Obamacare: The implosion has just begun
By Dr. Ben S. Carson
We recently witnessed a victory lap by the Obama administration as they announced that over 8 million people had signed up for Obamacare.
“The repeal debate is and should be over," declared President Obama in the opening statement of his April 17 press conference. "The Affordable Care Act is working."
But with the release of a new study by Express Scripts, the largest pharmacy benefits manager in the country, we now have our first real look behind the curtain at how the law is working thus far — and it clearly validates one of the major concerns of Obamacare critics.
With all due respect, Mr. President, it's hard to see how the debate about Obamacare is now over, when the implosion of Obamacare has only just begun.
The new study, which looked at 650,000 actual pharmacy claims made across 25 Obamacare insurers in January and February, shows that early enrollees in Obamacare exchange plans are indeed sicker and more costly than individuals with insurance coverage in non-exchange plans. This is important because it means the Obamacare health insurance pools are well on their way to collapse.
The specific discoveries are as follows:
It is common sense that sicker people with higher costs are more likely to obtain health insurance when coverage is “guaranteed issue,” as it is in the Obamacare exchanges. Guaranteed issue means that anyone can buy health insurance at any time regardless of health status at the time of purchase. That may sound appealing, and it is certainly great for a few, but it results in obvious perverse incentives that can only lead to collapse.
If car insurance were guaranteed issue, it would mean you could buy a policy after your car was stolen and get reimbursed for your car. If homeowners insurance were guaranteed issue, you could buy a policy after your house burned down and be sent a check for the value of your home.
So who would buy an insurance policy in advance if they could always get a guaranteed issue policy later? The obvious answer is no one.
The problem is that if everyone is making expensive claims that exceed the incoming premiums then soon there is no money left and the insurance pool implodes. This is called a “death spiral” in industry speak. An early symptom is rapidly escalating premiums in a frantic attempt to cover higher than expected costs. We will see this when 2015 premiums are announced later this year. We will also see more desperation when the employer mandate kicks in after the election and tens of millions of people lose what they thought were safe insurance policies.
Several states have tried guaranteed issue health insurance, and the results were a disaster. Kentucky passed guaranteed issue in 1994. Premiums in the individual market shot up 100 percent in some cases, the number of insurers selling policies declined over 90 percent, and there were more, not fewer, uninsured Kentuckians.
Iowa, New Hampshire, South Dakota and Washington also passed guaranteed issue in the mid-1990s. All of those states immediately experienced skyrocketing premiums and fewer choices for their citizens. Consequently, all four states either repealed guaranteed issue outright or modified it significantly. New York and New Jersey maintained their guaranteed issue and ended up with the highest premiums in the country, in some cases costing many thousands of dollars per month.
Obamacare supporters have three responses. The first is that the individual mandate will force people to buy coverage thereby ensuring sufficient money in the pools. The problem with this claim is that the tax for non-compliance ($95 or 1 percent of income in 2014, going up to 2.5 percent of income in 2016) is far less expensive than a year’s worth of premiums. A 27-year-old male in good health making $26,000 a year is unlikely to pay even $100 a month for health insurance, especially a policy with a deductible exceeding $2,000.
The second response is a concession that the truly sick and expensive were more motivated to buy guaranteed issue coverage early. But never fear, the young and healthy are now rushing to buy coverage, and it will balance out. That is only true if you believe that younger Americans, many struggling financially, will pay hundreds of dollars a month for health insurance they are unlikely to need. Michelle Obama may call them “knuckleheads,” but most of them are capable of simple arithmetic.
The third response is to describe how the law as written provides taxpayer bailouts to insurance companies when they are saddled with increasingly bad and expensive risks. The health insurance companies lobbied strongly for this provision in the law because they knew that guaranteed issue would be a financial mess. So yes, the authors of Obamacare were so aware of its eventual failure that they built in taxpayer bailouts in advance.
This position assumes that American taxpayers will tolerate their hard-earned money going to bail out health insurers who were complicit in authoring a failed law. We won’t.
The Express Scripts study is hard evidence of what common sense told us all along. Future studies of claims data will confirm the same trend. Obamacare cannot be fixed. It can only be replaced.
It can only be replaced with a logical system that puts the responsibility for health care back in the hands of patients and their healthcare providers. The details of such a plan have been previously discussed elsewhere and will be discussed here in greater detail soon.