you can travel before you start grad school. Or you’re a personal trainer and you want to put some dollars away so you can start your own business. You could be overseas for a few months, and health insurance in the United States won’t do you any good, anyhow. You might even need to pinch every penny so you can buy an engagement ring for your girlfriend. Whatever the reason, you’ve decided to risk not having health insurance because there are other priorities that you would rather spend money on.
With the passage of the Senate health care bill, you no longer have that choice (unless you’d like to violate the law and pay a $750 fine, leaving you poorer and without insurance). Regardless of how healthy you are and how you’d like to spend your money, Congress plans on forcing you to buy health insurance.
No one is really sharing that information with you, though. Sure, there has been a lot of talk of the “congressional mandate” to buy health insurance and how it’s unconstitutional, but no one is telling you how much it’s going to cost, and no one is giving you an explanation.
Well, here’s a general idea, but it varies based on who you are and where you live. (Note that the following estimates are based on preliminary calculations by The Heritage Foundation’s Center for Data Analysis):
Right now, a single 27-year-old living in Fairfax County, VA, can log-on to ehealthinsurance.com and purchase a health savings account for $103 per month or $1,236 per year (that gives you a $2,700 deductible, 0% coinsurance, in a PPO). That’s a mouthful.
Under the new health care exchange in the Senate bill, that same 27-year-old would have to pay $2,648 per year for mandatory health insurance. That’s $1,412 more expensive than the plan they could purchase online today (if they so chose).
To be fair, the 27-year-old may qualify for a subsidy to help pay for insurance which, on average, would cover about half of the premium, leaving their out-of-pocket cost at $1,324. That’s just about the same cost of the plan they could buy on ehealthinsurance.com, but frankly, that’s not the point.
That $1,324 is money that 27-year-old never wanted to spend. So why should they have to pay it? Why is Congress forcing them to pay for that insurance? They face a new mandate to buy health insurance in order to pay for older, sicker people who are in the same insurance pool. Those older Americans cost more money to insure, and the government needs younger, less expensive individuals to foot the bill.
In other words, Obamacare is being balanced on the backs of the Young Invincibles. Those invincibles no longer have the freedom to choose to spend their money on that trip to Europe, their new business, a sparkling engagement ring, or even something as basic as rent. Under the congressional mandate, they will be forced to choose between purchasing health insurance or violating the law and paying a penalty for doing so.
One wonders if they see it coming.