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Death Spiral

Opinion: Health insurance premiums in Virginia already reflect the ignorance behind the Affordable Care Act. Here's why it's only going to get worse.



Anyone who understands how the economy works knows that Washington's intractable ruling class operates with the arrogant belief that its supposed well-intentioned legislation can supersede intrinsic laws such as supply and demand. Congressional Democrats who crafted the Affordable Care Act ignored virtually every actuarial principle that governs insurance pricing, and health insurance premiums in Virginia already reflect their ignorance. As an insurance consultant, I believe it's only going to get worse.

The act has three central requirements. First, health insurance must be issued to everyone who applies. Second, insurers cannot charge higher premiums because of pre-existing medical conditions, called the modified community-rating mandate. And finally, insurance carriers must include numerous coverage directives that force them to pay for many previously uncovered procedures of questionable clinical value, such as low-risk coronary stress testing.

What our president, legislators and advocates of the act apparently fail to understand is that despite their claims to the contrary, all of these mandates significantly increase costs. Eliminating pre-existing condition mandates reduces premiums for the sick, but raises them for the healthy — so much so that some will choose to pay the small penalty rather than participate.

The combination of these three requirements creates what's called a premium death spiral. If young, healthy people decline coverage — or worse, wait until they get sick to buy it and then drop the coverage after recovering — the insurance pool gets older and sicker. Premiums climb precipitously. Liberal economist Uwe Reinhardt has called this a "major design flaw" of the program, an assessment confirmed by a Government Accountability Office report issued in July and ignored by almost everyone else.

The report showed that the lowest-cost plan premiums in the eight states that once used or are still using similar requirements — New Jersey, New York, Maine, New Hampshire, Washington, Kentucky, Vermont and Massachusetts — averaged $1,703 annually in 2011. But in the 44 states without these requirements, the cheapest plans average only $615 annually. Kentucky and New Hampshire abandoned the death spiral mandates.

In Virginia, the lowest unsubsidized bronze plan premium for a healthy 27-year-old will cost about $1,872 annually — almost double that of the cheapest policy previously available, the Saver80 plan from United Health One.

Enrollment begins this week and coverage starts as early as January, but health-insurance premiums in Virginia's market already are rising. This is not a result of greedy doctors and corporations, or medical cost increases, but because insurers are adjusting premiums in anticipation of the mandates that start next year. The Kaiser Foundation reported in August 2012 that the average price of a family policy has risen by $2,200 during the Obama administration, while the president promised that premiums would be $2,500 lower by this time — a spread of $4,700.

Newly imposed directives add up, such as covering children to age 26, and requiring previously voluntary coverage for redundant or unnecessary procedures. Worse, such requirements stimulate an artificial demand for those procedures. The result? People use them more and prices rise. For the act's creators, who insist government controls hold down prices, the latter point must be perplexing: Can't a battalion of health care bureaucrats ensure that those greedy corporations and doctors don't let prices climb for medical services? Therein lies the false conceit of government pricing schedules — they inevitably drive up prices, though consumers are led to believe the opposite.

The other death spiral related to the act is the conversion of America's work force to part-time status. Despite promises from congressional leaders such as Nancy Pelosi, who in February 2010 promised the act would create 4 million jobs during its lifetime (which apparently includes more than 10,000 Internal Revenue Service policy enforcement positions) it's becoming apparent that the act instead is a job killer. Labor and employment law firm Littler Mendelson, contracted by the Gallup Organization, found that more than four in 10 companies have frozen hiring because of the act. Almost one in five have cut workers to minimize the cost of the law, the firm reports. About 38 percent said they "pulled back on their plans to grow their business." Only 9 percent of business owners surveyed thought the act would be good for their business.

With the IRS defining full-time employment at 30 hours per week solely for Affordable Care Act enforcement purposes, Investors Business Daily reported in mid-July that state and local governments have been slashing existing part-time employee hours to 29 or fewer a week so they can avoid the mandates. The situation became so dire that in the U.S. Senate, Indiana Democrat Joe Donnelly cooperated with Susan Collins, a Maine Republican, on a bill that redefines full-time as 40 hours per week. Illinois Democrat Daniel Lipinski introduced an identical bill in the House of Representatives on Aug. 2.

Donnelly told The Washington Post in July that without changes, the act would "be a negative for our families." This is a classic understatement.

To their credit, many people gladly will pay higher premiums if it means the previously uninsurable also can get coverage; however, economic necessity will keep that noble effort out of reach of thousands in the minimum-wage work force. Their premiums will skyrocket while their pay and hours diminish as employers seek to comply with requirements of the act or to avoid them altogether. S


Dale Brumfield is a writer, author and insurance consultant living in Doswell.

Opinions expressed on the Back Page are those of the writer and not necessarily those of Style Weekly.


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