A Healthcare Crisis In the Making

Healthcare is getting more expensive for individual US citizens. Many of the biggest insurers are pulling out of certain markets because of large financial losses. Some consumers will see double-digit increases in their insurance in 2017 following some double-digit 2016 increases. This will hit rural areas having the least competition the hardest.

The healthcare cost culprit – not what you expected

Affordable Care Act (ACA) opponents will seize on health insurance premium increases as proof positive that they were right all along about Obamacare causing insurmountable healthcare costs. Unfortunately for their arguments, they are wrong.

Figure 1 compares health care costs as a percent of Gross Domestic Product (GDP). Health care costs include insurance premiums, deductibles and all other costs associated with health care in the US. Measuring this as a percent of GDP shows how costs are growing compared to the rest of the economy and takes inflation noise out of the picture.

President Obama signed the Affordable Care Actin 2010 following several years of high healthcare cost growth. Some of the ACA cost containments were implemented in 2010 with sign-ups beginning in October 2013.

Health care costs did go up in 2014 from 2013’s value of 17.3% of GDP to 17.4% of GDP. Unfortunately, the 2014 cost data is the latest available from the National Health Statistics Group.

Figure 1

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Source: National Health Statistics Group , Office of the Actuary and Bureau of Economic Analysis, Table 1.1.5, Gross Domestic Product

The Milliman Medical Index is another calculation of all healthcare costs that does have 2015 data. Their 2015 cost increase of 4.7% is the lowest in the 15 years they have calculated their index. This is in spite of an almost 10% increase in prescription drug costs in 2015. http://www.milliman.com/mmi/.

What’s going on here?

So, to any logical person, this should make no sense whatsoever! How do we get double digit increases in health insurance costs (along with ever-increasing deductibles) when total healthcare costs are just keeping pace with the economy or rising less than 5%? If you read why large health insurers are leaving certain markets, the mystery starts to make sense.

Over and over, insurers complain they aren’t getting enough healthy young adults enrolled. If they are stuck with older customers who run up 80% of their healthcare costs in the last few years of their lives, insurers are going to lose money. And, if the healthy young people going uninsured wind up having major medical bills they can’t or won’t pay, guess who pays them? Typically, about 70% goes to the private insurers one way or the other. Those costs are incorporated into even higher insurance rates next year.

U.S. medical care, not cheap.
U.S. healthcare, not cheap.

This is the same thing that would happen if the government didn’t require drivers to have car insurance. Safe drivers would logically decide to save money and not buy  insurance. Insurance companies would be stuck with bad drivers that have lots of accidents

So, how do all these people get by without buying insurance? The ACA has a mandate that requires all people to buy health insurance. If someone doesn’t buy insurance, the mandate requires they pay a fine on their federal tax return. They will pay the higher of 2.5% of household income or the total of $695 per adult and $347.50 per child under 18, up to a maximum of $2,075.

Why can't we just go back to the way it was?
Why can’t we just go back to the way it was?

However, it is even easier if they claim one of the 14 exemptions the ACA allows. One of them allows a person to claim they are or were the victim of domestic violence. They do not have to offer any documentation of the domestic violence.

Summing-up

Obamacare supporters stress they do not want health insurance to be a financial burden on anyone, hence their exemptions. Yet, their kindness is jeopardizing the health insurance industry and by extension, the healthcare industry. As sign ups for insurance continue their downward trend, this nullifies the goal of Obamacare, to spread costs out across a wider population. This needs fixing.

For those still foolishly calling for the end of Obamacare, what is happening now should be a wake-up call. A loose mandate is resulting in double-digit rate increases. Imagine if there was no mandate?


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