So what’s the cause of this? Well, first of all, let’s talk about what’s not the cause:
- Greedy health insurance companies: Yes, health insurance companies are there to make money. But the ACA sets a MLR of 80%. That is, 80% of ratepayer money must be spent on patient care, and only 20% is allowed for overhead and profit. If health insurance companies raise rates so that, say, only 72% of the collected money is spent on patient care, they must rebate 8% back to the ratepayers at the end of the year. In short, no, this is not the reason for the rate hikes.
So what is causing the rate hikes? Well, there’s basically two reasons:
- Not enough healthy people are signing up in the marketplace. Extending parents’ health insurance to 21-25 year olds removed large numbers of healthy people from the individual insurance market, but that means they’re not in the risk pools for the marketplace policies. Furthermore, healthy people are deciding to take the fines rather than buy the insurance. The end result is that the risk pools have too many sick people and not enough healthy people. Remember, sick people are 2% of the population but spend 18% of GDP for health care. That means that to work, the risk pools need to have roughly 50 healthy people for each sick person in them. This isn’t happening, too many healthy people are saying “I won’t sign up”, meaning that the rates for the remaining healthy people go up to subsidize the care of the sick people, causing yet *more* healthy people to leave, wash, rinse, repeat. It’s the adverse selection death spiral.
- The risk pools aren’t big enough in the first place. 5% of the U.S. population buys health insurance on the marketplaces. In small states, this means that the pool isn’t big enough for more than one or two insurers, and if several people get a very expensive illness all at the same time, it blows the top off of rates because there’s not enough people in the pool to spread that around without raising rates significantly for everybody in the pool.
So what’s the solution? Well:
- Medicare For All would solve it. Duh.
- Or if that’s unpalatable: Raise the penalty to be 20% higher than the cost of buying health insurance in the marketplace, and give the IRS the power to enforce it with wage garnishments. That will get healthy people back into the risk pools.
- And for those states that have too-small risk pools that are causing the high rates because a few people got really sick: A real public option with a nationwide risk pool. This would allow sharing the risk across a much larger pool, meaning that some unusual but very expensive condition happening to one person would result in a much lower rate hike across the pool.
But of course none of this solves the final problem that the rate hikes are happening because the cost of healthcare is going up. Medicare For All would have the oligopsony power to fix that by imposing income caps upon providers — i.e., you must agree to the caps in order to accept Medicare For All, and if you don’t, you can remain a doctor or you can sell your drug, but you won’t get any Medicare money for it. Quite clearly private insurers do not have this power, and cannot have this power due to antitrust laws that prohibit them from conspiring with each other to do something like that. And it would not be constitutional for a Ministry of Health to do this in the United States either, because that would be an unconstitutional taking.
In short, I don’t think we can fix the ACA. We’re going to be forced to go to Medicare For All sooner or later, because the ACA simply does not and cannot work in the long run because it doesn’t control provider profit, which is the primary driver of health care costs. I’ve been mentioning this for years now. But as usual, I’m talking to a brick wall.
– Badtux the Healthcare Penguin