Guaranteed Coverage and Other Obamacare Follies

You smashed your new car into a telephone pole and realized you forgot to buy collision insurance. No matter, the government just made it illegal to deny insurance coverage or charge higher rates to anyone regardless of a vehicle’s condition. A simple phone call to your insurance agent and that $3,000 repair bill is taken care of! Don’t forget to call your agent and cancel the coverage after you drive away from the body shop. After all, you can obtain coverage whenever you want without penalty. Is this fair? Can it work? How will companies stay in business? What will happen to insurance rates?

A previous ACEF article looked at the new health care reform law known as the Patient Protection and Affordable Care Act (PPACA) or Obamacare, and how these issues will negatively impact our lives and our economy. The complexity of the law and the regulations that it will produce are staggering.

An Avalanche of New Regulations

Let’s look at the law itself. A pdf file of the law takes up 907 pages.[1] Within those 907 pages many new government agencies, boards and commissions are listed. Due to the sheer size and complexity of the law, the exact number of new agencies is “unknowable” according to the Congressional Research Service.[2] Representative Tom Price, in a March 2010 editorial, states the law will create 159 new government offices and programs.[3]

What happens after a law is passed by Congress and signed by the President? There is a nine-step process used by the executive branch to issue regulations. The major steps include:[4]

* Determination that new rules are needed

* Office of Management and Budget (OMB) review

* Publication of preliminary rules

* Public comments regarding the preliminary rules

* A second OMB review

* Publication of the final rule

Every page of the law will go through this process. Each newly created agency and many existing agencies will publish regulations based on Obamacare. The Department of Health and Human Services (HHS) has turned only six pages of the 907-page law into 429 pages of new regulations.[5] Imagine the results when the 159 new government entities start writing rules. A visual of the overwhelming complex nature of Obamacare is available here.

Although most aspects of Obamacare are yet to be implemented, there is sufficient evidence that the law will affect both our pocketbooks and our freedom of choice. These effects include health insurance requirements, insurance costs and the overall cost of medical care.

Insurance Mandates

Should the Supreme Court rule the individual mandate constitutional, the consequences will force people to either buy insurance or pay a penalty. The law even mandates what your insurance must cover. So even if you don’t need obstetric care or substance abuse coverage – it’s required.[6]

The employer mandate requires that companies with 50 or more workers must provide health insurance. If they do not, they pay a fine, no fine for the first 30 workers and $2,000 for each worker above 30. Thus a company employing 100 workers would be assessed a penalty of $2,000 x 70 workers.[7] This will lead to tens of thousands of dollars in fines for small businesses. In a letter to Speaker Pelosi, the Congressional Budget Office (CBO) Director estimated that businesses would pay $52 billion in penalties beginning in 2014 through 2019.[8] You, the consumer, will ultimately pay this cost as the price of goods and services increase!

Health Insurance Industry Effects

As damaging as these mandates are from an economic standpoint, guaranteed coverage, the medical loss ratio (explained below) and the effect on existing employer sponsored plans will have wide ranging affects on the insurance industry and individuals.

Guaranteed coverage means that insurance must be issued regardless of preexisting conditions. In addition, the insurance company must charge everyone the same rate.[9] Are you having chest pain? Call a health insurance company on the way to the hospital and you can have your bypass surgery with little financial worry. You could even cancel your insurance and buy it again if your chest pain returns!

Insurance rates must go up and it’s the young and healthy who will pay with increased premiums. Although estimates vary widely, their health insurance premiums would triple in some states.[10] Assuming a young person pays $2,000 a year for health insurance, a 50% increase in rates would cost an additional $1,000 a year.

The medical loss ratio (MLR) requires insurance companies spend a certain percentage of premium dollars on medical care – 80 or 85% depending on the type of health insurance. Excess premium dollars must be returned to policyholders.[11] Heritage Foundation senior fellow Edmund Haislmaier, in testimony to Congress, believes that MLR will reduce competition by making it more difficult to start a new health insurance company and push existing insurers out of less profitable markets. He also sees the MLR as an invitation for fraud as fraudulent payments to providers are counted as actual care given.[12]

Haislmaier also testified that the MLR will lead to higher premiums since insurers will be forced to refund overpayments with no way to make up for losses should they underestimate claims for a given year. Better to charge too much, triggering a refund, than lose money that is unrecoverable since the MLR will not allow the insurer to keep more revenue the next year to make up for that loss.[13]

Medical Costs

With government regulations comes the cost of complying with those regulations. Health care is the most regulated segment of our economy.[14] Christopher Conover of the Cato Institute calculated, in an extensive study of regulatory costs and benefits for the year 2002, that regulations imposed a $339.2 billion cost to the health care industry. His calculations indicated that $170.1 billion of that cost was considered beneficial, leaving $169 billion in unnecessary regulatory costs.[15] While there are no studies calculating recent regulatory costs, it is safe to assume these costs will grow with the increasing regulation of Obamacare. It’s you, the consumer of health care, who pays for these added costs!

November 2012 Solutions are on the Horizon

What are the real solutions for the health care crisis?

* First and foremost Obamacare must be repealed. This will allow implementation of real reform that will put the consumer in charge of his or her own health care choices.

* Equal tax treatment for all forms of health insurance whether they are employer provided or purchased individually.

* Reconnect the health care consumer to the cost of the choices he or she makes.[16] Currently, health care consumers control only 26% of our $2.5 trillion health care system.[17]

* Expand the use of Health Savings Accounts (HSA) and high deductable health insurance plans thereby increasing competition by making health care consumers cost sensitive.[18]

* Reform Medicaid. In the current system, the Federal Government sends matching funds to the states; meaning the more a state spends the more Federal dollars they receive. There is little incentive at the state level to control costs. A more realistic system gives the states a set amount to fund a voucher system; which allows the Medicaid recipient to purchase private insurance and caps the government’s expenses.[19]

* Reform Medicare. The current Medicare system pays based on services provided; Part A for hospital care and Part B for outpatient care. The more services provided, the greater the cost to the government. There is no incentive for patient’s to limit health care visits.[20] Premium support for private health insurance, full support for a basic plan with options for seniors to buy greater coverage, will help control government costs.[21]

* Form high-risk pools at the state level. There will always be a small number of people with medical conditions that make them uninsurable in the private market. Separating them from the general health insurance market will preserve the private market[22] rather than distorting it, as seen above with Obamacare.

* Repeal or streamline unnecessary regulations currently on the books.[23]

* Improve competition between health insurers by allowing interstate sale of health insurance.[24]

* Medical malpractice reform.[25]

As this series of articles continues, we will look further into the problems of Obamacare and expand on solutions that increase, rather than limit, our economic freedom.

In the upcoming election, we must reject candidates who believe that government is the answer. They will only increase regulation, decrease freedom, increase costs and eventually destroy our country.

We need leaders who understand how capitalism can save our health care system, the greatest health care system in the world. By electing true reformers, costs will come down, the health care consumer will again be in charge of his or her care, and the uninsurable, the poor and the elderly will be taken care of!

If we are to maintain our freedom of choice in health care and avoid a government takeover of this important aspect of our lives, we all must take an active role to elect and hold accountable candidates who will pursue these reforms.