I have been trying to read articles on Obamacare that I think do a good job of explaining the health care exchanges and other attending consequences and realities.
Let’s start with David Goldhill, the guy who wrote the fantastic book Catastrophic Care. He believes that the exchanges will ultimately lead to higher health care costs. Because insurance companies are not able to underwrite policies for the exchanges in the same manner as before, and have to offer the same price to all customers regardless of individual risk profiles, they are going to err towards higher premiums in order to create a margin of safety. And while the idea may have been that there will be some form of competition amongst providers on the exchanges, Goldhill notes that the very transparency which is beneficial to consumers will also make it much easier for insurance companies to collude on the price of coverage.
As for his coup de grace, he points out that subsidies (for those that don’t get insurance at work and make between 100% and 400% of the federal poverty level – the core demographic for these exchanges) will make many consumers price insensitive rather than frugal bargain hunters. Basically, the amount of premium paid is capped while the subsidy is not. Add to that, insurance companies will have to put at least 80% of premiums collected towards health care or else pay a refund – again, the companies will be extra incentivized to spend so that they can keep a 20% profit share from premiums that is larger.
Separately, Bill Fleckenstein provided some general comments from a friend last week about the Affordable Care Act with the start of open enrollment. Here’s the upshot: the penalties for not getting insurance are still a pittance relative to the monthly premiums, even for the cheapest plans, and the out-of-pocket deductibles are enormous as well. Getting healthy people to sign up (i.e., young and poor), in order to subsidize the sicker amongst us, is going to be a challenge.
None of this bodes well.
