Health Insurance Premiums Rise, Insurers Quit
The White House released a brief stating that health insurance premiums for states using the federal HealthCare.gov exchange for “Obamacare” plans will increase an average of 25 percent in 2017. Their explanation for the premium increases is that prices are naturally rising to cover costs, but that statement fails to address the reasons why insurers’ costs are rising.
A state-by-state examination of the increases reveals stunning jumps of more than 40 percent in ten states, including Alabama (58%), Arizona (116%), Illinois (43%), Kansas (42%), Montana (44%), North Carolina (40%), Nebraska (51%), Oklahoma (69%), Pennsylvania (53%), and Tennessee (63%). Another three states are projected to see at least 30 percent increases, and another 16 states are projected to see double-digit increases lower than 30 percent. Indiana is the only state where premiums are projected to decrease (-3%) next year.
These huge increases may not seem meaningful when reading them as numbers on a page, but consider the effects they would have if the increases were to continue at the same rate of 25 percent per year. A “Big Mac” hamburger currently costs about $3.57 on average nationally. In just five years, the same burger would cost $10.89. A $30,000 automobile today would cost over $91,000. The average family’s annual health insurance premiums cost them about $17,500. Five years of 25 percent price increases would amount to annual health insurance costing over $53,000 per year—as much as the median household income level in 2015.
If the damage from massive premium increases was not enough, the number of insurers offering plans through the federal system continues to shrink. States participating in the HealthCare.gov exchanges saw a net decrease of 68 insurers (28 percent fewer), leaving consumers with fewer options and creating conditions in several states for single-insurer monopolies. Five states will have just one insurer, and another 16 states will have three or fewer insurers when the exchanges reopen. These monopolies will enable insurance companies to charge higher prices without having to offer higher quality insurance, since there will be no competition to offer a better deal—and the only thing preventing competition from entering the market is the Affordable Care Act (ACA) itself.
A Gallup poll from earlier this year revealed that 15 percent of Americans say that healthcare is their family’s greatest financial concern. A more recent Gallup poll revealed that 51 percent of Americans disapprove of the Affordable Care Act, while 44 percent approve. 29 percent of Americans claim that the ACA has been harmful to their family. This is all in stark contrast to the Obama Administration’s claims from prior years that the law would lower annual health insurance costs by $2,500 per family.
All of this is bad news for the average American, so why is it happening, and what is the solution?
Why Health Insurance Is So Expensive
There are several factors causing health insurance to be more expensive than it otherwise should, and why insurance is getting more expensive over time. Almost all these factors are self-inflicted, and can therefore be remedied.
For starters, the Affordable Care Act’s two primary goals are conflicting ones: lower health insurance costs, while also mandating that every American is insured—whether they can afford it or not. The number of Americans with health insurance has increased following the mandates passed down by the ACA, but not to the level of universal coverage desired by its original proponents. The ACA also expanded state Medicaid programs to cover adults who fall within 138 percent of the federal poverty level, and over 7 million have enrolled since. Insuring those who cannot afford it may be a noble goal, but the cost of insuring them then falls to those who do pay for their insurance, raising costs for their insurance and contradicting the ACA’s first goal.
The primary reason for high insurance costs, however, is due to the nature of the insurance itself. There are a multitude of federal and state mandates for a minimum level of ‘essential’ health benefits that must be included in insurance plans. Before the ACA, states had varying types of required benefits that insurance companies were obligated to offer. With the implementation of ‘Obamacare’ came a new, expanded list of essential benefits. In general, the more benefits conferred by the insurance, the costlier it will be. Getting more benefits for insurance seems like a nice idea, but many of the benefits are not desired by consumers—and in some cases, benefits are not even applicable, such as mental health care, corrective vision coverage, and gender-specific medical care. As the list of essential benefits grows, so does the cost of providing the insurance. Thus, premiums continue to rise. Rather than giving consumers a wider variety of choice of what they can purchase through an individualized, customized insurance plan, the ACA has attempted to provide a ‘one-size-fits-all’ solution, creating significant waste and driving up costs.
In the same way that car insurance does not cover an oil change, health insurance should not cover routine checkups and non-specialty drug prescriptions, among other things. Likewise, insurance as a mechanism for payment is ineffective for the most routine, low-cost medical procedures. Paying for these procedures out-of-pocket would directly correlate with usage, which is more effective and more fair than paying an insurance premium that tries to predict the average use of all enrollees.
