The Effect of Health Reform: Higher Costs
The Associated Press has an article noting that “insurance premiums are likely to keep going up over the next few years. Experts predict that the health reform law’s early benefits — such as expanded coverage for children and young adults — could nudge rates a little higher than would otherwise have been the case.” Once the coverage expansions are fully implemented in 2014, “increased demand will push up health care spending, putting more pressure on premiums.” Overall, the article gives the new law “a C minus or D for cost control” — not welcome news to many Americans struggling to pay their existing insurance premiums, and a far cry from the $2,500 in premium reductions that President Obama promised during his campaign.
Separately, Business Insurance magazine writes about how carriers may decide to drop medical cost-containment activities to comply with new regulations requiring companies to spend no more than 15% of their premiums on “administrative costs.” Such an effect from these government-imposed price controls would raise, not lower, costs over time, as carriers would have a perverse incentive not to undertake disease management and other related activities that work to bring down costs by improving beneficiaries’ health.
I’ve often said that part of the reason private insurers spend a higher percentage of funds on administrative costs than government insurers is party to ensure the remaining funds are not spent on waste, fraud and abuse. If a dollar spent on fraud control prevents two or three dollars from being wasted, then it makes sense. From an economic perspective, insurers should spend dollars on administrative activities until the marginal return from administrative spending exactly equals the dollars being spent. Whether this falls into 15% or 16% is not the issue. Spending 85% of premiums on medical care (of which, say, 10 percentage points is fraudulent or wasteful) is no better than spending 25% on executive compensation, administrative fees and marketing.
Costs are going up under Obama Care? You expect me to be shocked and awed by that information?
Once again, reality rears it’s ugly head.