Now that Health Insurance Reform has passed, will health insurance be more affordable?
-It is going to be more expensive. Yes, we are talking about the Patient Protection & Affordable Care Act. Already we are seeing the first signs of this law’s impact on health insurance premiums and they are rising. So here we are in the midst of the deepest economic downturn since the great depression and our Senate decides to pass a bill that few have read or understand. The cost projections for the act are extremely high , in the area of two trillion dollars, and controversial . If you take a few moments you can go on the web and download the act onto your desktop. What becomes immediately clear when done, is the sheer breath of the bill. I am certain there are a number of folks who have read the entire bill because they are in businesses like law and consulting firms that need to advise clients. However, most of us taxpayers would be overwhelmed after the first 500 pages. The Act has over 1500 pages of text.
Who Is Going To Benefit The Most From The Legislation ?
As I see it, it is the insurance companies; the very folks the President dislikes the most. Let me explain. Over the last 15 or so years the participation rate for employees in group health insurance plans has fallen steadily in the small group market (small is under 51 employees). The reason for the fall off has been primarily the rising cost of group health insurance premiums. Over the last 15 years, premiums have easily doubled while wages have not kept pace with the increases in health premiums. As more employees drop coverage as a result of rising premium rates, the health care expenses get spread over a smaller pool of insured employees. To compensate for this smaller pool of insured employees, premiums have to rise to cover increasingly higher medical claims. For lack of better terms, this small group portion of health insurance companies is in a death spiral. The more health insurance premiums rise, the more employees drop coverage on themselves and their dependents. This pattern of declining enrollment has accelerated in recent years as insurance companies have delivered double digit rate increases on a regular basis. Without intervention from the Government, the pool of insured employees who work for small businesses will shrink further as double digit rate increases destroy the small group market. In most metro areas ,95% of businesses employ fewer than 50 employees, so declining enrollments effect a lot of insurers and a lot of businesses.
So, do you think the insurance industry was crying about the mandates in the law that require businesses of over 50 employees to purchase insurance for their employees and the mandate for individuals to buy health insurance? This law represents a massive injection of money and new enrollments for the insurance industry.We are going to give more money to an industry that has a poor record of controlling costs and premium increases. If the health insurance industry has not been able to control costs for the last 15 years ,what makes you think they will do a better job with even more money and enrollments?
Why Health Insurance Premiums Rise
There are a number of reasons premiums have escalated over time and it relates to the cost of care. For starters hospitals have shifted the cost of unreimbursed care and Medicare discounts to private insurance plans. The private plans have been stuck paying for the losses that hospitals incur. We also have the issue of doctor network contracts. In other words, PPO and HMO contracts. Many PPO and HMO networks hire business mangers to contract with insurance companies for physican reimbursement. Each year the insurers and the doctor groups hammer out some sort of fee schedule that the doctor should be paid. Do you think the business manger would be pulling his/her weight without getting some sort of fee increase? If the insurer doesn’t agree to pay the going rate, the insurer may be locked out of doctor and hospital networks and loose enrollments for lack of a popular network.
The biggest culprit in the escalation of health insurance premiums over time is Government. Government mandates require all insurers or businesses to do something, and if they don’t do it they are fined . Here at this level we find special interests moving the hand of state legislators. We might find doctor groups or mental health providers pushing for particular benefits and having them built into the law. We will also find legislation extracting revenge for a constituent who may have been hurt by the practices of an insurance company. An example of a State mandate would be that all insurance plans cover maternity. The purchaser has no choice in the matter, even if they can’t or don’t care to have children. The cost is built into all insurance premiums for every person in the state. How many mandates do you have in your State and what do you think the real costs are?
So health premiums do not rise just from cost of care issues alone, there are many people who all try to get into the act and get a piece of the premium dollar. Over the years health insurance has evolved from being pretty much an actuarial cost projection into a social agenda. What we expect from a health plan today is far different than what we expected in 1964. As a result of the interplay of special interests both private and government, the actual cost of care, and the ‘direct to consumer’ marketing of pharmaceutical drug manufactures, health insurance has turned into a Frankenstein monster. Everyone wants a piece of the pie, everyone expects more, and the tab stops at the door of small business. So here we are with a whole new massively complex law and few elected representatives have read or understand .
The insurance companies will benefit tremendously because the law requires individuals who are not covered by group insurance to buy insurance or be fined for not doing so. This piece of the health reform legislation is being tested in the courts. If the mandate holds in the court, an estimated 30 million individuals will be required to buy health insurance plans from private insurers. Also, another piece of the health reform law offers susidies to individuals and families to purchase health insurance policies. These subsidies will also move more individuals and families into the insurance market. The fact that more individuals and families will be insured is good. The big question here is will coverage be more affordable ? If the Federal Government mandates richer benefits and we are providing subsidies for these benefits and creating more demand, how will insurance be more affordable in the future?
I have heard the argument that it will now spread the risk over more bodies, thus lowering the cost. The big question here is the degree of government intervention in the design and delivery of health care. Look at Medicare, look at Medicaid, both of these entitlements are massive budget busters. So what exactly will change about Government healthcare that will actually lower the cost of healthcare? Look at the new law, look at the sheer volume of pages and then think about the regulations that will follow to enable the enforcement of the laws and it becomes very clear that we are going to need an army of enforcement agents to make the law work. I think the Patient Protection and Affordable Healthcare Act will be the new Government re-employment program and the bill will be paid in the form of higher insurance premiums for all. Is there a better way to approach providing affordable care for the uninsured? Yes. Find out in my next post.
Please note the flowcharts published by the Kaiser Family Foundation that address the impact of this law on businesses and individuals. The link is:
http://healthreform.kff.org/the-basics/employer-penalty-flowchart.aspx
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