Insurance is designed to protect against loss with guaranteed compensation as a precaution for an unlikely, unforeseen event occurring. Take fire insurance, for example. There is a competitive market for fire insurance, and rates are reasonable. The rates are lower because most houses do not burn down. The insurance companies stay in business because no one knows for certain if their house will burn down, so they pay for peace of mind. That is the purpose of insurance, but this purpose is corrupted when not allowed to operate properly, as is the case in health insurance.
If the annual cost for fire insurance was a fifth of what it would cost to rebuild the house, no one in their right mind would purchase fire insurance. However, that is exactly what the government forces people to do with health insurance. Healthy people are forced to subsidize unhealthy people, which creates a situation where the cost of procedures is less important, since the patient receiving the care is not directly paying for the procedure. Insurance companies have an impossible task in trying to predict how much the insurance will be used, since the ACA forced an overhaul of so many of the existing plans. To date, insurers have underestimated the amount of insurance that would be used, which is why many of them are having financial difficulties and are raising premiums rapidly, and why others are dropping out of the exchanges entirely.
Another problem that the ACA has caused is in mandating coverage for preexisting conditions. Providing healthcare to those with preexisting conditions is a noble goal. However, covering them through a mechanism of insurance is not the correct solution. Forcing insurers to cover preexisting conditions is the same as forcing providers of fire insurance to cover those whose homes have already burned down. The insurance company cannot afford to do this without increasing premiums for everyone else, whose house has not burned down. On top of that, as is the case currently with health insurance, people would be less cautious about starting fires in their homes, since they could simply have an insurance company pay to rebuild their house without paying premiums. This perverse set of incentives is driving people to use their health insurance more frequently and even when they don’t need to. Illinois, a state which readily embraced the ACA, has seen a rise in emergency room visits rather than the drop proponents of the law hoped for.
Repeal and Replace?
Both political parties have taken a stance that is in some way opposed to the current state of the Affordable Care Act, and with good reason: most people are displeased with the results. There has been talk about “repealing and replacing” the ACA with something else. The problem is that government involvement in health insurance and care is ineffective, no matter what law or laws are in place. The only real solution is to allow private parties to arrange their situations individually without interference, which will enable a maximization of choice, cost containment, and quality of care for the price. The ACA should be repealed, along with several other health laws, but not replaced.
Proponents of the ACA claim that repealing the law would leave millions without insurance. Perhaps, but there are still millions without insurance currently, despite penalties in place for those who disobey the law. Also, not everyone needs insurance. Young, healthy people should not be forced to subsidize the older, sicker people. That is not justice—it’s socialism, and there is a better solution than the use of governmental force.
Supporters of the ACA also claim that repealing the law would result in even higher costs for health insurance. This claim is much more dubious than their other claims, since the projected 25% average year-over-year growth rate is nothing to scoff at. As stated previously, the government is—and was before the ACA’s implementation—the primary reason for rising health insurance costs.
There may be a role for government in this field, but it must retreat from its current position of over-involvement. The government spends more than enough money to provide financial assistance for those with preexisting conditions or directly pay for their care. They should redirect funds currently being allocated to subsidize other things toward this end. Since many of those people with preexisting conditions cannot afford the procedures or treatments, this is a worthwhile investment for the government to undertake. However, the federal government has proven it is incapable of adequately serving the American people in this area, as evidenced by President Obama’s broken “keep your doctor and your plan” promises, the embarrassing failure that was the HealthCare.gov website roll out, and skyrocketing health insurance costs.
At the state level, states should remove laws forcing insurance companies to provide a minimum level of benefits. States must also remove laws requiring employers to provide insurance. Consumers are intelligent enough to demand a good deal on their own, and these laws only restrict their purchasing flexibility. States should also opt out of participating in Medicaid expansions, since the cost of private insurance and routine procedures would both be significantly more affordable without government involvement, rendering many forms of assistance unnecessary.
If nothing is done to change the current system, health insurance costs will continue to rise, families will continue to struggle to find affordable options that also meet their needs, and insurance companies will continue to suffer losses by not accurately forecasting the utilization of their plans. It is long past time to set aside political agendas and face the truth about the Affordable Care Act: it is anything but affordable, and the American people are hurting. It is time to change course.