Big Insurance Company Problems for Obamacare
Big Insurance Problems for Obamacare
There has been a lot written about the Obamacare insurance “death spiral”. This is where there is not enough young people signed up to help subsidize the older population. The theory goes that insurance pools are filled with some people that tend to use more services than others. For example, most of us buy house insurance year after year. The vast majority of us will never file a fire insurance claim. However, a few will file claims so you could take the view that those of us that do not file claims subsidize those that do file claims.
It’s really all about statistics. Given large populations, insurance companies have pretty good idea of how many claims they will have to pay out each year given a certain amount of policyholders they have in their portfolio. The same is true with their medical insurance. Statistically the young tend not to need medical services as much as those that are older. So if the government only allows community pricing and does not fully allow insurance companies to price based on age and prior medical condition, then they must have a pretty significant pool of healthy people to be able to spread the risk around.
All insurance carriers are not required to participate in the ACA exchanges. However, if they do decide to get involved, they need to follow Obamacare rules. They need to allow pre-existing conditions, they need to use community based pricing. The carriers also must offer policies that conform to the laws rules and offer certain services like wellness check-ups and cover birth control pills.
Given the potential market of the ACA exchanges it was assumed that all insurance carriers would participate in the exchanges in states where they had a presence. In effect, Congress and the Obama administration were assuming that all insurance carriers would get involved and all carriers would be running their business by the same rules.
A Funny Thing
It turns out that not all insurers have decided to jump into the Obamacare waters head first. Some have dipped their toe’s in various states while others have avoided the exchanges entirely. Some is because they are pre-occupied with their business lines of insurance. Others did not want the red tape associated with the government.
The problem for Obamacare proponents is that it leaves an undesirable option for young people that are so keenly important to the success of the ACA. Those carriers not participating on a state exchange can offer whatever insurance they want and citizens are free to buy them.
But The Rules???
Let’s use the example of Mike who is 28 years old and in good health. Mike only wants coverage that protects him from catastrophic medical condition. He would like something with a low monthly premium and a very high deductible….like $10,000 per year. He does not care about things like wellness programs or vision care.
The ACA effectively does not allow these policies on the exchange. So if a carrier participates in an exchange in a state, it cannot offer non ACA compliant policies.
The fear is that many of these larger insurance companies who did forego the opportunity to participate in the exchanges did so because they did not want to be regulated into what policies they could offer. They may see an opening in which Mike (our example from above) may want to pay the penalty and get his non-aca approved health plan. The cost savings of the plan may well easily pay for the “tax” owed on the non-conforming plan.
Not everything has been totally litigated when it comes to Obamacare. There is a provision in the ACA which states that subsidies are only to be given in States that created their exchanges. Thirty-six states decided to let the Federal Government set up their exchanges. The suit will be adjudicated in the next couple weeks at the Federal court level and will probably end up in the Supreme Court of the United States no matter which way the federal judges and appellate judges rule.
If it should be ruled that the subsidies are not eligible to be given, conventional wisdom is that without subsidies in a state, there is no reason for a tax. Hence the tax consequences could go away in more than half of the states.
It Needs to be Whole
The administration admits that the law needs to act as one giant mass to work correctly. It has also been likened to a three legged stool in which all legs are needed. If the young do not sign up because they don’t have to due to a supreme court ruling or they figure out ways to do things cheaper, the death spiral starts. I maintained early on that it makes more sense for a young person to get a really high deductible plan and if something comes up, get more insurance when you need it. After all, pre-existing conditions are now covered.
Once again, this is an example of Democrats not thinking things out. I and other conservatives do not begrudge those truly in need decent health care. There are circumstances when people with pre-existing conditions should be able to get health care. But let’s not lose sight of the fact that medical coverage is something we as individuals should be budgeting for just like we do for clothes and food. However, we need to keep in mind that sometimes those medical bills can get out of hand and that’s why we buy insurance. Let’s get closer to a system that models car and house insurance rather than some single payer government run health insurance system.
Updated: CBS News Story talking about big insurance companies avoiding the exchanges