NCPA - National Center for Policy Analysis

Crass Market

October 7, 2010

The state "health exchanges" required under ObamaCare are the chief method by which the federal government will exert control over the insurance marketplace, says Peter Suderman, an associate editor at Reason Magazine.  

  • Despite being operated at the state level, state governments won't entirely be in charge.
  • The Department of Health and Human Services will have the authority to determine minimum health insurance requirements for most medical services and providers as well as cost-sharing details for plans offered through the exchanges.
  • By the end of the decade, the Congressional Budget Office estimates that 24 million individuals will be served by these exchanges.

There's evidence that the sort of government-managed competition fostered by exchanges does little to prevent adverse selection, a main administration selling point.  Indeed, because insurers will be limited in terms of how they can charge based on health risk factors, the new rules may encourage plan providers to avoid investing in resources that help the sick.  

  • For example, a 1997 New England Journal of Medicine study looked at billing records for elderly Americans participating in Medicare HMOs in Florida.
  • The study found that, despite exchange-like regulations guaranteeing access to any HMO plan and prohibiting insurer cherry picking, insurance companies managed to lure in the healthiest -- and cheapest -- patients, while leaving the sickest, most expensive patients on publicly funded Medicare.

ObamaCare's defenders will likely argue that such practices merely prove the need to get tough with insurers.  But in ObamaCare's exchanges, which force insurers to take all comers and charge similar prices regardless of health history, pressure to avoid the sick by any means will be fierce.  Squeezed by federally-required regulations, insurers will certainly compete -- but only to avoid the sick, says Suderman.

Source: Peter Suderman, "Crass Market," Reason Magazine, September 30, 2010.

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