Is Obama right?
Sources: Obama administration mulls pared-back health law if court strikes down mandate | Fox News
To forestall such a problem, the administration asked the court -- if it declares the mandate unconstitutional -- to also strike down certain consumer protections, including the requirement on insurers to cover people with pre-existing health problems.
There are some provisions in the ACA which are very good for seniors, such as closing the prescription donut hole for Medicare recipients.
But, here's what I found most interesting:
Overturning the mandate would have harmful consequences for the private insurance market. Under the law, insurers would still have to accept all applicants regardless of health problems, and they would be limited in what they can charge older, sicker customers.
As a result, premiums for people who directly buy their own coverage would jump by 15 percent to 20 percent, the Congressional Budget Office estimates. Older, sicker people would flock to get health insurance but younger, healthier ones would hold back.
I believe that the CBO's estimate is low - or at least doesn't tell the whole story.
First, there's a very troubling provision in ACA which sets the medical loss ratio to a firm 80%, meaning that insurance companies can only keep 20% of the premiums collected for administrative costs. There's also a provision which mandates that insurance companies pay into a high risk pool - which also comes from our premiums. This will mean there's absolutely no cash to pay commissions to brokers/agents - which kills that sector of the insurance industry.
Next, consider what happens when seniors are able to buy into the health care pool at a diminished rate, and people with pre-existing conditions can't be turned away. As I stated in a post above, the medical loss ratio = Benefits Paid / Premiums Collected, which under ACA is a firm 80%. If the CBO is correct, then the addition of these 2 groups of people will mean that the insurance companies will raise rates 15-20% because the benefits they pay out till only jump 15-20%. However, this can only happen if the Premiums Collected portion of the formula is steady. As the prices rise, fewer people will be able to afford insurance. Also, there's a price point where the higher cost of insurance doesn't make sense to people who rarely use insurance benefits - resulting in even fewer subscribers. Premiums would then have to rise AGAIN to account for that reduction in subscribers. Essentially, at some point, insurance companies will begin to re-assess their own viability in the market because they can't collect enough funding to reasonably cover the care of their subscribers - and (illegal?) intrastate marketing will only go so far to hold that off. And that leaves EVERYONE out in the cold.
Obviously the pre-existing conditions clause will have to go. The reduced rates for seniors will have to go. Now think about the other great things ACA has to offer - closing the Medicare donut hole, for example. This was to be funded by the (imaginary?) increase in subscribers. Who will fund that now?
That pretty much leaves us with the issue of regulating the insurance companies themselves and allowing for rate-shopping in "foreign" markets. In 1945, SCOTUS declared insurance to be commerce (governed by the Sherman Act) unless Congress said otherwise. In 1946, Congress did, indeed, say otherwise when they passed the McCarron-Ferguson Act. Essentially, this placed the regulation of the insurance industry in the hands of the individual states. This law will need to be repealed in order for us to access intrastate markets - something that looks great in the short term, but allows monopolies (read that as price fixing and higher average rates) to develop as a natural course of action. ACA does not contain much for intrastate regulation language, which allows lower rate rural markets to become saturated with higher cost industrial markets.
Please don't get me wrong here - I'm all for health care reform. But the more I delve into how ACA works the less reform I actually see. Being the equal opportunity hater that I am, I also don't see anything all that promising coming to replace this legislation either.
