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Saturday, August 30, 2014

How Obamacare Premiums Are Set

The only way to Constitutionally free us from Obamacare - is through the Health Care Compact. 

When the OH House starts back in session, be on the look out for our Action Alerts regarding the Health Care Compact efforts in Ohio (HB 227). Already passed out of Committee, we will be pushing for a full vote on the House Floor.

From Heath Care Compact.Org --

Merrill Matthews of Forbes describes the push and pull behind rate setting under Obamacare. What? The rates are set for a free market? Ok, not quite, but there are some bureaucratic ‘forces’ affecting them. And here are some that Matthews discusses:

Throw away your risk tables. “Actuaries set premiums for the upcoming year based on several factors, including the estimated ratio of sick and healthy people in the pool … However, actuaries had ZERO experience with Obamacare’s “metal plans” (bronze, silver, gold and platinum), plus the Department of Health and Human Services (HHS) and President Obama were making up or changing the rules as they went along—and still are.”

Shoot first, ask questions later. “So if some insurers announce lower-than-expected premium increases for 2015, it may be because they overpriced policies the first time—not because Obamacare is holding costs down.”

Game the price controls. “HHS has a 10 percent red-flag cap. Under Secretary Kathleen Sebelius HHS had warned insurers that if they raised premiums more than 10 percent in one year, the agency would closely scrutinize their justifications. That’s because such increases would undermine Obama’s affordability promise.” So insurers played games like having 9% increases two yerars in a row or increasing premiums against a rainy day, knowing they could not adjust prices in the future.

Politicians and bureaucrats are pressuring insurers to keep premiums down. We saw this in Massachusetts shortly after the passage of Romneycare. Health insurers asked for a premium increase and the state rejected the request. Then Governor Deval Patrick leaned on the insurers to lower their rates, which they did—a tactic that can only work a few times before there’s no more margin to give.

Unfortunately this also forces costs up. The firms make irrational decisions based on a strategy of minimizing bureaucratic caprice. All the classic outcomes of central planning -- hoarding, shortages, misallocation -- show up in the so-called markets. There is also the tactic of putting the premium in the fine print, by loading it onto the deductible.

Obamacare premiums are so expensive that many participants are choosing very high deductible plans. Health Pocket Inc. found the average deductible for an individual in a Bronze plan was $5,081 ,and $10,386 for a family. It was $2,907 for an individual in a Silver plan, and $6,078 for a family.

Matthews says this is actually good because the real proxy price of a policy migrates to its deductible. “That’s actually a very positive step. High deductibles dramatically lower health care utilization and, just as importantly, they encourage patients to seek value for their health care dollars by making them cost-conscious and shopping around for a better price. That practice puts downward pressure on premiums.”

The result is that the premiums contain only a fraction of the price information. Cheap could mean ‘unavailable’. Expensive could be ‘unavailable’ also because it was too cheap last year. Central planning has never worked well, not even when they were not called central planning.

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