How to Cover the Sick and Lower Premiums without Breaking the Bank – Pacific Research Institute

How to Cover the Sick and Lower Premiums without Breaking the Bank

Fifty-one percent of Americans now disapprove of Obamacare — the highest share this year, according to Gallup.

It’s easy to see why. Insurers are abandoning the health law’s exchanges, leaving consumers few plans to choose from. Those carriers that haven’t pulled out plan to hike rates an average of 25 percent in 2017.

Obamacare is failing. But the law’s main goals — to extend coverage to vulnerable Americans and to reduce the cost of health care — are still popular and worthwhile. Three in four Americans want people with pre-existing medical conditions to have insurance coverage. And over half of those who have shopped on exchanges have cited low premiums as their number-one priority.

It’s possible to achieve both goals without the rigmarole of Obamacare.

Re-establishing state-based high-risk pools seeded with federal dollars would ensure that the chronically ill could get affordable coverage without raising premiums for millions of healthy Americans.

Expanding access to consumer-driven health plans, meanwhile, would inject the same market forces into the healthcare sector that have driven down prices and improved quality in virtually every other sector of the economy.

The chronically ill are responsible for the overwhelming majority of healthcare expenses in this country. According to the Kaiser Family Foundation, “the healthiest 50 percent of the population accounts for less than 3 percent of total health care expenditures, while the sickest 10 percent account for nearly two-thirds.”

High-risk pools split the two groups. Sick individuals enter a high-risk pool where the government subsidizes premiums.

Separating those with pre-existing conditions lowers the cost of insurance for everyone else. Insurers don’t have to hike rates dramatically year after year. That avoids the “death spirals” currently plaguing Obamacare’s exchanges, wherein healthy and young people avoid costly coverage, thereby degrading the risk pool and forcing insurers to raise rates in an unsustainable cycle.

High-risk pools have already proved successful. Before the Affordable Care Act, over 35 states operated high-risk pools that covered 200,000 people.

A Kaiser Family Foundation report on high-risk pools concluded, “Nearly four decades of experience with high-risk pools suggests they have the potential to provide health coverage to a substantial number of people with pre-existing conditions.”

Obamacare scrapped that successful model and forced extremely sick people into the same insurance pool as everyone else. Right now, for instance, Blue Cross Blue Shield’s exchange enrollees have higher rates of diabetes, depression, and heart disease. Their claims are 22 percent higher than people who have insurance through BCBS in the employer market.

Worse, exchange enrollees are getting sicker, not healthier. Aetna noted that its most recent enrollees are costlier to insure — a trend that forced the insurer to pull out of all but four exchanges next year.

Lumping the chronically ill — who could be more effectively covered by high-risk pools — into the general insurance population has resulted in higher rates for everyone.

Abuse of “Special Enrollment Periods,” where people can sign up for coverage outside the standard Open Enrollment Period if they experience a qualifying life event like a divorce or job loss, hasn’t helped matters. Federal officials have been lax about confirming whether those attempting to purchase coverage through these Special Enrollment Periods are actually eligible.

That’s given the general insurance population further incentive to sit out of the exchanges until they absolutely need coverage. In tandem, factors like these have doomed the exchanges.

In contrast, consumer-driven plans are the best way to provide affordable coverage for that general insurance population — and hold down long-term health spending.

Just as people don’t file a car insurance claim when they get an oil change, people with consumer-driven plans don’t involve their insurance companies when they pay for routine care like a check-up or a prescription. They pay out of pocket. Health insurance only kicks in for emergencies.

Since insurers don’t have to cover every single expense, premiums are lower. Families who switched to consumer-driven plans spent 14 percent less on medical care than those on traditional health plans, according to a RAND study.

Consumers can put the money they save on premiums in tax-advantaged Health Savings Accounts. They can use these funds to cover routine care or set aside money over the course of several years for everything from elective surgery to an unexpected medical catastrophe. Today, nearly 19.7 million Americans have HSAs.

HSAs make people more conscientious healthcare consumers, since they’re spending their own money. A case study of Indiana state employees with HSAs conducted by consulting firm Mercer show that they displayed “better use of healthcare resources and more cost-conscious decision making.”

Consumer-driven plans coupled with HSAs can also curb the rise in overall health costs. If people are sensitive to the price of care — and shop around accordingly, as they do for other goods and services — then doctors, hospitals, and other providers will have to keep their prices in check.

Critics claim that consumer-driven plans combined with HSAs discourage people from getting health care when they really need it. But economic research indicates otherwise.

The National Bureau of Economic Research found that emergency and inpatient costs at companies which introduced consumer-driven plans were the same as at companies that didn’t offer such plans. That indicates that employees with consumer-driven plans weren’t foregoing needed care. In another study, people on high-deductible plans were 4 percent more likely to use preventive services.

Americans want coverage for the needy and low premiums. But Obamacare isn’t necessary to achieving those goals. High-risk pools and consumer-driven health plans are but two of the market-friendly approaches that can.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

Scroll to Top