(Jim Clark) – Recently the media carried a story about Health Republic insurance cooperative going out of business. That must have drawn a wry smile from anyone who has taken a course in economics. Of 23 Obamacare health insurance cooperatives, Health Republic was the 12th to go out of business. And more will fail. Why? Read on.
Obamacare (the Patient Protection and Affordable Care Act) was cobbled together largely by the staff of Senator Harry Reid (D – NV) and rushed through both houses of Congress by gimmickry because of the death of Sen. Edward Kennedy (D – MA) and the election of Sen. Scott Brown (R – MA) to succeed him in 2010. Brown would be a fortieth GOP vote, enough to kill the bill, so Reid and Speaker Nancy Pelosi (D – CA) arranged for unreconciled Senate and House versions of the bill to be “deemed passed” before Brown was seated. President Obama signed the “bill” which had zero Republican support.
The measure provided for: a significant expansion of taxpayer-funded Medicaid (a 100% taxpayer subsidized single payer system for the poor); ideologically mandated health insurance coverage provisions for private insurers; a system of federal and optional state insurance exchanges; creation of insurance cooperatives, funded by $1.4 billion in taxpayer funds, to write government-approved insurance policies and market them through the exchanges.
The law survived two challenges in the US Supreme Court, both based on unartful and confusing language in the hurriedly crafted bill. Supporters were unable to salvage a number of state-sponsored exchanges (such as Nevada’s) which were incompetently established. One federal and several state exchanges survived so consumers could shop for coverages offered by private insurers and subsidized insurance cooperatives. To make the scheme work young, healthy people would be forced to obtain health insurance to broaden the loss risk in the pool of insureds. To that end, a tax or penalty for non-insurance was included in the law (currently the greater of $695 per year or 2% of earnings).
So what has happened? Medicaid has expanded exponentially accompanied by a reduction in the number of doctors who will accept that coverage; private insurers have raised premiums and increased policy deductibles to the point where an increasing number of Americans (31% according to a Gallup poll) put off treatments because of costs; over half of the taxpayer funded insurance cooperatives have failed; and private insurers such as United Healthcare are announcing abandonment of Obamacare-approved policies.
Why are the canny private insurers jumping ship? According to the US Dept. of Health and Human Services nearly half of the healthy population aged between 18 and 34 has opted to pay the tax/penalty rather than purchase insurance. As a result, according to the Robert Wood Johnson Foundation and Urban Institute, insurer medical loss ratios (“MLRs”) are rising. MLRs measure the share of premium revenue paid out to cover claims. Pre-Obamacare MLRs typically averaged 80% for solvent insurance companies. In 2014 Obamacare MLRs have ranged from 90% to 99%, hitting as high as 121% in Massachusetts. 2014 MLRs are used to set 2016 premiums which, experts say, must rise between 10% and 52% (depending on the state) for insurers to remain in business.
Jonathan Cohn, a rigorous defender of Obamacare, wrote in the New Republic last May: “The system’s sustainability depends on getting enough healthy people to sign up; (if they don’t insurers) will have to raise everyone’s premiums (creating) what actuaries call a ‘death spiral’”.
The Wall Street Journal reports that Republican Presidential candidates are rallying around a credible alternative providing for deregulation of insurance and medical practices and replacing Obamacare’s subsidies with a refundable tax credit for those who lack employer-based coverage. Ideological Obamacare mandates, such as free birth control for 70-year-old nuns, are senseless and drive costs up. When insurance products reflect what consumers want then prices will reflect the actual value of such products and bring markets into equilibrium.
Jim Clark is President of Republican Advocates. He has served on the Washoe County and Nevada GOP Central Committees. He can be reached at firstname.lastname@example.org.