And the Beat Goes On
Published in The Journal Record
August 24, 2016
Do you believe in fortune tellers? Or maybe tarot card readers? We apparently love it when people tell us what’s going to happen in the future.
Consultants make a handsome living predicting the future of the economy for a particular industry. However, if we trace and compare these futurist predictions against what really happens they are correct less than fifty percent of the time. We could do just as well by flipping a coin.
Many experts predicted the Affordable Care Act would provide health insurance for the first time to millions of Americans while others prognosticated it would be an unmitigated disaster. As it turns out it is a little of both. There are, in fact, millions of Americans with insurance coverage through the exchanges who were previously excluded from having any coverage. This number, unfortunately, is less than half of what the bill supporters predicted.
We routinely read of major insurance companies dropping out of providing competitive bids in state and federal exchanges and it does appear the premium structure for those left is on a death spiral. As more companies depart prices will increase, discouraging many from acquiring health coverage, particularly the young and healthy. This group has been resistant to purchasing coverage for a number of reasons. Premiums were too expensive, deductibles were too high, and the penalty was insufficient to stimulate this group to acquire insurance. This was particularly true if they could wait to purchase it before some anticipated medical problem. Unfortunately, this is the very group the drafters of the legislation depended upon to be supportive of acquiring insurance. Without their participation these plans are left with older and sicker participants who are heavy utilizers of health services, ultimately driving up costs which subsequently demands higher premiums. This further discourages the young and healthy from entering the program with a penalty that is becoming increasingly irrelevant.
So the problem is pretty simple. Less competition leads to higher prices with more dropouts and less interest which leads to increased costs and higher premiums. And the beat goes on. This adverse selection is unlikely to change unless the penalty for not having coverage becomes significantly more expensive. This would require a legislative solution the backers of the ACA are woefully afraid to attempt.