The Commonwealth Fund Doesn’t Understand the Economics of Health Insurance
That shouldn’t surprise you. The Commonwealth Fund doesn’t much understand the economics of anything. This is from Ezra Klein:
The Commonwealth Fund released a study today looking at how that regulation has impacted the insurance market. It found that alongside paying out $1.1 billion in rebates, insurers have also cut $350 million in administrative costs. That adds up to a $1.45 billion reduction on insurance premiums in 2011.Although the CWF claimed this was good news for consumers, it ignored this bad news:
Those who work in the individual market are now operating at a loss. This study finds that the average insurer lost $31 for each individual market customer it covered in 2011, after seeing $4 in profits in 2010. That totals up to a $351 million industry-wide loss, meaning that segment operated at a 1.2 percent operational loss.
Now for the really bad news ― below the fold.
In a November 2009 report, the Congressional Budget Office estimated that premiums in the individual market would increase 10% to 13% as a result of the Affordable Care Act. But that was before a lot of details were known. After an informal survey of insurers, Robert Laszewski reports:
On average, expect a 30% to 40% increase in the baseline cost of individual health insurance to account for the new premium taxes, reinsurance costs, benefit mandate increases, and underwriting reforms. Those increases can come in the form of outright price increases or bigger deductibles and co-pays…
Small group rates won’t increase by quite as much as for those in the individual market –– a baseline increase of 10% to 20%…
And, the new regulations require that insurance companies have to treat their old and new business the same. Most existing business will not come under the “grandfather” rules. That means most existing individual and small group customers can expect pretty much the same thing. That will be a shock to those who already have insurance and don’t think the new law will impact them.
The Commonwealth Fund has always been a proponent of insurance regulations (guaranteed issue/community rating) that are now part of the Affordable Care Act. In 2005, it released a study of those states that had already adopted these two regulations, but ended on a somber note that “affordability is an issue.” Basically, these regulations cause healthy people to shun insurance — only enrolling if they are in poor health or in need expensive care or. Everywhere this has been tried, the premiums have skyrocketed to double or triple the national average. This experience suggests the “Affordable Care Act” will not live up to its name.
“guaranteed issue/community rating…healthy people to shun insurance — only enrolling if they are in poor health”
Holy free rider batman. That’s exactly the problem the MA and Swiss and Obamacare mandate is supposed to mitigate.
Very interesting.
It’s not clear (at least to me) that the 30-40% increase includes the case where ACA destroys the market for a given insurance product. What I’d like to know, for a high-deductible policy, (e.g. $10K family deductible, married couple, to use a personal example) what will be the increase to get to the maximum-allowed-dedutible policy under ACA?
“In a November 2009 report, the Congressional Budget Office estimated that premiums in the individual market would increase 10% to 13% as a result of the Affordable Care Act. But that was before a lot of details were known.”
– This story does not surprise me. People were trying to analyze the 2,000 pg bill before is was even released to the public.
Shocker. What everyone needs to understand is that this new law will impact both old and new businesses/individuals.
What are you bound to get when you make estimations based on unknown facts. Unaccurate studies, which then mislead and misinform everyone who even bothers to give them a time of day.
I see exchanges reducing this problem. I eliminates some of the overhead of individual insurance companies.
“A lot of it has to do with the structural differences between the two segments. Large group plans don’t really have to worry too much about marketing or customer support: Most of that gets outsourced to the human resources office of the employer they cover.
That’s not true for the individual market, where insurers do a lot of the marketing and consumer support themselves. While a large market carrier can cover 100 people by striking one deal, the individual market player has to strike 100 individual deals.”
This is only half the story.
Guaranteed issue and benefit mandates will certainly raise premiums in the individual market.
Let’s say that a younger person who now pays $200 a month for health insurance is confronted with a premium of $500 a month.
By itself, that is a disaster as happened in New Jersey, New York, Washington state, et al.
But writers on this blog forget to mention over and over again that the ACA includes subsidies to bring that person back to their prior cost. If their income is $40,000 a year, their cost for health insurance after subsidies will be about $250 a month and they will have a more generous policy to boot!
Now I can listen to arguments that the subsidies are going to be a mess and might explode the budget deficit. The subsidies are going to be swamped if they survive as planned.
The effort made by Michael Cannon, Peter Ferrara and others to oppose the subsidies may be the right thing to do.
But if the subsidies are shot down and the insurers raise premiums anyways, we are in for a very ugly period.