Why health costs are rising

Health insurance premiums will increase as much as 100% because of ObamaCare over the next year, with states that have been most responsible in regulating insurance being hit the hardest, according to health policy experts Merrill Matthews and Mark Litow.

Their article in The Wall Street Journal entitled “ObamaCare’s Health-Insurance Sticker Shock” explains that “congressional Democrats who crafted the legislation ignored virtually every actuarial principle governing rational insurance pricing. Premiums will soon reflect that disregard—indeed, premiums are already reflecting it.”

They focus in particular on three provisions in the health overhaul law that experience has shown distort markets and lead to increased cost:  1) Guaranteed issue, which requires health insurers to accept everyone who applies, even after they are sick; 2) Community rating, which prohibits insurers from basing premiums on a person’s health statues; and 3) Mandates that force insurance to pay for a long list of medical and other services.

Some states already have these requirements, reflected in their premium experience:

We compared the average premiums in states that already have ObamaCare-like provisions in their laws and found that consumers in New Jersey, New York and Vermont already pay well over twice what citizens in many other states pay. Consumers in Maine and Massachusetts aren’t far behind. Those states will likely see a small increase.

By contrast, Arizona, Arkansas, Georgia, Idaho, Iowa, Kentucky, Missouri, Ohio, Oklahoma, Tennessee, Utah, Wyoming and Virginia will likely see the largest increases—somewhere between 65% and 100%. Another 18 states, including Texas and Michigan, could see their rates rise between 35% and 65%.

While ObamaCare won’t take full effect until 2014, health-insurance premiums in the individual market are already rising, and not just because of routine increases in medical costs. Insurers are adjusting premiums now in anticipation of the guaranteed-issue and community-rating mandates starting next year. There are newly imposed mandates, such as the coverage for children up to age 26, and what qualifies as coverage is much more comprehensive and expensive.

Consolidation in the hospital system has been accelerated by ObamaCare and its push for Accountable Care Organizations. This means insurers must negotiate in a less competitive hospital market.

Although President Obama repeatedly claimed that health-insurance premiums for a family would be $2,500 lower by the end of his first term, they are actually about $3,000 higher—a spread of about $5,500 per family.

Soaring health insurance costs are likely to cause a new wave of opposition to the health overhaul law.  The challenge for Congress will be explaining that to undo the damage, we need more competition, not more regulation.

Matthews is a resident scholar with the Institute for Policy Innovation in Dallas. Litow is a retired actuary and past chairman of the Social Insurance Public Finance Section of the Society of Actuaries.