Last week, the Department of Health and Human Services reported that premiums for the benchmark plans sold within the Obamacare health insurance exchanges would increase by an average of 25% next year. That’s a sharp spike upward from past increases.
It’s now apparent that the Affordable Care Act was woefully — indeed, misleadingly — named. Mammoth increases of this sort announced this week are bad news, and not just for people enrolled in these plans and those desperately seeking a replacement plan because their current insurer is bailing out of the exchange. This kind of price pressure is bad news for taxpayers, even if they get their insurance elsewhere.
The HHS is trying to avert panic among those soon to experience premium sticker shock. The agency is saying that most people will be able to find a plan within the exchanges that will cost them less than $75 a month.
While claims like these are meant to quell some concerns, the reality is that as subsidies rise to keep premiums within reach, the costs to the American taxpayer rise. If you pay taxes, those subsidies come out of your pocket. Additionally, while many within the exchanges can receive subsidies to offset these rising premiums, there are still around 9 million people who face the full increase with no subsidy in the individual market.
The experience for many consumers within the exchanges will be far more daunting than the 25% increase suggests. Remember, that’s just an average. For example, in Wisconsin rates will increase around 20%, but in Arizona, rates will rise well above 50% in the coming year. Individuals seeking coverage in these markets should shop carefully among all remaining plans because prices can vary drastically even at the state level.
And that is the real issue with Obamacare. The regulations under which they operate — regulations required by the so-called Affordable Care Act — actually bid up the price of premiums. It’s baked into the Obamacare cake and will not change. Here are just two examples.
By law, age-specific pricing is restricted to a ratio of 3 to 1. This means that insurers can’t charge someone who is 64 more than three times what they charge an 18-year-old for the same coverage. Yet experience shows that those 64 and older ring up medical costs at least five times those of young insureds. Hence, rates for young people are far higher than they were pre-Obamacare, driving more and more of them out of the insurance market.
Obamacare regulations also require health plans to cover a host of treatment services as well as a list of “preventive services” for which they cannot require any co-pays. The mandatory benefits wind up requiring people to pay for services they don’t want or need.
The soaring premiums announced last week are a direct result of the fundamentally flawed design and implementation of Obamacare itself. That’s why premiums have risen in the individual insurance market every year since the exchanges began — despite repeated assurances that the program would “bend the cost curve down.”
The affordability will be significantly worse next year, and will continue to worsen as younger and healthier shoppers increasingly forgo coverage due to rising prices. Happy talk from the administration will not make the problem go away. That will require congressional action that removes the program’s costly regulations and perverse incentives and instead promotes competition in the health marketplace.
This commentary first appeared in Milwaukee Journal Sentinel.