I know, I know, Obama promised that Obamacare would decrease insurance premiums by an average of $2500 per family. (Does anybody still buy that nonsense?) In the real world, however, Obamacare will result in premium increases of 100-400%. So says a new report released by the House Energy and Commerce Committee based on data from 17 of the nation’s largest health insurers. Via Paul Bedard:
Internal cost estimates from 17 of the nation’s largest insurance companies indicate that health insurance premiums will grow an average of 100 percent under Obamacare, and that some will soar more than 400 percent, crushing the administration’s goal of affordability.
New regulations, policies, taxes, fees and mandates are the reason for the unexpected “rate shock,” according to the House Energy and Commerce Committee, which released a report Monday based on internal documents provided by the insurance companies. The 17 companies include Aetna, Blue Cross Blue Shield and Kaiser Foundation.
The report found that individuals will face “premium increases of nearly 100 percent on average, with potential highs eclipsing 400 percent. Meanwhile, small businesses can expect average premium increases in the small group market of up to 50 percent, with potential highs over 100 percent.”
One company said that new participants in the individual market could see a premium increase of 413 percent when new requirements on age rating and required benefits are taken into account, said the report. “The average yearly cost for a new customer in the individual market grows from $1,896 to $3,708 — a $1,812 cost increase,” it added.
The report cites two main and entirely predictable reasons for the skyrocketing premiums. First is Obamacare’s pre-existing conditions mandate. I understand that even some Republicans claim this is a good idea, but it indicates a profound misunderstanding of the purpose of insurance. Forcing a health insurance company to cover a pre-existing condition is no different than forcing a casualty insurance company to provide fire insurance after the fire has broken out. It throws the whole concept of risk, which is what insurance is based on, out the window.
In order for an insurance company to remain in business, the expected value of the insured’s premiums must exceed the expected value of the insurer’s payouts. It’s simple mathematics. With a pre-existing condition, the “risk” becomes a certainty: the insurer must pay the cost of whatever treatment is required by the pre-existing condition. Thus, the insurance companies must price their insurance products to cover that cost or go under.
The second reason for the premium spikes is the wide array of services Obamacare mandates health insurance plans cover in order to comply with the law (e.g. Sandra Fluke’s birth control pills). Consider what would happen if the government required my auto insurance plan to cover routine expenses such as gasoline, mufflers, tires, oil changes, etc. How much would that “insurance” cost? The traditional components of an auto insurance policy, comp and collision, are based on my actuarial risk which is how insurance is supposed to work. If, however, we added a third component, call it “routine maintenance expenses”, the price of my insurance would necessarily skyrocket. I probably spend, on average, roughly $5-6000 per year on those kinds of expenses. My insurance premium, therefore, would have to rise by at least that much.
And let’s not forget the perverse incentives such a system fosters. I don’t know about you, but if my auto insurance policy provides for new tires, I’m getting four new Michelins every three months. And nothing but the most expensive synthetic oil for me. This, incidentally, is not unlike those parents who take their kids to the doctor every time they sneeze simply because they have insurance. My point? The practical effect of mandating that insurance companies cover services that have nothing to do with the real purpose of insurance (i.e. unexpected catastrophic events like car wrecks, house fires, or cancer) puts further upward pressure on prices because it incentivizes people to over use the system. Nobody should be surprised, then, when such a scheme leads to 100 – 400% increases in premiums.