Government Intervention in Health Insurance Falls Short

The Affordable Care Act, also known as Obamacare, fell short of its main objectives. The goal of Obamacare was to expand access to health care and to reduce costs.It failed because it attempted to force transactions that would not happen in a free market. The act mandated that insurance companies offer coverage in the individual market regardless of risk profile. The act also mandated that individuals purchase insurance regardless of need.

Obamacare prevented health insurers from adjusting the price of coverage in the individual market based on patient health. The individual market is mostly made up of people who do not get health insurance through their employer. People with preexisting conditions tend to be much more expensive to cover, but insurance companies could not adjust their premiums. In an attempt to balance the high cost of individuals with a preexisting condition, everyone else was required to carry health insurance.

Obamacare requires everyone, including young and healthy individuals, to get health insurance. Young and healthy people are inexpensive to cover. Therefore their premiums were expected to subsidize all the risky people. The government imposed a mandate and associated tax penalty on those who did not carry insurance. This pushed many to buy coverage. However, many others chose to ignore the mandate.

As a result, health insurers found their insured population was in poor health and very expensive to cover. The low premiums insurance companies were required to charge to risky individuals did not cover the cost of care. Health insurers are leaving the individual market because of poor financial performance. The average medical loss ratio has risen to nearly 100 percent in recent years. Prior to the ACA, the average medical loss ratio in the non-group market was closer to 80 percent. (The medical loss ratio is the percentage of premiums an insurer spends on claims and expenses.) When insurance companies exit the market, consumers are left with few options and higher prices. 

For example, Anthem recently pulled out of Virginia, citing financial losses. Humana left Tennessee, leaving 40,000 people without a single health insurer. In Iowa, Medica is the last remaining health insurer. Medica announced it was likely to leave the market in 2018.                                                                                                                          

The recent GOP health care bill attempts to loosen Obamacare regulations. It would let states waive the requirement that insurance companies not discriminate based on preexisting conditions. States that waive the requirement would have to set up a high-risk insurance pool for those who cannot afford higher premiums. The federal government would provide some funding for the state high-risk pools. Prior to Obamacare, 35 states operated high-risk pools. In the aggregate, the high-risk pools lost money. This raises questions about the financial sustainability of the proposed high-risk pools.

What might bring down the price of health insurance? Removing regulations that prevent health insurers from selling plans across state lines would be helpful. By increasing competition, the reform would make insurance companies lean on hospitals to control costs. Health-insurance premiums would go down when the prices of underlying procedures go down.

Another problem is a shortage of doctors, especially primary-care doctors. Primary-care physicians identify conditions before they become costly to treat. This keeps people from needing expensive emergency room visits. But most med students do not want to go into primary care because it pays less than becoming a specialist. Relatively low pay for primary care doctors is a problem because they usually carry high student-loan debt balances.

Policy makers could consider extending loan-forgiveness plans such as the Public Service Loan Forgiveness plan. This plan retires med school debt if the doctor practices primary care in an underserved area.

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