Government

Why are Obamacare premiums rising so much?

Because there is an inadequate mix of health care risks among the group of people enrolled (and the cost of some care such as drugs is rising).  

To put it another way, people needing health care enrolled and people not needing health care have not enrolled. To make matters worse the reinsurance and risk payments from government to offset this adverse selection have not been forthcoming as expected and are expiring. 

It’s all quite simple  For any insurance to work there must be a mix of zero users, and moderate or average users to offset the relatively few but costly heavy users. 

In other words some people pay for  insurance they never use (which of course, is not unique to health insurance).  With Obamacare virtually all ability to have people pay premiums based on the risk they bring to the insurance has been eliminated, but those with the lowest risk can and are avoiding paying insurance premiums. 

As long as we allow the current situation to stand there will be significant fluctuations in premiums as insurers try to guess a year in advance the mix of people enrolling in a given health plan. 

If you are a bad risk driver, you pay more for auto insurance. If you live in a severe weather area, you pay more for property insurance. If you have health risks or say smoke, you pay more for life insurance. 

Why do many people think health insurance can work differently?

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2 replies »

  1. No, the rate of change in premium for public exchange policies can be traced to two or more issues:
    – Inadequate pricing for the risks in 2014, 2015, 2016, perhaps from undo reliance on the risk adjustment and transitional reinsurance provisions incorporated into PPACA, and
    – Elimination of the Transitional Reinsurance program 12/31/16.

    PPACA’s transitional reinsurance program purported to “stabilize individual market premiums during the early years of new market reforms (e.g. guaranteed issue).” The reinsurance program transferred monies from self-insured and insured group health plans (a surcharge you paid in your employer-sponsored plan) to exchange individual policies that had higher than projected experience. The goal was to “reduce the incentive for insurers to charge higher premiums due to new market reforms that guarantee the availability of coverage regardless of health status.” And, of course, the subsidies succeeded in achieving those goals, to some extent. Although, some insurers still lost their shirts and are now suing the federal government over how they operated the program. see: http://www.modernhealthcare.com/article/20151001/NEWS/151009996

    Bottom line, only Democrats in Congress and our President Obama are so ignorant as to expect healthy, 27 year old non-smokers without any known medical issues to sign up for a health plan with a $2,000+ deductible, where the premium was $400 a month, of which taxpayers might pay (subsidize) $200 – $300 (if the worker earned less than 400% of the federal poverty level), leaving the individual with a monthly premium of $100 – $200 a month.

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  2. I understand your point. But can you blame a 26 year old in good health from opting out of health insurance. Or a 59 year old smoker, because of high premiums from opting out. People may need healthcare insurance, but their family income is to high for a subsidy, but not high enough to afford the premium. I do believe co-pays need to be adjusted up for people who go to the doctor every time their kid gets a runny nose. The Congress could not get a single payer system approved, so in a few years everyone will be screaming for one, because they think it will be better and control costs. But I think it will not be any better and limit choice even more. If the VA run healthcare system is any clue, I want no part of it.

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