Federal officials at the Department of Health and Human Services just
finalized rules governing health insurance for individuals and small
businesses purchased through Obamacare's new exchanges. The announcement
brings us a step closer to a health-care system wherein spending continues to
grow rapidly while basic coverage remains unaffordable.
Just look at what will be considered "Essential Health Benefits" (EHB).
Starting in 2014, insurance plans must cover everything from mental-health
and drug-abuse treatments to dental and vision for children -- regardless of
whether patients want or need them.
Mandating such generous health plans for all will surely drive premiums
through the roof.
That's already happened at the state level. As of December 2011, there were
2,262 state benefit mandates on the books. According to the Council on
Affordable Health Insurance, these requirements increase a policy's cost 10
to 50 percent.
In Connecticut, for instance, insurance mandates account for 22 percent of
premiums for group coverage and 18 percent for individual plans, according
to the University of Connecticut's Center for Public Health and Health
That's not surprising. When households have to buy policies that cover, say,
massage therapy, they're more likely to use these extra services than if
they were paying out of pocket. Such an increase in use pushes up
overall health-care spending and, in turn, premiums.
HHS also set rules dictating the payout ratios for insurance plans. They're
divided into four groups: platinum, gold, silver, and bronze. Plans with
these designations must cover 90, 80, 70, and 60 percent of patients' health
costs, respectively. More generous plans will have lower deductibles and
HHS was aware of the dangers inherent in such mandates. The Institute of
Medicine warned the agency, "Unless we are able to balance the cost with the
breadth of benefits covered in the EHB, we may never achieve the health care
coverage envisioned in the [Affordable Care Act]." Sadly, HHS chose to
ignore these concerns.
The new rules also limit deductibles in the small-group market to $2,000 for
individuals and $4,000 for families.
High-deductible plans are an effective way of keeping health spending down
-- particularly when coupled with tax-advantaged health savings accounts
(HSAs). Together, they encourage consumers to make more informed decisions
about spending their health-care dollars.
When high-deductible, consumer-directed health plans became widespread in
the mid-2000s, the growth rate of overall health-care costs slowed. In a
report from earlier this year, the RAND Corporation found that, if such
health plans grew to comprise half of all employee-provided insurance,
healthcare costs would drop by $57 billion a year.
The administration also enacted rules dictating what insurance companies can
charge patients. Premiums for older Americans can't be more than three times
those for younger patients.
But medical costs for older people are about five times those of younger
individuals. Enforcing a spending ratio of three to one simply pushes costs
onto the young and healthy.
Indeed, patients between ages 18 and 24 can expect their premiums to
rise by roughly 45 percent. Those aged 25 to 29 will see a 35 percent jump,
according to a study from Oliver Wyman, a consultancy. The same study showed
that a three-to-one age band would drive half a million young Americans out
of the insurance market.
There is no question that the individual mandate will penalize the uninsured
to the tune of $95, or 1 percent of household income, in the first year --
and $695, or 2.5 percent of household income, by 2016. But compared to the
astronomical premiums that young Americans will face under Obamacare, such
penalties will be a bargain, particularly because the law's
"guaranteed-issue" rules stipulate that they can never be rejected for
coverage, even if they're already sick.
According to recent analysis from the Congressional Budget Office, half of
the roughly 11 million to 12 million uninsured Americans expected to be subject to
the individual mandate's tax penalty will pay it and remain uninsured. All
told, some 30 million people will still be uninsured by 2016.
As healthy young people flee the insurance market, sick patients will
disproportionately fill insurance pools, driving premiums up across the
Insurance costs have already reached crisis levels. The average family
premium in the U.S. rose 97 percent between 2002 and 2012.
The federal government's decision to mandate excessively generous coverage
will only make insurance less affordable.