The Future of Private Health Plans under Health Reform
July 21, 2011
The new health reform law creates incentives for state and federal politicians and bureaucrats to exert direct control over the premiums of health plans. However, because health plans largely pass through costs from medical providers, artificially limiting increases in premiums cannot actually result in lower health costs. Instead, it results in reduced access to care and threatens the solvency of health plans, says John R. Graham, director of health care studies at the Pacific Research Institute.
The health reform law also introduces at least five critical uncertainties that make it difficult to estimate future medical costs accurately, and suggest that the reform law will be much more disruptive to health insurance than the Obama administration has advertised:
- It encourages the establishment of so-called Accountable Care Organizations (ACOs). ACOs will lead to consolidation and cartelization of medical providers, thereby increasing medical costs more than anticipated.
- Health plans must offer policies designed on a standard health plan that offers government-approved benefits. They can vary their offerings only by how much of the actuarial value of the policy is indemnified by the health plan. Even expert actuaries cannot yet agree on the actuarial value of the policy.
- The law anticipates that some Americans will receive coverage through Health Benefits Exchanges. Independent analyses, however, conclude that many millions more will be enrolled in exchanges than the federal government anticipates.
- The health reform law imposes federal control over an accounting calculation called the Medical Loss Ratio (MLR), which equals the proportion of premium that is spent on medical costs. However, there is no evidence that individuals or groups choosing health plans believe the MLR is important.
- The law, which purports to maintain a significant role for private health plans, is not the desired end-state of many of its proponents. Many proponents would prefer a so-called "single payer" government monopoly health system. It is reasonable to anticipate that as the reform law fails, these politicians will seek to shift blame and liability to the private health plans, in order to minimize their role and continue progress towards this final goal.
Source: John R. Graham, "Bust or Bailout? The Future of Private Health Plans under ObamaCare," Pacific Research Institute, June 2011.
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