Yesterday, Heritage scholar Rea Hederman explained why new CBO estimates showing only small rises in health insurance premiums under Obamacare was not good news for Americans (in short: Americans with generous coverage would see benefits cut due to the tax on high-value plans and Americans with Spartan coverage would see their premiums increase due to increased coverage mandates and taxes on medical devices and insurers that would be passed on).
Today at NRO, Ethics and Public Policy Center fellow James Capretta explains why even the low premium increases projected by the CBO may be overly optimistic:
For weeks, experts have been warning that the Senate legislation would lead to serious “adverse selection” in the individual and small-group insurance markets. Adverse selection occurs when, on average, the pool of insured lives becomes less healthy over time compared to a relevant comparison group. The Senate bill would require insurers to take all comers, with heavily regulated rates. These rules would help those with chronic conditions get less expensive coverage. But they would also drive up premiums for the young and healthy.
If the healthier people left or stayed out the insurance risk pool, premiums for those who remained would go up quite dramatically. Indeed, that’s exactly what Wellpoint, a large national insurer, predicted would occur under the bill prepared by Senate Finance Committee Chairman Max Baucus, which formed the basis of much of the Reid plan. The Wellpoint actuaries estimated that, under the Baucus bill, premiums for a person at the average age and in average health would go up by more than 50 percent in the individual insurance market in California, and by more than 20 percent in the small-group market.
CBO argues that risk-selection problems will be mitigated by the presence of new insurance subsidies, penalties for those who don’t get coverage, a once-a-year enrollment window which will limit the opportunity to come back into insurance, and the tendency for people to comply with mandates even if they are costly. But, as others have shown, even with subsidies, the cost of coverage for many low and moderate wage families will be very substantial. Many people could reduce their costs if they paid the penalty instead of premiums and signed up with insurance only when they really needed it. Would the fact that they might have to wait a few months before getting insurance be enough to keep them in coverage all year? Hard to predict. In fact, as pointed out here, it appears that none of most-cited models used to estimate the impact of health-reform plans, including CBO’s, has an explicit capacity to calibrate insurance take-up rates based on the penalties imposed on those who go without coverage. Apparently, the premium estimates are based as much on judgment as analytics, and CBO’s judgment is clearly on the optimistic side. But what if they are wrong? What if adverse selection is more pronounced, as many experts are predicting? At a minimum, before any votes are cast, CBO should make it clear how sensitive their premium estimates are to their assumptions about the risk pool. That way senators could decide for themselves what to believe.
This Morning Bell is the final installment of a five-part week-long series on how Obamacare will affect you.
Lost in all of last weeks headlines on how the Senate Finance Committee (SFC) finally delivered a health care product that the Congressional Budget Office (CBO) was willing to say would reduce the deficit, was how exactly they achieved it. At a price tag of $829 billion, the SFC ’framework’ will reduce the number of uninsured Americans by 29 million, moving the overall percentage of nonelderly Americans with health insurance from 83% in 2010 to 94% in 2019. But of those 29 million with new insurance coverage, almost half (14 million), will get their coverage through the welfare programs Medicaid and the State Children’s Health Insurance Program (SCHIP). That is equivalent to adding every resident of Ohio and Nevada to the welfare rolls.
In other words, for half of those Americans who are being promised health reform, they are going to be stunned to find themselves in a welfare office applying for Medicaid. Under the current baselines for Medicaid and the State Children’s Health Insurance Program (SCHIP), there will be 76 million individuals served by these programs for at least some part of the year in 2019. If the SFC proposal becomes law, the number on Medicaid/SCHIP will top 90 million. So why do Obamacare supporters want to put 90 million Americans on the welfare rolls? It is cheaper than providing them with real quality health care.
Medicaid was originally created to provide access to health care for families on welfare. Medicaid pays providers 20-25 percent less than does the private sector, forcing doctors and hospitals to subsidize Medicaid through lower rates. This deters doctors and hospitals from participating in the program, creating a lack of access that itself is a form of rationing. As Time magazine reported this July: “But there are real questions as to whether the program could handle the strain of that many new clients. Already, it is difficult in some areas to find health-care providers who are willing to accept Medicaid patients.”
Even those who are not pushed into welfare will feel the strain on the health care system. The majority of individuals moved into Medicaid will be young and healthy. Keeping them on welfare rolls will shift even more costs to individuals and families buying private health insurance, as doctors and hospitals recoup their losses from Medicare/SCHIP by charging more to the privately insured. In effect, the congressional policy seems to be to expand dependency by discriminating against individuals based on their income.
And then there is the effect on states. The CBO estimates that the Finance Committee plan will cost states $33 billion over 10 years. But even that may be a low estimate. Governor Phil Bredesen (D-TN) has warned that the costs for his state alone could be as high as $3 billion. Thanks to strings attached to Obama’s failed stimulus, states already are facing an erosion of their authority to manage their Medicaid programs. The true cost to taxpayers in the states will only become apparent as spending for education, child welfare, public health, and investment in transportation systems and infrastructure are crowded out over time.
As Heritage Senior Fellow Dennis Smith reminds us:
In June, President Obama told Senate Democrats, “As we move forward on health care reform, it is not sufficient for us simply to add more people to Medicare or Medicaid.” Unfortunately, that is precisely what Congress is going to do with the Baucus proposal.
Quick Hits:
- A previously undisclosed April 15 meeting at the offices of the Democratic Senatorial Campaign Committee between corporate lobbyists, aides to President Barack Obama and Sen. Max Baucus (D-MT) helped set in motion a multimillion-dollar advertising campaign, primarily financed by industry groups in favor of Obamacare.
- A bad economy and low inflation have driven private-sector worker wages down 1.4% this year.
- According the Obama administration’s own report, President Obama’s stimulus has only created or saved 30,000 jobs nationwide, and thanks to the heavy presence of the federal government, the District of Columbia reported more jobs “saved” than Michigan, North Carolina, and New Jersey.
- According to the New York Times, Obama’s Housing and Urban Development Secretary Shaun Donovan’s close ties to ACORN demonstrate how deeply the group has become enmeshed with the Democratic Party.
- A wave of attacks against top security installations is demonstrating that the Taliban, Al Qaeda, and militant groups are tightening an alliance aimed at bringing down the Pakistani state.