Newsletter - September 2016

Something that should always be remembered about liberals is that they want to fix things because they want things to be better.  This usually means passing laws to mandate the “fixing.”  In spite of many good intention this fixing often results in some bad “solutions.”

A classic example is the Affordable Care Act aka Obamacare.  This effort to provide health insurance for all is a classic example of good intentions gone awry. 

The main authors of the Act were the insurance companies with input from Congress.  However, it is debatable if Congress did the oversight job it should have done.  Let us not forget that no Republican voted for the bill. 

The ACA set up health insurance marketplaces which are also called health exchanges.  These organizations were set up to facilitate purchase of health insurance in each state in accordance with the ACA Act.  Many states did not set up exchanges.

The exchanges are estimated to provide up to 29 million people with affordable health insurance by 2019.  Cost assistance, which can include premium subsidies and out-of-pocket subsidies depending on income, is only available through the marketplace and can only be used on marketplace plans.

The Affordable Care Act (ACA) is now into its fourth year.  In the past, there were two major reasons people did not have insurance.  They weren’t poor enough for Medicaid (Medi-Cal in CA) or they were too poor or too sick to purchase private insurance.  The ACA plan to solve that problem was to expand Medicaid and give individual subsidies.  To accomplish this financially, the ACA requires healthy customers to pay higher premiums than their actual claims would justify to subsidize sicker, older customers.

Now insurance works on the premise that the fortunate subsidize the unfortunate.  Insurers want premiums to reflect all the known risks of the insured.  In the past, insurance that people got on their own, not through their employer, was similar in concept.

However, the ACA changed everything.  Insurers can no longer charge or exclude coverage for pre-existing conditions, charge men and women different rates or charge older people three times more than young people. 

Therefore, the ACA distorts how insurance is priced. 

The insurance exchanges are in trouble.  Premiums are high and continue to soar.  Due to multimillion-dollar losses insurers are terminating plans.  The customer pool is smaller, older and less healthy than official projections.  The individual mandate has not convinced people to buy insurance since younger and healthier Americans are apparently more willing to pay a $695-per-person fine than sign up for health care they think is too costly.

What is the result?  Rate Shock in 2017!  In 49 states, insurers have submitted premium requests to regulators.  The average “enrollment-weighted” rate increase which accounts for market share is in the range of 18% to 23%.

In California, 11 of the 12 health plans that sell coverage under the state’s ACA’s rules turned a profit the last two years.  Nonetheless, California is reporting a final average rate increase of 13.2% up from 4.2% in 2015 and 4% in 2016.  In states where there is less competition the exchanges are in worse shape. 

Some people are not worried about double-digit spikes.  They note that any increase will be offset by subsidies that grow at the same rate as premiums.  Of course, the subsidies are paid for by the U.S. taxpayer. 

In California the truth of the health care situation is that due to the massive expansion of Medi-Cal almost three quarters of this system is funded by public money.  At what point does this become essentially a public system?

It is estimated that $367 Billion will be the total spent on health care in California in 2016. $260 Billion will be from taxpayer money.

Of Americans under 65 only half qualify for a subsidy if they do not have insurance provided by their employer.  The means-tested subsidies cut off at 400% of the poverty level or about $47,520 for an individual and $97,200 for a family of four.

The five largest national insurers state they are losing money on their ACA policies.  Three, including Aetna Insurance, are pulling back from the exchanges.

The ACA is in trouble.  What are some proposed solutions?  Mr. Obama has called for a “public option,” a federal health plan to supplement private insurers.  Hillary Clinton wants anyone over 55 to have the option of opting into Medicare.  Both of these proposals move the United States closer to a “single payer” model similar to Canada’s that liberals have long wanted. They also involve much more government money.

Time and again when given a chance, the free market works best.  Whenever the government gets involved the chances of a mess being created increase.

One last thought!  Will the increases that are coming with the ACA be widely advertised before the November election?



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