NCPA - National Center for Policy Analysis

ObamaCare Insurance Plans Will Be Bare Bones

March 8, 2013

In the 1990s, insurance schemes pushed managed care and restricted networks. Some evidence suggests that insurance plans under the Affordable Care Act ("ObamaCare") will be equally restrictive and paltry, says Scott Gottlieb, a resident scholar at the American Enterprise Institute.

  • The ObamaCare plans will provide a narrow network of providers to select coverage from and will charge heavy premiums and coinsurance fees once patients go outside of their network.
  • Despite the bare bones benefits, ObamaCare plans will be expensive.
  • Insurance companies, guarding against adverse selection and the neediest patients with pre-existing illnesses entering the health exchanges, are likely to raise costs for everybody.

By pricing the coverage at a premium, insurance companies intend to shift the burden of the frequently ill to those who are healthier and typically have low premiums.

  • The federal government has promised to share some of the costs of covering the sickest beneficiaries.
  • Health plans, wary that the regulations for this cost sharing have only just been released, will keep the price of their products high since they are uncertain whether the government will actually compensate them for the sickest individuals.
  • Because ObamaCare places caps on how much profit health plans can earn, they would rather aim high and owe money back to the government than wind up in the red.

Health insurers also have an incentive to keep employers from dropping coverage of their employees. Employers who do so will force those employees into the exchanges and out of the insurers' profitable small group and large group segments. To reduce this incentive, insurers will price exchange products higher than insurance offered in the private market.

  • Because the ObamaCare plans are likely to pay providers less than private coverage rates, doctors may refuse to accept these plans just as they refuse to accept Medicaid today.
  • Alternatively, doctors may refuse to discount the costs of providing care to these patients.

ObamaCare creates a system that will discourage price competition, narrow options for the individual and cause a race to the bottom to see which plan can offer the cheapest benefit, while still meeting minimum standards.

Source: Scott Gottlieb, "ObamaCare Insurance Plans Will Be Bare Bones -- And Expensive," Real Clear Markets, March 5, 2013.


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