It’s always a good idea to look at the incentive structure behind any public policy. Analyzing how people are induced to behave, and the consequences of those behaviors, is a pretty good indication of whether a plan will succeed or fail. ObamaCare is too vast an example to take all at once, but new information sheds light on a particular piece of the health care law is contributing to the skyrocketing price of insurance.
The insurance "risk corridors", more accurately known as the insurance company bailout, were designed to mitigate the risk insurance companies faced from being forced to take on new clients with preexisting conditions, as required under the Affordable Care Act. Insurers were led to believe that they could count on these subsidies, submitting a request for $2.87 billion in 2014. Now, numbers from the Centers for Medicare and Medicaid Services reveal that they will only receive $362 million, 12.6 percent of what they asked for.
How did this expectation, and its subsequent frustration, figure into the prices of insurance plans? Insurers know that they make more money by getting lots of healthy people to sign up for their plans, whose premiums will cover the costs of less healthy people, the ones with the most immediate need for insurance and the most likely to sign up. Believing that they would get big bucks from the government to shield them from any losses, insurers thus set their premiums lower than they otherwise would have been able to afford, in the interest of attracting the maximum number of customers.
Of course, "lower premiums" does not mean "low premiums." An analysis by the Daily Caller News Foundation found that, on average, ObamaCare premiums will rise by 20.3 percent in 2016, nearly three times as much as federal officials estimated. Of course, now that insurers realize they will receive only a fraction of the money they asked for, premiums will have to rise even higher, even faster, accelerating ObamaCare’s already rapid unraveling.
The fact that such a large portion of Obama’s health care plan was utterly dependent on taxpayer bailouts of insurers should have been a major warning sign that the law was doomed to failure.The incentives put in place were always destined to drive costs up, despite the word "affordable" in the Act’s name. Every day, we’re seeing new data that reveal ObamaCare to be an unworkable nightmare. It’s time to get serious about finding a market-based solution.
FreedomWorks Letter to Congress in Support of Fiscal Commision Act (H.R. 5779)